UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2019.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
Commission file number: 001-33863
Date of event requiring this shell company report
XINYUAN REAL ESTATE CO., LTD.
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
27/F, China Central Place, Tower II
79 Jianguo Road, Chaoyang District
Beijing 100025
People’s Republic of China
(Address of principal executive offices)
Yu (Brian) Chen
Xinyuan Real Estate Co., Ltd.
27F, China Central Place, Tower II,
79 Jianguo Road, Chaoyang District
Beijing 100025
People’s Republic of China
Tel: (86-10) 8588-9255
Fax: (86-10) 8588-9300
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of Each Class
American Depositary Shares, each representing two common shares, par value
US$0.0001 per share
Trading Symbol(s)
XIN
Name of Each Exchange on Which Registered
New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
None
(Title of Class)
Indicate the number of issued and outstanding shares of each of the Issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 107,875,468 common
shares, par value US$0.0001 per share, as of December 31, 2019.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐ Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐ Yes ☒ No
Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those
Sections.
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
☐ Yes ☒ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definitions of “large accelerated filer,”
“accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Emerging growth company ☐
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐
Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Item 17 ☐ Item 18
☐ Yes ☒ No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
☐ Yes ☐ No
TABLE OF CONTENTS
PART I
ITEM 1.
ITEM 2.
ITEM 3.
ITEM 4.
Selected financial data
Capitalization and Indebtedness
Reasons for the Offer and Use of Proceeds
Risk Factors
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
OFFER STATISTICS AND EXPECTED TIMETABLE
KEY INFORMATION
A.
B.
C.
D.
INFORMATION ON THE COMPANY
A. History and Development of the Company
B.
Business Overview
C. Organizational Structure
D.
Property, plant and equipment
ITEM 4A. UNRESOLVED STAFF COMMENTS
ITEM 5.
Liquidity and Capital Resources
Research and Development, Patent and Licenses, etc.
Trend Information
Off-Balance Sheet Arrangements
Tabular Disclosure of Contractual Obligations
Safe Harbor
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
B.
C.
D.
E.
F.
G.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A.
B.
C.
D.
E.
Directors and Senior Management
Compensation
Board Practices
Employees
Share Ownership
ITEM 6.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
ITEM 8.
ITEM 9.
Related Party Transactions
Interests of Experts and Counsel
A. Major Shareholders
B.
C.
FINANCIAL INFORMATION
Consolidated Statements and Other Financial Information
A.
B.
Significant Changes
THE OFFER AND LISTING
A. Offer and Listing Details
B.
Plan of Distribution
C. Markets
D.
E.
F.
Selling Shareholders
Dilution
Expenses of the Issue
ITEM 10. ADDITIONAL INFORMATION
Share Capital
A.
B. Memorandum and Articles of Association
C. Material Contracts
Exchange Controls
D.
Taxation
E.
Dividends and Paying Agents
F.
Statement by Experts
G.
Documents on Display
H.
Subsidiary Information
I.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
PART II
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
ITEM 15. CONTROLS AND PROCEDURES
PART III
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
ITEM 16B. CODE OF ETHICS
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
ITEM 16G. CORPORATE GOVERNANCE
ITEM 16H. MINE SAFETY
ITEM 17.
ITEM 18.
ITEM 19. EXHIBITS
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
i
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INTRODUCTION
Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to:
•
•
•
•
•
•
•
•
•
“we,” “us,” “our company,” “our,” “the Group” or “Xinyuan” refers to Xinyuan Real Estate Co., Ltd., its predecessor entities and its subsidiaries;
“shares” or “common shares” refers to our common shares, par value US$0.0001 per share;
“ADSs” refers to our American depositary shares, each of which represents two common shares, and “ADRs” refers to the American depositary receipts that evidence our ADSs;
“China” or “PRC” refers to the People’s Republic of China, excluding, for the purposes of this Form 20-F only, Taiwan, Hong Kong and Macau;
“U.S.” or “United States” refers to the United States of America;
“GFA” refers to gross floor area. The amounts for “total GFA” in this annual report are the amounts of total saleable residential and commercial GFA and are derived on the following basis:
for properties that are sold, the stated GFA is based on the sales contracts relating to such property; GFA may be adjusted based on final examination upon delivery of the property;
o
for unsold properties that are completed or under construction, the stated GFA is calculated based on the detailed construction blueprint and the calculation method approved by the PRC
government for saleable GFA, after necessary adjustments; and
o
for properties that are under planning, the stated GFA is based on the land grant contract and our internal projection;
“RMB” or “Renminbi” refers to the legal currency of China and “US$” or “U.S. dollars” refers to the legal currency of the United States; and
“sq.m” refers to square meters used as unit of area.
At present, there is no uniform standard to categorize the different types and sizes of cities in China. In this annual report, we refer to certain larger and more developed cities as tier I, tier II and tier
III cities based on the categorization developed by China Business Network Co., Ltd., a financial media group. Their ranking system relies on commercial data from over 170 brands, customer behavior
data from 19 internet companies, as well as big data from relevant statistics institutions.
Facts and statistics in this annual report relating to China, the Chinese economy and the China property development industry are sourced from various publicly available government and official
sources, as indicated herein and may include projections based on a number of assumptions. We believe that the sources of this information are appropriate sources for such information. However, we
cannot independently verify such information. Further, if one or more of the assumptions underlying the market data turn out to be incorrect, the actual results may differ from the projections based on
these assumptions.
This annual report includes our audited consolidated financial statements for the years ended December 31, 2017, 2018 and 2019 and as of December 31, 2018 and 2019. Our financial statements
and other financial data included in this annual report are presented in U.S. dollars. Our business and operations are primarily conducted in China through our PRC subsidiaries. The functional currency
of our PRC subsidiaries is RMB. The functional currency of our U.S. subsidiaries is the U.S. dollar. The financial statements of our PRC subsidiaries are translated into U.S. dollars, using published
exchange rates in China, based on (i) year-end exchange rates for assets and liabilities and (ii) average yearly exchange rates for revenues and expenses. Capital accounts are translated at historical
exchange rates when the transactions occurred. The effects of foreign currency translation adjustments are included as a component of accumulated other comprehensive income in our shareholders’
equity. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollar or RMB, as the case may be, at any particular rate or at all.
1
The RMB is not freely convertible into foreign currency. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of the RMB into
foreign exchange and through restrictions on foreign trade. Since 2005, the People’s Bank of China (the “PBOC”), has allowed the RMB to fluctuate within a narrow and managed band against a basket
of foreign currencies, according to market demand and supply conditions.
Our common shares are traded on the New York Stock Exchange (the “NYSE”), in the form of ADSs under the symbol “XIN.” Each ADS represents two common shares. The closing price of our
ADSs on the NYSE as of April 24, 2020 was US$2.41 per ADS.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the
forward-looking statements.
You can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “is expected to,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,”
“continue,” “is/are likely to” or other similar expressions or negatives of such expressions. These forward-looking statements include, among others, statements about:
•
•
•
•
our anticipated growth strategies;
our future business development, results of operations and financial condition;
our expectations with respect to our ability to acquire adequate suitable land use rights for future development; and
our belief with respect to market opportunities in, and growth prospects of, our target markets.
We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition,
results of operations, business strategy and financial needs. However, a number of known and unknown risks, uncertainties and other factors could affect the accuracy of these statements. Among the
important factors to consider in evaluating our forward-looking statements are:
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•
•
•
•
•
•
•
•
our ability to continue to implement our business model successfully;
our ability to secure adequate financing for our project developments;
our ability to successfully sell or complete our property projects under construction and planning;
our ability to enter into new geographic markets or new lines of business and expand our operations;
the marketing and sales ability of our third-party sales agents;
the performance of our third party contractors;
laws, regulations and policies relating to real estate developers and the real estate industry in the markets in which we operate;
our ability to obtain permits and licenses to carry on our business in compliance with applicable laws and regulations;
competition from other real estate developers;
2
•
•
the growth of the real estate industry in the markets in which we operate; and
fluctuations in general economic and business conditions in the markets in which we operate, including the impact of the COVID-19 pandemic.
You should read thoroughly this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially different from and/or worse than
what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our
business and financial performance, including the risks outlined under “Item 3. Key Information — D. Risk Factors.” Moreover, we operate in an evolving environment. New risk factors emerge from
time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statement.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on
which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise,
except as otherwise required by applicable securities laws.
ITEM 1.
IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2.
OFFER STATISTICS AND EXPECTED TIMETABLE
PART I
Not Applicable.
ITEM 3.
KEY INFORMATION
A. Selected financial data
Our Selected Consolidated Financial Data
The following selected consolidated statements of comprehensive income and other financial data for the years ended December 31, 2017, 2018 and 2019, other than earnings per ADS data, and the
consolidated balance sheet data as of December 31, 2018 and 2019 have been derived from our audited consolidated financial statements which are included elsewhere in this annual report. Our audited
consolidated financial statements have been prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Except for changes in operating
subsidiaries, our consolidated financial statements have been prepared as if our current corporate structure had been in existence throughout the relevant periods.
Our selected consolidated statements of comprehensive income data for the years ended December 31, 2015 and 2016 and our selected consolidated balance sheet data as of December 31, 2015,
2016 and 2017 have been derived from our audited consolidated financial statements included in prior years’ annual reports.
3
The selected consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited consolidated financial statements and related notes and
“Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report
Consolidated Statements of Comprehensive Income
Total revenue
Total costs of revenue
Selling and distribution expenses
General and administrative expenses
Operating income
Net income
Net loss/(income) attributable to non-controlling interest
Net income attributable to Xinyuan Real Estate Co., Ltd. shareholders
Earnings per share
-Basic
-Diluted
Shares used in computation
-Basic
-Diluted
Earnings per ADS (1)
-Basic
-Diluted
2015
US$
1,164,324
(891,334)
(52,126)
(115,329)
105,535
66,481
1
66,482
0.47
0.45
Years ended December 31,
2017
US$
(in thousands except share, per share and per ADS data
2016
US$
2018
US$
1,561,625
(1,203,636)
(58,214)
(120,416)
179,359
79,463
(6,485)
72,978
0.55
0.53
1,976,907
(1,517,279)
(75,724)
(136,845)
247,059
80,111
(16,483)
63,628
0.49
0.48
2,217,551
(1,602,073)
(83,592)
(156,456)
375,430
105,952
(32,917)
73,035
0.57
0.57
2019
US$
2,482,633
(1,922,323)
(86,761)
(163,687)
309,862
83,029
(14,684)
68,345
0.60
0.60
142,625,427
146,487,949
133,261,510
137,653,029
128,704,610
131,605,868
127,129,478
129,140,830
113,482,239
114,100,896
0.93
0.91
1.10
1.06
0.99
0.97
1.14
1.14
1.20
1.20
(1) Earnings per ADS are calculated based on each ADS representing two common shares.
Cash dividends declared per ADS
0.20
0.30
0.40
0.40
0.40
2015
US$
2016
US$
Years ended December 31,
2017
US$
2018
US$
2019
US$
Other Operating Data
Number of projects launched
Aggregate GFA delivered (1) (m 2 )
2015
2016
Years ended December 31,
2017
2018
2019
6
560,232
4
1,278,492
5
1,200,222
17
861,323
4
744,040
(1) Delivery occurs when we have obtained all the completion acceptance certificates required by the PRC government in respect of the apartment and deliver full access to the apartment, such as the
keys, to the buyer.
4
The following table presents a summary of our consolidated balance sheet data as of December 31, 2015, 2016, 2017, 2018 and 2019:
Consolidated Balance Sheet Data (1)
Cash and cash equivalents
Restricted cash
Deposits for land use rights
Real estate property under development (2)
Total current assets
Total assets
Total current liabilities
Long-term bank loans
Other long-term debt
Common shares
Total Xinyuan Real Estate Co., Ltd. shareholders’ equity
2015
US$
387,528
363,137
46,199
1,887,322
3,262,964
3,561,387
1,650,883
13,860
910,008
15,835
935,970
As of December 31,
2018
2017
US$
US$
(in thousands except share, per share and per ADS data)
2016
US$
578,244
328,499
153,252
1,719,135
3,931,445
4,236,445
2,060,609
235,885
974,791
16,051
900,260
894,551
566,676
103,716
1,996,001
5,070,212
6,384,434
3,674,819
11,019
1,404,814
16,314
992,572
674,142
511,875
42,254
4,068,716
6,691,222
8,033,713
5,069,869
720,039
1,040,455
16,399
680,370
2019
US$
662,606
326,980
26,375
3,254,388
5,645,063
7,421,664
4,484,572
686,065
1,036,691
16,410
690,302
(1) Financial information for PRC subsidiaries is first prepared in RMB and then translated into U.S. dollars for assets and liabilities at the year-end exchange rate and, for revenues and expenses at the
yearly average exchange rate. The rates used are set forth in the table below. Capital accounts are translated at their historical exchange rates when the transactions occurred.
As of and for the Year Ended December 31,
2017
2016
2018
6.9370
6.6401
6.5342
6.7547
6.8632
6.6118
2019
6.9762
6.8967
Period-end US$: RMB exchange rate
Period average US$: RMB exchange rate
As of April 24, 2020, the US$: RMB exchange rate was 7.0813.
2015
6.4936
6.2272
(2) Includes real estate property under development recorded under current assets and non-current assets.
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
5
D. Risk Factors
Risks Related to Our Business
We are a holding company that depends on dividend payments from our subsidiaries for funding.
We are a holding company established in the Cayman Islands and operate most of our business and operations through our subsidiaries in China. Our ability to pay dividends to our shareholders and
to service our indebtedness outside of China depends significantly upon dividends that we receive from our subsidiaries in China. To the extent our U.S., Malaysia and UK operations continue to grow,
we may in the future also depend on dividends from our U.S., Malaysia and UK subsidiaries. If our subsidiaries incur indebtedness or losses, such indebtedness or losses may impair their ability to pay
dividends or other distributions to us. As a result, our ability to pay dividends and to service our indebtedness will be restricted. Regulations in China currently permit payment of dividends only out of
accumulated profits as determined in accordance with accounting standards and regulations in China. Each of our PRC subsidiaries, including wholly foreign-owned enterprises and domestic
companies, is required to set aside at least 10.0% of its after-tax profit based on PRC accounting standards each year to its statutory capital reserve fund until the cumulative amount of such reserves
reaches 50.0% of its respective registered capital and, with the approval of a shareholder meeting or general shareholder meeting, a PRC subsidiary may set aside a certain amount of after-tax profit to
its discretionary general reserves. As of December 31, 2019, our statutory reserves amounted to US$175.0 million. Our statutory reserves are not distributable as cash dividends. Dividends paid by the
PRC subsidiaries may also be subject to PRC withholding tax. In addition, restrictive covenants in bank credit facilities, bonds, other long-term debt agreements, joint venture agreements or other
agreements that we or our subsidiaries currently have or may enter into in the future may also restrict the ability of our subsidiaries to make contributions to us and our ability to receive distributions.
Therefore, these restrictions on the availability and usage of our major source of funding may impact our ability to pay dividends to our shareholders and to service our indebtedness.
Our business and prospects are heavily dependent on and may be adversely affected by the performance of the PRC property markets, particularly in Zhengzhou.
Our business and prospects depend on the performance of the PRC property market. As of December 31, 2019, we had a total of 100 property projects covering 20 cities in China at various stages
of development. We intend to continue to enhance our presence in targeted high growth cities in China. These property markets may be affected by local, regional, national and global factors, including
economic and financial conditions, speculative activities in local markets, demand for and supply of properties, investor confidence, availability of alternative investment choices for property buyers,
inflation, government policies, interest rates and availability of capital. Any market downturn in China generally or in cities in which we have or expect to have operations may materially and adversely
affect our business, financial condition and results of operations. Moreover, any oversupply of properties or potential decline in demand for or prices of properties in these cities could also have a
material adverse impact on us. In particular, the PRC property market is affected by the recent slowdown of China’s economic growth. There have been increasing concerns over the sustainability of the
real estate market growth in China. Any slowdown in PRC’s economic development could lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence
and dramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of homes, and our
homebuyers may also defer, reduce or cancel purchases of our units. We have experienced volatilities in demand from time to time in the recent years due to the strict mortgage policy and other
measures taken by the PRC government to slow down the rapid increase in housing prices. To the extent any fluctuations in the Chinese economy significantly affect homebuyers’ demand for our units
or change their spending habits, our results of operations may be materially and adversely affected. The PRC economy also faces challenges in the short to medium term. Continued turbulence in the
international markets and prolonged declines in consumer spending, including home purchases, as well as any slowdown of economic growth in China, may adversely affect our liquidity and financial
condition.
Our business requires access to substantial financing. Our failure to obtain adequate financing in a timely manner could severely adversely restrict our ability to complete existing projects, expand our
business, or repay our obligations and affect our financial performance and condition.
Our property development business is capital intensive. To date, we have funded our operations primarily through bank borrowings, proceeds from sales and pre-sales of our properties and proceeds
from issuance of equity and debt securities. We obtain commercial bank financing for our projects through credit lines extended on a case-by-case basis. Our ability to secure sufficient financing for
land use rights acquisition and property development and repayment of our existing onshore and offshore debt obligations depends on a number of factors that are beyond our control, including lenders’
perceptions of our creditworthiness, sufficiency of collateral, if any, market conditions in the capital markets, investors’ perception of our securities, the PRC economy and PRC government regulations
that affect the availability and cost of financing for real estate companies or property purchasers.
Since 2003, PRC commercial banks have been prohibited, under the guidelines of the PBOC, from advancing loans to fund the payment of land use rights. We generate significant cash flow
through pre-sales, which are subject to government restrictions. In particular, PRC regulations on the pre-sales of properties generally provide that the proceeds from the pre-sales of a real estate project
may only be used for the construction of such project. Any additional potential government restrictions on pre-sales could significantly increase our financing needs. Moreover, our ability to move cash
through inter-company transfers or transfer funds from onshore subsidiaries to our offshore parent company is limited by PRC government regulations, which limits our ability to use excess cash
resources in one subsidiary to fund the obligations of another subsidiary or our offshore parent company. In addition, reserve requirement applicable to PRC commercial banks generally limit, and any
increases in such reserve requirements could further limit, the amount of commercial bank credit available to businesses in China, including us.
6
Furthermore, various other PRC regulations restrict our ability to raise capital through external financing and other methods, including, without limitation, the following:
•
•
•
•
•
we cannot borrow from a PRC bank for a particular project if we do not have the land use rights certificate for that project;
we cannot pre-sell uncompleted residential units in a project prior to achieving certain development milestones specified in related regulations;
we cannot borrow from a PRC bank for a particular project unless we fund at least 35% of the total investment amount of that project from our own capital;
property developers are strictly restricted from using the proceeds from a loan obtained from a local bank to fund property developments outside the region where that bank is located; and
PRC banks are prohibited from accepting properties that have been vacant for more than three years as collateral for loans.
On February 13, 2017, the Asset Management Association of China issued the Administrative Rules for the Filing of Private Equity and Asset Management Plans by Securities and Futures
Institutions No. 4 — Investment in Real Estate Developers and Projects by Private Equity and Asset Management Plans (“Rule 4”). Rule 4 provides that the Asset Management Association of China
will temporarily suspend accepting any private equity and asset management plan which makes a direct or indirect investment in any ordinary residential property project located in specified cities
where the property prices are considered to have risen too fast, including Beijing, Shanghai, Guangzhou, Suzhou, Tianjin, Wuhan, Zhengzhou, Jinan and Chengdu, where the Company operates. In
addition, a private equity and asset management plan may not be used to finance any real estate developer, whether in the form of bank entrusted loans, trust plans or transfers of beneficial interests in
assets, for the purpose of acquiring land use rights or supplementing working capital.
In the United States, we currently have three development projects in the Brooklyn, Manhattan and Queens boroughs of New York City. Pre-sale proceeds (i.e., deposits and other sales proceeds
received before the conveyance of title to the buyer) cannot be used to finance project construction under local laws and regulations applicable to the New York projects, so we are financing their
development through internal funds and bank loans, causing us to utilize more of our own funds to undertake larger construction debt obligations and to bear higher borrowing costs.
As of December 31, 2019, our contractual obligations amounted to US$5,004.9 million, primarily arising from contracted construction costs or other capital commitments for future property
developments and debt obligations. Of this amount, US$2,322.0 million was due within one year.
There can be no assurance that our internally generated cash flow and external financing will be sufficient for us to meet our contractual and financing obligations in a timely manner. Due to the
current measures imposed by the PRC government (as well as other measures that may be imposed in the future) which limit our access to additional capital, as well as restrictions imposed on our
conduct under existing debt arrangements, we cannot assure you that we will be able to obtain sufficient funding to finance intended purchases of land and land use rights, develop future projects or
meet other capital needs as and when required at a commercially reasonable cost or at all. Our failure to obtain adequate financing in a timely manner and on reasonable terms could severely adversely
(1) restrict our ability to complete existing projects, expand our business, or repay our obligations and (2) affect our cash flow, liquidity, financial performance and condition.
7
If we are unable to manage successfully our expansion into other cities in China, we will not be able to execute our business plan.
A key aspect of our historical business plan has been to expand our residential property development operations into high growth cities in China, from our initial focus on Zhengzhou. We plan to
expand into new cities as suitable opportunities arise. The development of real estate projects in other cities will impose significant demands on our management and other operational resources.
Moreover, we will face additional competition and will need to establish brand recognition and market acceptance for our developments in these new markets. Each city has its unique market
conditions, customer requirements and local regulations related to the local real estate industry. If we are unable to successfully develop and sell projects outside of our existing markets, our future
growth may be limited and we may not generate adequate returns to cover our investments in these new markets. In addition, if we expand our operations to other cities with higher land prices, our costs
may increase, which may lead to a decrease in our profit margin, or impairments resulting from land value decreases.
We are in the early stages of expanding into markets outside of China in which we have limited or no development experience and which may require us to spend significant resources, and there can be
no assurance that we will be able to succeed in any such market.
While our primary focus continues to be residential real estate markets in high-growth cities in China, we have begun expanding into other markets on an opportunistic basis. In the US, we
currently have a completed project in the Williamsburg neighborhood of Brooklyn, New York (“New York Oosten Project”), an ongoing residential ground-up development project in Manhattan, New
York, and an early stage project in the Flushing neighborhood of Queens, New York. Any change in federal income tax laws that increase the effective costs of owning a home would have an adverse
effect on the demand for homes in the United States which could negatively affect any properties we may develop in the United States.
In 2014, we acquired 100% of the shares of a Malaysian company, which owns offshore landfill development rights for a total area of 170 acres (approximately 687,966 square meters). As of the
end of 2019, around 90.9 acres of the land has been reclaimed. We anticipate that the entirety of the reclamation work will be completed in the first half of 2020. We have no development experience in
Malaysia, nor have we ever engaged in landfill reclamation projects. All of our prior operations have involved real estate development undertaken on raw land, and we cannot assure you that we will be
able to complete successfully the required landfill reclamation.
In 2018, we acquired a 50% equity stake in MDL, the developer of the Madison Project, a 0.38 hectare (approximately 0.94 acre) development located adjacent to Canary Wharf, in London, United
Kingdom. Given the uncertainties relating to Britain leaving the European Union, the London real estate market is unstable and it is difficult to estimate the impact to real estate business.
Given our limited experience in markets outside of China market, it may be difficult for us to forecast accurately our future revenues and expenses related to existing and future projects in the
United States, the UK, or Malaysia. Further, locating appropriate future projects in those and other non-China markets and generating future revenues from such projects may require us to expend
significant capital and management resources.
In addition, we may not be able to develop a successful property development business in any given market. Our ability to develop a successful property developments business in any given market
will depend on a number of factors including many outside of our control, such as the status of the country’s/region’s economy in general and in our target markets, consumer confidence levels,
unemployment levels, interest rates and the ability of potential purchasers to obtain mortgage financing.
Our business is sensitive to the general economic conditions in the countries, city and specific target markets in which we operate. A severe or prolonged downturn in the global economy generally and
particularly in the countries or regions in which we have development projects could materially and adversely affect our revenues and results of operations.
The real estate market is sensitive to general economic conditions, financial conditions, including interest rates, availability of capital, employment rates, and other economic and financial
conditions in the local market and the broader region or country as well as global economic conditions. Significant downturns and instability in the global economy or in the country and local markets in
which we operate or the perception that they could occur, could depress economic activity and restrict our access to capital. In addition, any such events could negatively affect our customers in one or
more markets, including their access to financing or willingness to engage in a major financial transaction, such as purchasing a home. As a result, our business, financial condition and results of
operations could be negatively affected and affect our operations.
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In our China markets, any slowdown in China’s economic development could lead to tighter credit markets, increased market volatility, sudden drops in business and consumer confidence and
dramatic changes in business and consumer behaviors. In response to their perceived uncertainty in economic conditions, consumers might delay, reduce or cancel purchases of homes, and our
homebuyers may also defer, reduce or cancel purchases of our units. We have experienced volatilities in demand from time to time in the recent years due to the strict mortgage policy and other
measures taken by the PRC government to slow down the rapid increase in housing prices. To the extent any fluctuations in the Chinese economy significantly affect homebuyers’ demand for our units
or change their spending habits, our results of operations may be materially and adversely affected.
The PRC economy also faces challenges in the short to medium term. Continued turbulence in the international markets and prolonged declines in consumer spending, including home purchases, as
well as any slowdown of economic growth in China, may adversely affect our liquidity and financial condition.
Our US property developments are sensitive to the general economic conditions in the United States and the condition of the U.S. housing market in particular. The U.S. housing industry is highly
cyclical and is significantly affected by changes in industry conditions, as well as in global and local economic conditions, such as changes in employment and income levels, availability of financing
for buyers, interest rates, levels of new and existing homes for sale demographic, trends and housing demand. Deterioration in industry conditions in the United States or in broader economic conditions
could have additional material adverse effects on our business expansion in the United States and financial results.
There have been significant changes and proposed changes to U.S. trade policies, treaties, tariffs and taxes, including trade policies and tariffs regarding China, which have created significant
uncertainty about the future relationship between the United States and China, as well as other countries, including with respect to the trade policies, treaties, government regulations and tariffs that
could apply to trade with those countries.
We may be unable to acquire desired development sites at commercially reasonable costs.
Our revenue depends on the completion and sale of our projects, which in turn depends on our ability to acquire development sites. Our land costs are a major component of our cost of real estate
sales and increases in such costs could diminish our gross margin. In China, the PRC government controls the supply of land and regulates land sales and transfers in the secondary market. As a result,
the policies of the PRC government, including those related to land supply and urban planning, affect our ability to acquire, and our costs of acquiring, land use rights for our projects. In recent years,
the PRC government has introduced various measures attempting to moderate investment in the property market in China. Although we believe that these measures are generally targeted at the luxury
property market and speculative purchases of land and properties, we cannot assure you that the PRC government will not introduce other measures in the future that would adversely affect our ability to
obtain land for development. We currently acquire our development sites primarily by bidding for government land, supplemented in some instances by direct negotiations with local governments prior
to land auctions or by acquisition of local developers or by investment in an entity that holds land use rights or by cooperating with our business partners through joint ventures and associated
companies. Under current regulations, land use rights acquired from government authorities for commercial and residential development purposes must be purchased through a public tender, auction or
listing-for-sale. Competition in these bidding processes has resulted in higher land use rights costs for us over the past few years, and we may not successfully obtain desired development sites due to the
increasingly intense competition in the bidding processes. Moreover, the supply of potential development sites in any given city will diminish overtime, and we may find it increasingly difficult to
identify and acquire attractive development sites at commercially reasonable costs in the future.
We rely on third-party contractors who may not perform at acceptable quality levels or in a timely manner.
Substantially all of our project construction and related work are outsourced to third-party contractors their performance may not meet our level of standards or specifications. Negligence, delay or
poor work quality by contractors may result in defects in our buildings or residential units, which could in turn cause us to suffer financial losses, harm our reputation or expose us to third-party claims.
If the performance of any third party contractor is not satisfactory or is delayed, we may need to replace such contractor or take other actions to remedy the situation, which could adversely affect the
cost and construction progress of our projects, and which could cause the completion of our property developments to be delayed. We work with multiple contractors on different projects and cannot
guarantee that we can effectively monitor their work at all times. Although our construction and other contracts contain provisions designed to protect us, we may be unable to successfully enforce these
rights and, even if we are able to successfully enforce these rights, the third-party contractors may not have sufficient financial resources to compensate us. Moreover, the contractors may undertake
projects from other property developers, engage in risky undertakings or encounter financial or other difficulties, such as supply shortages, labor disputes or work accidents, which may cause delays in
the completion of our property projects or increases in our costs. In addition, consistent with what we believe is the customary industry practice in China, our contractors typically do not maintain
insurance coverage on our properties under construction.
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We may be unable to complete our property developments on time or at all and any construction delays, or failure to complete a project according to our planned specifications or budget, may delay our
property sales, which could adversely affect our revenues, cash flows and our reputation.
The progress and costs for a development project can be adversely affected by many factors, including, without limitation:
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delays in obtaining necessary licenses, permits or approvals from government agencies or authorities;
changes in government policies, rules or regulations;
shortages of materials, equipment, contractors and skilled labor or increased labor or raw material costs;
disputes with our third-party contractors;
failure by our third-party contractors to comply with our designs, specifications or standards;
difficult geological situations or other geotechnical issues;
onsite labor disputes or work accidents; and
natural catastrophes or adverse weather conditions, including strong winds, storms, floods, and earthquakes.
Any construction delays, or failure to complete a project according to our planned specifications or budget, may delay our property sales, which could adversely affect our revenues, cash flows and
our reputation.
Under PRC laws and regulations and our pre-sale contracts, we are required to compensate purchasers for late delivery of or failure to complete our pre-sold units. If the delay extends beyond the
contractually specified period, the purchasers may become entitled to terminate the pre-sale contracts and claim damages. We are also unable to guarantee that any legal proceedings or renegotiations
resulting from delays or failures to deliver will have a favorable outcome. For more information, see “—We may become involved in legal and other proceedings from time to time and may suffer
significant liabilities or other losses as a result”.
Proceeds from pre-sale of our properties are an important source of financing for our property developments. Under PRC laws, we are not permitted to commence pre-sales until we have completed
certain stages of the construction process for a project. Consequently, a significant delay in the construction of a project could restrict our ability to pre-sell our properties, which could extend the
recovery period for our capital outlay. This, in turn, could have an adverse effect on our cash flow, business and financial position.
Changes of laws and regulations with respect to pre - sales may adversely affect our cash flow position and performance.
We depend on cash flows from pre-sale of properties as an important source of funding for our property development projects. Under current PRC laws and regulations, property developers must
fulfill certain conditions before they can commence pre-sale of the relevant properties and may only use pre-sale proceeds to finance the construction of the specific developments. In addition, a number
of cities in which we are operating business, such as Tianjin, Sichuan and Shandong, have established local rules and conditions for the pre-sale permits application, especially for the custody of pre-sale
funds. Such local regulatory measures have not materially affected or restricted our operation or our use of pre-sale funds yet. However, we cannot assure you that the PRC national government or the
local governmental authorities will not implement further restrictions on the pre-sale of properties, which may affect our cash flow position and force us to seek alternative sources of funding for much
of our property development business.
10
The results of our operations may fluctuate from period to period as we derive our revenue principally from the sale of properties and we rely on our unsold inventory of units.
We derive the majority of our revenue from the sale of properties that we have developed. Our results of operations tend to fluctuate from period to period due to a combination of factors, including
the overall schedule of our property development projects, the timing of the sale of properties that we have developed, the size of our land bank, our revenue recognition policies and changes in costs
and expenses, such as land acquisition and construction costs. The number of properties that we can develop or complete during any particular period is limited due to the size of our land bank, the
substantial capital required for land acquisition and construction, as well as the development periods required before positive cash flows may be generated. For real estate sales contracts for which we
have an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete satisfaction of that performance obligation.
Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. In addition, several properties that we have developed or that are under development are large scale
and developed in multiple phases over the course of one to several years. The selling prices of the residential units in larger scale property developments tend to change over time, which may impact our
sales proceeds and, accordingly, our revenues for any given period. Furthermore, our property development projects may be delayed or adversely affected by a combination of factors beyond our
control, which may in turn adversely affect our revenue recognition and consequently our cash flows or results of operations. As a result of the fluctuations in our operating results, our period-to-period
comparisons of results of operations and cash flow positions may not be indicative of our future results of operations and may nor be taken as meaningful measures of our financial performance for any
specific period.
The recognition of our real estate revenue and costs is dependent upon our estimation of our total project revenue and costs.
For real estate sales contracts for which we have an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete
satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains control of the asset. See “Item 5. Operating and Financial Review and
Prospects — A. Operating Results — Critical Accounting Policies.” Under both methods, revenue and costs are calculated based on an estimation of total project costs and total project revenues, which
are revised on a regular basis as the work progresses. Any material deviation between actual and estimated total project revenues and costs may result in an increase, a reduction or an elimination of
reported revenues or costs from period to period, which will affect our gross profit and net income.
We face risks related to our back-to-back loans.
With our operations in the U.S. markets and now other non-PRC jurisdictions, we have seen and expect to continue to experience an increasing need of non-RMB financings with respect to project
developments and future expansions. We currently satisfy our non-RMB denominated financing requirements through four ways: dividends distributions from our PRC subsidiaries, which are subject to
10% withholding tax payment, back-to-back loan arrangements, high yield bond issuances and construction loan financing from local banks. Under back-to-back loan arrangements, our PRC
subsidiaries make deposits denominated in RMB into banks in China as collateral to request the banks in China to issue standby letters denominated in U.S. dollars or other currencies in the same
amount as the RMB collateral to their outbound branches, and our project companies outside the PRC enter into loans denominated in U.S. dollars or other currencies with such outbound branches in
the same amount specified in such standby letters in accordance with to the Provisions on the Administration of Foreign Exchange for Cross-border Guarantee issued by the State Administration of
Foreign Exchange of the People’s Republic of China (the “SAFE”), effective June 1, 2014. SAFE registration requirements apply to overseas back-to-back loan arrangements and the use of proceeds of
such loans must comply with certain requirements. Any change in laws or regulations to restrict or forbid back-to-back loan transactions in the future may adversely affect our non-PRC companies’
financing. In addition, we are exposed to exchange rate fluctuation and foreign exchange control risks under the current back-to-back loan model, which may adversely affect our business condition and
results of operation.
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We are subject to certain restrictive covenants and risks normally associated with debt financing which may limit our ability to take certain corporate actions, including incurring additional debt, which
could materially and adversely affect our business and financial condition.
We are subject to certain restrictive covenants in our loan agreements with certain commercial banks. Certain loan agreements contain covenants providing that, among other matters, we or our
relevant PRC operating subsidiaries may not enter into mergers, joint ventures or restructurings, decrease our registered share capital, transfer material assets, including shares of subsidiaries, engage in
material investments, liquidate, change our shareholding, or distribute dividends without the relevant lenders’ prior written consent or unless we fully settle the outstanding amounts under the relevant
loan agreements. In addition, certain of our loan agreements contain cross- default clauses. If any cross default occurs, these banks are entitled to accelerate payment of all or any part of the loan under
their relevant loan agreements and to enforce all or any of the security for such loans. Further, the onshore corporate bonds issued by Xinyuan (China) Real Estate, Ltd. (“Xinyuan China”), our wholly-
owned PRC subsidiary, contain restrictions on certain business activities of Xinyuan China when in default on payment of interest or principal, including, among others, limitations on distributions of
net income, limitations on certain expenditures, or business combination transactions. Our future bank and other borrowings may contain similar restrictions or cross-default provisions.
Our outstanding debt securities also contain certain covenants that restrict our ability to take other corporate actions. The indentures governing our Senior Secured Notes contain covenants that,
among other things, restrict our ability and our restricted subsidiaries’ abilities (as defined in the relevant indenture) to incur additional debt or issue preferred stock, to make certain payments or
investments, to pay dividends, to purchase or redeem capital stock, sell assets, or make certain other payments, subject to certain qualifications and exemptions and satisfaction of certain conditions.
As a result of any such covenants in current or future financing documents, our ability to pay dividends or other distributions on our common shares and ADSs may be limited. Such covenants may
also restrict our ability to raise additional capital in the future through bank borrowings, mortgage financings, and debt and equity issuances and may restrict our ability to engage in some transactions
that we believe to be of benefit to us. The occurrence of any of the above events may have a material adverse effect on our business, financial condition and operating results, as well as cash flow and
cash that is available for distributions.
In addition, our obligations under our Senior Secured Notes are guaranteed by various of our subsidiaries, and the guarantee by our wholly-owned subsidiary, Xinyuan Real Estate, Ltd., or Xinyuan
Ltd, which indirectly holds all of our assets and operations in China is secured by a pledge of our shares of the other guarantor subsidiaries subject to limited exceptions. If we default under any of the
Senior Secured Notes, the holders thereof may enforce their claims against those shares. In such an event, the holders of the Notes could gain ownership of the shares of Xinyuan Ltd., and, as a result,
own and control all of our subsidiaries in China. We conduct substantially all of our operations in China, and if we default under any of the Notes, we could lose control or ownership of our assets and
operations in China.
We rely on our key management members and the loss of their services or investor confidence in such personnel could have a material adverse effect on our business, results of perations and financial
condition.
We depend on the services provided by key management members. Competition for management talent is intense in the property development sector. In particular, we are highly dependent on Mr.
Yong Zhang, our founder and Chairman. We do not maintain key employee insurance. In the event that we lose the services of any key management member, we may be unable to identify and recruit
suitable successors in a timely manner or at all, which will adversely affect our business and operations. Moreover, we may need to employ and retain more management personnel to support an
expansion into high growth cities on a much larger geographical scale as well as our expansion in the U.S., Malaysia, U.K. and other areas. If we cannot attract and retain suitable personnel, especially
at the management level, our business and future growth will be adversely affected.
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We provide guarantees for the mortgage loans of our customers in China which expose us to risks of default by our customers.
We pre-sell properties before actual completion and, in accordance with PRC industry practice, our customers’ mortgage banks require us to guarantee our customers’ mortgage loans. Typically, we
provide guarantees to PRC banks with respect to loans procured by the purchasers of our properties for the total mortgage loan amount until the completion of the registration of the mortgage with the
relevant mortgage registration authorities, which generally occurs within six to 12 months after the purchasers take possession of the relevant properties. In line with what we believe to be industry
practice, we rely on the credit evaluation conducted by mortgagee banks and do not conduct our own independent credit checks on our customers. The mortgagee banks typically require us to maintain,
as restricted cash, up to 10% of the mortgage proceeds paid to us as security for our obligations under such guarantees. If a purchaser defaults on its payment obligations during the term of our
guarantee, the mortgagee bank may deduct the delinquent mortgage payment from the security deposit. If the delinquent mortgage payments exceed the security deposit, the banks may require us to pay
the excess amount. If multiple purchasers’ default on their payment obligations, we will be required to make significant payments to the banks to satisfy our guarantee obligations. Factors such as a
significant decrease in housing prices, increase in interest rates or the occurrence of natural catastrophes, among others, could result in a purchaser defaulting on its mortgage payment obligations. If we
are unable to resell the properties underlying defaulted mortgages on a timely basis or at prices higher than the amounts of our guarantees and related expenses, we will suffer financial losses. We paid
US$788,644, and US$1,659,652, and US$1,782,038 to satisfy guarantee obligations related to customer defaults for the years ended December 31, 2017, 2018 and 2019.
As of December 31, 2018 and 2019, our outstanding guarantees in respect of our customers’ mortgage loans amounted to US$1,988.6 million and US$2,617.2 milllion, respectively. If substantial
defaults by our customers occur and we are called upon to honor our guarantees, our financial condition, cash flow and results of operations will be materially adversely affected.
Our level of indebtedness could have an adverse effect on our financial condition, diminish our ability to raise additional capital to fund our operations and limit our ability to explore business
opportunities.
As of December 31, 2019, the outstanding balance of our total indebtedness amounted to US$3,215.1 million. Our level of indebtedness could have an adverse effect on us. For example, it could:
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require us to dedicate a large portion of our cash flow from operations as well as the proceeds of certain financings and asset dispositions to fund payments on our debt, thereby reducing the
availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;
• make it more difficult for us to satisfy our obligations under our debt securities and other indebtedness;
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increase our vulnerability to adverse general economic or industry conditions;
limit our flexibility in planning for, or relating to, changes in our business or the industry in which we operate;
limit our ability to raise additional debt or equity capital in the future or increase the cost of such funding;
restrict us from making strategic acquisitions, exploring business opportunities or selling assets;
place us at a competitive disadvantage compared to any competitors that have less debt; and
• make it more difficult for us to satisfy our obligations with respect to our debt.
Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future, which in turn is dependent on various factors. For a discussion of these
factors, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Principal Factors Affecting Our Results of Operations.”
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Our financing costs are subject to changes in interest rates.
The rates of interest payable on our PRC long-term bank loans are adjustable based on the range of 160.42% to 315.79% of the PBOC benchmark rate, which fluctuates from time to time. As of
December 31, 2019, the principal amount of our aggregate outstanding variable rate debt was US$1,006.1 miillion. A hypothetical 1% increase in annual interest rates would increase our interest
expenses by US$10.1 million based on our debt level at December 31, 2019. In connection with our U.S. projects and UK projects, we entering into U.S. dollar and British pound denominated loans,
which will subject us to additional interest rate fluctuation risks, including fluctuations of the London Interbank Offered Rate (“LIBOR”).
We are subject to potential environmental liability.
We are subject to a variety of laws and regulations concerning the protection of health and the environment. The particular environmental laws and regulations that apply to any given development
site vary significantly according to the site’s location and environmental condition, the present and former uses of the site and the nature of the adjoining properties. Environmental laws and conditions
may result in delays, may cause us to incur substantial compliance and other costs and can prohibit or severely restrict project development activity in environmentally-sensitive regions or areas.
Although the environmental investigations conducted by local PRC environmental authorities have not revealed any environmental liability related to our China projects that we believe would have a
material adverse effect on our business, financial condition or results of operations to date, it is possible that these investigations did not reveal all environmental liabilities and that there are material
environmental liabilities of which we are unaware. We cannot assure you that future environmental investigations will not reveal material environmental liability. Also, we cannot assure you that the
PRC, United States, Malaysian or UK governments will not change the existing laws and regulations or impose additional or stricter laws or regulations, the compliance of which may cause us to incur
significant capital expenditure. See “Item 4. Information on the Company — B. Business Overview — Environmental Matters.”
Our business expansion and business diversification requires proper allocation of our management resources and qualified employees.
In recent years, we expanded our operations into the U.S., Malaysia and the UK while also expanding our operations in China. Such expansion, with more diversified business focuses in terms of
market regions and types of business, demand proper allocation of our management resources. In addition, our Malaysia acquisition which involves land reclamation activities, our acquisitions of
Beijing Ruizhuo Xitou Development Co., Ltd. ("Xitou"), Beijing Ruizhuo Xichuang Technology Development Co., Ltd.("Xichuang") and Beijing I-Journey Science and Technology Development
Co.,Ltd.("I-Journey"), which extends the group’s business to provide real estate and property management related technology services, in which we have no prior experience and which presents risks we
have not previously encountered or dealt with, may require additional skill sets on the part of our management. If our management fails to satisfy these increased demands, we may not be able to carry
out our business expansion and project development successfully. In addition, if we are unable to recruit or retain a sufficient number of qualified employees for the continuation and expansion of our
business, our business and prospects may be adversely affected.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these
efforts, particularly in instances where the markets are not fully developed. There may be license and compliance requirements regarding new lines of business, including special requirements for
foreign-invested enterprises. The development and marketing of new lines of business or new products and services could distract our management from our core business. In addition, we may invest
significant time and resources into these new lines of business or new products and services. Initial timetables for the introduction and development of new lines of business or new products and
services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences,
may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business or new product or service could have a significant impact on
the effectiveness of our system of internal control. Particularly, we cannot assure that our investment in certain technology development activities, including our development smart home technology
products, cloud-based enterprise resource planning software and online property sales platform will be successful or have positive impacts on our business. Failure to successfully manage these risks in
the development and implementation of new lines of business or new products or services could have a material adverse effect on our business, results of operations and financial condition.
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Failure to maintain the security of our information and technology networks, including personally identifiable and customer information and proprietary business information, could significantly
adversely affect us.
Security breaches and other disruptions of our information and technology networks could compromise our information and expose us to liability, reputational harm and significant remediation
costs, which could cause material harm to our business and financial results. In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information,
and information relating to our customers and information of our employees, contractors and vendors, in our on our networks. Despite our security measures, and those of our third-party service
providers, our information technology and infrastructure may be vulnerable to attacks by third parties or breached due to employee error, malfeasance or other disruptions. A significant theft, loss,
corruption, exposure, fraudulent use or misuse of customer, employee or other personally identifiable or proprietary business data, noncompliance with our contractual or other legal obligations
regarding such data could result in significant remediation and other costs, fines, litigation or regulatory actions against us. Such an event could additionally disrupt our operations, harm our
relationships with contractors and vendors, damage our reputation, result in the loss of a competitive advantage, which could adversely affect our business, revenues, competitive position and investor
confidence. Additionally, we rely on third parties to support our information and technology networks, and as a result have less direct control over our data and information technology systems. Such
third parties are also vulnerable to security breaches and compromised security systems, for which we may not be indemnified and which could materially adversely affect us.
Interruption or failure of our information technology, communications systems or data services could impair our ability to operate our business effectively, which could damage our reputation and
materially harm our operating results.
Our business requires the continued operation of information technology and communication systems and network infrastructure. Our information technology and communications systems are
vulnerable to damage or disruption from fire, power loss, telecommunications failure, system malfunctions, computer viruses, cyber-attacks, natural disasters such as hurricanes, earthquakes and floods,
acts of war or terrorism, employee errors or malfeasance, or other events which are beyond our control. We may be a target of cyberattacks and viruses, which could expose us to liability, reputational
harm and significant remediation costs and cause material harm to our business and financial results. In addition, the operation and maintenance of our systems and networks is in some cases dependent
on third-party service providers for which there is no certainty of uninterrupted availability. Any of these events could cause system interruption, delays and loss, corruption or exposure of critical data
or intellectual property and may also disrupt our ability to interact with our customers, contractors and vendors. Further, any such event could result in substantial recovery and remediation costs and
liability to customers and third parties.
We may fail to obtain or maintain, or may experience material delays in obtaining, necessary government approvals for any major property development, which will adversely affect our business.
The real estate industry in China is strictly regulated by the PRC government. Property developers in China must abide by various laws and regulations, including implementation rules
implemented by local governments to enforce these laws and regulations. Before commencing, and during the course of, development of a property project, we need to apply for or renew various
licenses, permits, certificates and approvals, including but not limited to, land use rights certificates, construction site planning permits, construction work planning permits, construction permits, pre-
sale permits and completion acceptance certificates. We need to satisfy various requirements to obtain these approval certificates and permits, and to meet specific conditions in order for the government
authorities to renew relevant approval certificates and permits. We cannot guarantee that we will not encounter serious delays or difficulties in the future. Some of our subsidiaries were not in
compliance with certain construction or pre-sales related PRC laws and regulations, such as commencing construction works and pre-sales before obtaining the requisite approvals or permits. Although
we have improved our internal control procedures, we cannot guarantee that we will be able to adapt to new rules and regulations that may come into effect from time to time with respect to the property
industry or that we will not encounter material delays or difficulties in fulfilling the necessary conditions to obtain and/or renew all necessary certificates or permits for our operations in a timely
manner, or at all, in the future. In the event that we fail to obtain the necessary governmental approvals for any of our major property projects, or a serious delay occurs in the government’s examination
and approval process, we may not be able to maintain our development schedule and our business and cash flows may be adversely affected.
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Moreover, as the real estate industry is closely monitored by the PRC government, we anticipate that new policies will be promulgated from time to time in relation to the conditions for issuance or
renewal of such approvals, licenses or permits. We cannot guarantee that such new policies will not present unexpected obstacles toward our ability to obtain or renew the required permits, licenses and
certificates or that we will be able to overcome these obstacles in a timely manner, or at all. Loss of or failure to renew our permits, licenses and certificates may stall the progress of our major property
development projects.
Regulations in the United States, Malaysia and the United Kingdom could increase the cost and limit the availability of our project development in these jurisdictions and adversely affect our business
or financial results.
As we expand our business in the U.S., Malaysia and UK markets, we will continue to be subject to extensive and complex regulations in these jurisdictions that affect land development and home
construction, including zoning, density restrictions, building design and building standards, as well as environmental laws. These regulations often provide broad discretion to the administering
governmental authorities as to the conditions we must meet prior to being approved, if approved at all. We are subject to determinations by these authorities as to the adequacy of water and sewage
facilities, roads and other local services. New housing developments may also be subject to various assessments for public improvements. The project in Malaysia is at the stage of land reclamation,
which is subject to environment impact assessment and conditions imposed thereon by the regulatory bodies. Any of these regulatory issues can limit or delay construction and increase our operating
costs. We are also subject to a variety of local, state and/or federal laws and regulations concerning protection of health, safety and the environment. These matters may result in delays, may cause us to
incur substantial compliance, remediation, mitigation and other costs or subject us to costs from fines, penalties and related litigation. These laws and regulations can also prohibit or severely restrict
development and homebuilding activity in environmentally sensitive areas.
Increases in the price of raw materials or labor costs may increase our cost of sales and reduce our earnings.
We outsource the design and construction of our projects under development to third-party service providers. Our third-party contractors are responsible for providing labor and procuring almost all
of the raw materials used in our project developments. Our PRC construction contracts typically provide for fixed or capped payments, but the payments are subject to changes in PRC government-
suggested prices for certain raw materials we use, such as steel and cement. In addition, China’s overall economy and the average wage in China have increased in recent years and are expected to grow
in the near future. The average wage level for the employees has also increased for the past periods. Any increase in raw materials costs, labor costs or other costs which may result in adjustments in
payments under any of our construction contracts could result in an increase in our construction costs. In the event that the price of any raw materials, including cement, concrete blocks and bricks, or
labor cost increase in the future, such increase could be passed on to us by our contractors, and our construction costs would increase accordingly. Passing such increased costs to our customers may
result in reduced sales and delay our ability to complete sales for our projects. Any input cost increase could reduce our earnings to the extent we are unable to pass these increased costs to our
customers.
Retail and commercial investment properties and properties held for sale are generally illiquid investments and the lack of alternative uses of such properties could limit our ability to respond to
changes in the performance of our properties.
As of December 31, 2019, we had approximately 86,951, 116,288, 12,187, 18,936 and 3,904 square meters of retail investment properties in Zhengzhou, Xi’an, Changsha Chengdu and Kunshan, in
China, and approximately 28,090 square feet of retail investment properties in New York, respectively. As of December 31, 2019, we also have four projects under construction at which we plan to
develop commercial property for lease with a planned GFA of approximately 203,270 square meters. We anticipate that we may prudently and gradually increase our retail and commercial investment
properties as appropriate opportunities arise in the future. Any form of real estate investment is difficult to liquidate and, as a result, our ability to sell our properties in response to changing economic,
financial and investment conditions is limited. In addition, we may also need to incur operating and capital expenditures to manage and maintain our properties, or to correct defects or make
improvements to these properties before selling them. We cannot assure you that we can obtain financing at a reasonable cost for such expenditures, or at all.
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Furthermore, aging of retail and commercial investment properties or properties held for sale, changes in economic and financial conditions or changes in the competitive landscape in the PRC or
U.S. property markets, may adversely affect the amounts of rentals and revenue we generate from, as well as the fair value of, these properties. However, our ability to convert any of these properties to
alternative uses is limited as such conversion requires extensive governmental approvals in the PRC or may require zoning or other approvals in the United States and involves substantial capital
expenditures for the purpose of renovation, reconfiguration and refurbishment. We cannot assure you that such approvals and financings can be obtained when needed. These and other factors that
impact our ability to respond to adverse changes in the performance of our retail and commercial investment properties, as well as properties held for sale, may adversely affect our business, financial
condition, cash flow and results of operations.
We may be adversely affected by material issues that affect our relationships or business ventures with our joint venture and associated company partners.
We have partnered with a number of business partners and established joint ventures and associates with third parties and may continue to do so in the future. The performance of such business
ventures has affected, and will continue to affect, our results of operations and financial position. We and our business venture partners provided capital to our jointly established project companies in
proportion to our shareholding percentages in order to fund such project companies’ land acquisition efforts and working capital requirements. Once these project companies commence pre-sale and
generate cash flow, they will repay such capital to us on demand. Therefore, the timing of such business ventures’ capital requirements, the financial performance of these business ventures and their
ability to repay may materially and adversely affect our results of operations. With respect to our subsidiaries with minority interest holders, our consolidated financial results may be directly impacted
and the profit attributable to our Group may be diluted. With respect to joint ventures and associates, we generally expect to incur share of loss in such joint ventures or associates until their respective
development of property projects completes and starts to contribute revenue. As of December 31, 2017, 2018 and 2019, we had a total of 9, 13 and 13 joint ventures and associates, respectively.
We may engage in joint ventures, which could result in unforeseen expenses or disruptive effects on our business.
From time to time, we have engaged and may consider engaging in joint ventures with other businesses to develop a property. Any joint venture that we determine to pursue will be accompanied by
a number of risks. We may not be in a position to exercise sole decision-making authority regarding the joint ventures. We may not be able to control the quality of products produced by the joint
venture. Depending on the terms of the joint venture agreement, we may require the consent of our joint venture partners for the joint venture to take certain actions, such as making distributions to the
partners. A joint venture partner may encounter financial difficulties and become unable to meet obligations with regard to funding of the joint venture. In addition, our joint venture partners and the
joint ventures themselves may hold different views or have different interests from ours, and therefore may compete in the same market with us, in which case our interest and future development may
be materially adversely affected. Further, since we may not have full control over the business and operations of our joint ventures and associated companies, we cannot assure that they will be in strict
compliance with all applicable PRC laws and regulations. We cannot assure you that we will not encounter problems with respect to our joint ventures and associated companies or our joint ventures
and associated companies will not violate PRC laws and regulations, which may have an adverse effect on our business, results of operation and financial condition.
Any future investments or acquisitions could expose us to unforeseen risks or place additional strain on the management and other resources.
As part of our business strategy, we regularly evaluate investments in, or acquisitions of, subsidiaries, joint ventures, and we expect that we will continue to make such investments and acquisitions
in the future. Any potential future acquisition may be accompanied by a number of risks, including risks relating to the evolving legal landscape in China. An acquired business may underperform
relative to expectations or may expose us to unexpected liabilities. Acquisitions of entities that own real estate may involve risks in addition to the risks inherent in a real estate acquisition, because the
acquisition of an entity generally includes all of the liabilities of the entity — known and unknown, fixed and contingent — rather than only the liabilities related to the real estate. These liabilities,
which could be material, may include liabilities not disclosed by the seller of the entity or not discovered during our due diligence. In addition, the integration of any acquisition could require substantial
management attention and resources. If we were unable to successfully manage the integration and ongoing operations, or hire and retain additional personnel necessary for the running of the expanded
business, the results of our operations and financial performance could be adversely affected.
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Acquisitions may result in the incurrence and inheritance of debts and other liabilities, assumption of potential legal liabilities in respect of the acquired businesses, and incurrence of impairment
charges related to goodwill and other intangible assets, any of which could harm our businesses, financial condition and results of operations. In particular, if any of the acquired businesses fails to
perform as we expect, we may be required to recognize a significant impairment charge, which may materially and adversely affect our businesses, financial condition and results of operations. As a
result, there can be no assurance that we will be able to achieve the strategic purpose of any acquisition, the desired level of operational integration or our investment return target.
Our failure to successfully manage our business expansion, would have a material adverse effect on our results of operations and prospects.
Our expansion has created, and will continue to place, substantial demand on our resources. Managing our growth and integrating the acquired businesses will require us to, among other things:
•
comply with the laws, regulations and policies applicable to the acquired businesses, including obtaining timely approval for the real estate construction as required under the PRC law;
• maintain adequate control on our business expansion to prevent, among other things, project delays or cost overruns;
• manage relationships with employees, customers and business partners during the course of our business expansion;
•
•
•
•
attract, train and motivate members of our management and qualified workforce to support successful business expansion;
access debt, equity or other capital resources to fund our business expansion, which may divert financial resources otherwise available for other purposes;
divert significant management attention and resources from our other businesses; and
strengthen our operational, financial and management controls, particularly those of our newly acquired subsidiaries, to maintain the reliability of our reporting processes.
Any difficulty meeting the foregoing or similar requirements could significantly delay or otherwise constrain our ability to implement our expansion plans, or result in failure to achieve the
expected benefits of the combination or acquisition or write-offs of acquired assets or investments, which in turn would limit our ability to increase operational efficiency, reduce costs or otherwise
strengthen our market position. Failure to obtain the intended economic benefits from the business expansion could adversely affect our business, financial condition, results of operations and prospects.
In addition, we may also experience mixed results from our expansion plans in the short term.
Regulations in the PRC may make it more difficult for us to pursue growth through acquisitions.
A number of PRC laws and regulations have established procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming and
complex, including the Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and was amended on
June 22, 2009, and the Implementing Rules Concerning Security Review on the Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, or the Security Review Rules issued by the
Ministry of Commerce of the People’s Republic of China (the “MOFCOM”) in August 2011. These laws and regulations impose requirements in some instances that MOFCOM must be notified in
advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. In addition, the Anti-Monopoly Law of PRC requires that MOFCOM be notified in
advance of any concentration of undertaking if certain thresholds are triggered. Moreover, the Security Review Rules specify that mergers and acquisitions by foreign investors involved in an industry
related to national security are subject to strict review by MOFCOM. These rules also prohibit any transactions attempting to bypass such security review, including by controlling entities through
contractual arrangements. We believe that our business is not in an industry related to national security. However, we cannot preclude the possibility that MOFCOM or other government agencies may
publish interpretations contrary to our understanding or broaden the scope of such security review in the future. Although we have no current plans to do so, we may elect to grow our business in the
future in part by directly acquiring complementary businesses in China.
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Our development plan may be adversely affected in the event that relocation issues related to government housing expropriations are not successfully settled by the relevant PRC governmental
authorities.
We acquire property for development through bidding, auctions and listing procedures held by the government or through acquisitions of third parties. Some of the property we acquire from the
government may have been made available through expropriation. On January 21, 2011, the PRC State Council issued the Regulations on the Expropriation and Compensation of Houses on State-
owned Land, which provides that government entities at the city and county level are responsible for overseeing housing expropriation and compensation within their respective administrative regions.
The regulations mandate that a compensation agreement be entered into between the relevant housing expropriation department and the entities or individuals whose houses have been expropriated
addressing, among others things, the mode of payment and the amount of compensation, the period of payment, the removal expenses, temporary placement or transitional housing expenses, losses from
the closure of business operations, the time period within which the entities or individuals must vacate the expropriated premises, the type of transitional accommodation and the period of transition.
The compensation payable may not be less than the market value of property of a similar nature as of the date when the expropriation notice was issued. Under the regulations, property developers are
prohibited from participating in the relocation arrangements. Given the fact that the completion of the relocation procedures is the condition precedent for the relevant PRC governmental authorities to
grant land use rights, any failure of the PRC governmental authorities in handling the relocation issues may cause substantial delays in the granting process of land use rights. If we cannot obtain the
land use rights from the relevant governmental authorities in time, our development plan may be delayed and we may not be able to complete the development and sell the property according to plan.
This will, in turn, adversely affect our business operations.
We do not have insurance to cover potential losses and claims.
We do not maintain insurance policies for properties that we have delivered to our customers, and we maintain only limited insurance coverage against potential losses or damages with respect to
our properties in the PRC before their delivery to customers. Although we require our contractors to carry insurance, we believe most of our contractors do not comply with this requirement. Our
contractors may not be sufficiently insured themselves or have the financial ability to absorb any losses that arise with respect to our projects or pay our claims. In addition, there are certain types of
losses, such as losses due to earthquakes, which are currently uninsurable in China. While we believe that our practice is in line with the general practice in the PRC property development industry, there
may be instances when we will have to internalize losses, damages and liabilities because of the lack of insurance coverage, which may in turn adversely affect our financial condition and results of
operations. In addition, while we carry limited insurance on our operations in the United States, Malaysia and the UK, such insurance may not be adequate to compensate us for any losses, damages and
liabilities we might incur with regard to our properties.
We may suffer a penalty or even forfeit land to the PRC government if we fail to comply with procedural requirements applicable to land grants from the government or the terms of the land use rights
grant contracts.
According to the relevant PRC laws and regulations, if we fail to develop a property project according to the terms of the land use rights grant contract, including those relating to the payment of
land premiums, specified use of the land and the time for commencement and completion of the property development, the PRC government may issue a warning, may impose a penalty or may order us
to forfeit the land. Specifically, under current PRC laws and regulations, if we fail to pay land premiums in accordance with the payment schedule set forth in the relevant land use rights grant contract,
the relevant PRC land bureau may issue a warning notice to us, impose late payment penalties or even require us to forfeit the related land to the PRC government. The late payment penalties are
usually calculated based on the overdue days for the land premium payments. Furthermore, if we fail to commence development within one year after the commencement date stipulated in the land use
rights grant contract, the relevant PRC land bureau may issue a warning notice to us and impose an idle land fee on the land of up to 20% of the land premium. If we fail to commence development
within two years, the land will be subject to forfeiture to the PRC government without any compensation, unless the delay in development is caused by government actions or force majeure. Even if the
commencement of the land development is compliant with the land use rights grant contract, if the developed GFA on the land is less than one-third of the total GFA of the project that should have been
under construction and development or the total capital invested is less than one-fourth of the total investment of the project and the suspension of the development of the land continues for more than
one year without government approval, the land will also be treated as idle land and be subject to penalty or forfeiture
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We cannot assure you that circumstances leading to significant delays in our own land premium payments or development schedules or forfeiture of land will not arise in the future. If we pay a
substantial penalty, we may not be able to meet pre-set investment targeted returns for a given project and our financial conditions could be adversely affected. If any of our land is forfeited , we will not
only lose the opportunity to develop the property projects on such land, but may also lose a significant portion of the investment in such land, including land premium deposits and the development
costs incurred.
Any non-compliant GFA of our uncompleted and future property developments will be subject to governmental approval and additional payments or even revocation of qualification certificate.
The local government authorities inspect property developments after their completion and issue the completion acceptance certificates if the developments are in compliance with the relevant laws
and regulations. If the total constructed GFA of a property development exceeds the GFA originally authorized in the relevant land grant contracts or construction permit, or if the completed property
contains built-up areas that do not conform with the plan authorized by the construction permit, the property developer may be required to pay additional amounts or take corrective actions with respect
to such non-compliant GFA before a completion acceptance certificate can be issued to the property development. Furthermore, if the total constructed GFA of a property development exceeds the
constructed GFA limitation specified in the real estate development qualification obtained by the property developer, the property developer may be fined up to RMB100,000, or even have its
qualification certificate and business license revoked.
We have obtained completion acceptance certificates for all of our completed properties as of December 31, 2019. However, we cannot be certain that local government authorities will not
determine that the total constructed GFA upon completion of our existing projects under development or any future property developments exceed the relevant authorized GFA. Any such non-
compliance could lead to additional payments or penalty, which would adversely affect our financial condition. We have not incurred material amounts of any such payments or penalties since the
founding of our company.
We may not be able to continue obtaining qualification certificates, which will adversely affect our business.
Real estate developers in the PRC must obtain a formal qualification certificate in order to carry on a property development business in the PRC. According to the PRC regulations issued on the
qualifications of property developers, a newly established property developer must first apply for a temporary qualification certificate with a one-year validity, which can be renewed for not more than
two years. If, however, the newly established property developer fails to commence a property development project within the one-year period during which the temporary qualification certificate is in
effect, it will not be allowed to renew its temporary qualification certificate. All qualification certificates are subject to inspection on an annual basis and shall be renewed upon expiration. Under
government regulations, developers must fulfill all statutory requirements before they may obtain or renew their qualification certificates. In accordance with the provisions of the rules on the
administration of qualifications, the real estate developer qualifications are classified into four classes and the approval system for each class is tiered. A real estate developer may only engage in the
development and sale of real estate within the scope of its qualification certificate. See “Item 4. Information on the Company — B. Business Overview — Regulation — China — Regulations on
Qualifications of Developer.”
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There can be no assurance that some of our project companies that are in the process of applying for or renewing proper qualification certificates will be able to obtain such certificates on a timely
basis to commence their planned real estate projects development on schedule. There can be no further assurance that we and our project companies will continue to be able to extend or renew the
qualification certificates or be able to successfully upgrade the current qualification class to a higher qualification. If we or our project companies are unable to obtain or renew qualification certificates,
the PRC government will refuse to issue pre-sale and other permits necessary for the conduct of the property development business, and our results of operations, financial condition and cash flows will
be adversely affected. In addition, if any of our project companies engages in the development and sale of real estate outside the scope of its qualification certificate, it may be ordered to rectify such
conduct within a prescribed period, be fined up to RMB100,000, or even have its qualification certificate and business license revoked.
Our failure to assist our customers in applying for property ownership certificates in a timely manner may lead to compensatory liabilities to our customers and our reputation and results of operations
may be thus adversely affected.
We are statutorily required to assist our customers in their application process for property ownership certificates within 90 days after delivery of property, or such other period contracted with our
customers, including in the way of submitting required materials to the real estate administration of the place where the house is located within 60 days from the day of delivery, passing various
governmental clearances, formalities and procedures. If we failed to submit required materials for property right registration within such period, we may be given a disciplinary warning and be ordered
to take remedial measures within specified time limit, or be fined not less than RMB20,000 but not more than RMB30,000. Besides, under our typical sales contract, we are liable for any delay in the
submission of the required documents as a result of our failure to meet such requirements, and are required to compensate our customers for delays. In the case of delays of submission of required
documents, we are required under contracts with our customers to pay compensation to our customers and our reputation and results of operations may be adversely affected.
The property development business is subject to claims under statutory quality warranties.
Under PRC law, all property developers in the PRC must provide certain quality warranties for the properties they construct or sell. We are required to provide these warranties to our customers.
Generally, we receive quality warranties from our third-party contractors with respect to our property projects. If a significant number of claims were brought against us under our warranties and if we
were unable to obtain reimbursement for such claims from third-party contractors in a timely manner or at all, or if the money retained by us to cover our payment obligations under the quality
warranties was not sufficient, we could incur significant expenses to resolve such claims or face delays in remedying the related defects, which could in turn harm our reputation, and materially
adversely affect our business, financial condition and results of operations.
We may become involved in legal and other proceedings from time to time and may suffer significant liabilities or other losses as a result.
We have in the past, and may in future, become involved in disputes with various parties relating to the acquisition of land use rights, the development and sale of our properties or other aspects of
our business and operations. These disputes may lead to legal or other proceedings and may result in substantial costs and diversion of resources and management’s attention. Disputes and legal and
other proceedings may require substantial time and expense to resolve, which could divert valuable resources, such as management time and working capital, delay our planned projects and increase our
costs. Third parties that are found liable to us may not have the resources to compensate us for our incurred costs and damages. We could also be required to pay significant costs and damages if we do
not prevail in any such disputes or proceedings. In addition, we may have disagreements with regulatory bodies in the course of our operations, which may subject us to administrative proceedings and
unfavorable decrees that result in pecuniary liabilities and cause delays to our property developments. As of December 31, 2019, we were involved in disputes with our local government enterprises,
joint venture partners, contractors and property sales agents. Any unfavorable judgment in our current legal proceedings or any involvement in further legal proceedings or disputes may materially and
adversely affect our business, financial condition and results of operations. See “Item 8. Financial Information — A. Consolidated Statements and Other Financial Information — Legal Proceedings.”
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The relevant PRC tax authorities may challenge the basis on which we have been paying our land appreciation tax obligations and our results of operations and cash flows may be affected.
Under PRC laws and regulations, our PRC subsidiaries engaging in property development are subject to land appreciation tax (“LAT”), which is levied by the local tax authorities. All taxable gains
from the sale or transfer of land use rights, buildings and their attached facilities in the PRC are subject to LAT at progressive rates ranging from 30% to 60%. Exemptions are available for the sale of
ordinary residential properties if the appreciation values do not exceed certain thresholds specified in the relevant tax laws. Gains from the sale of commercial properties, luxury residential properties
and villas are not eligible for this exemption.
We have accrued LAT payable on our property sales and transfers in accordance with the progressive rates specified in relevant tax laws, less amounts previously paid under the levy method applied
by relevant local tax authorities. However, provision for LAT requires our management to use a significant amount of judgment with respect to, among other things, the anticipated total proceeds to be
derived from the sale of the entire phase of the project or the entire project, the total appreciation of project value and the various deductible items. Given the time gap between the point at which we
make provisions for and the point at which we settle the full amount of LAT payable, the relevant tax authorities may not necessarily agree with our apportionment of deductible expense or other bases
on which we calculate LAT. As a result, our LAT expenses as recorded in our financial statements of a particular period may require subsequent adjustments. If the LAT provisions we have made are
substantially lower than the actual LAT amounts assessed by the tax authorities in the future, our results of operations and cash flows will be materially and adversely affected. For a range of reasonably
possible losses in excess of the amounts we have accrued for LAT, to the extent such estimates are determinable, see Note 14 of our Consolidated Financial Statements in this report.
Our operations may be affected by the real property taxes to be imposed by the PRC government.
In October 1986, the Interim Regulations on Real Property Tax of the People's Republic of China was issued and provides that real property tax shall be paid by the property owners based on the
residual value of real property following a subtraction of 10% to 30% from the original value of the property, and the specific range of subtraction, the tax payment period and the detailed implementing
rules shall be decided or formulated by the local governments of provinces.Although the PRC government has been considering imposing real property tax on a nationwide scale, most of the provinces
have not promulgated any detailed implementing rules about real property tax or levy the real property tax yet. In another attempt to cool the real estate market, the PRC government has designated
Shanghai and Chongqing as trial regions to impose the real property tax, and in response, on January 27, 2011, both Shanghai and Chongqing implemented local rules regarding the imposition of real
property tax, with these rules taking effect on January 28, 2011, with Chongqing amending its rules on January 13, 2017. On February 20, 2013, the PRC State Council, in an executive meeting, stated a
new policy regarding the real property tax that the government would select more trial regions for the real property tax that year, however, most provinces still have not implemented any local rules
regarding the imposition of real property tax yet. Real property tax regulations may eventually be officially implemented at the national level; any such regulation could significantly impact the real
estate market. In light of these developments, we cannot guarantee that our operations will not be adversely affected.
Dividends we receive from our PRC subsidiaries located in the PRC may be subject to PRC withholding tax.
The Enterprise Income Tax Law of the PRC, or the EIT Law became effective as of January 1, 2008 and was amended on February 24, 2017 and December 29, 2018, and the Implementation for the
EIT Law issued by the PRC State Council became effective as of January 1, 2008 and amended on April 23, 2019. The EIT Law provides that a maximum income tax rate of 20% may be applicable to
dividends payable to non-PRC investors that are “non-resident enterprises,” to the extent such dividends are derived from sources within the PRC, and the State Council has reduced such rate to 10%
through the Implementation for the EIT Law. We are a Cayman Islands holding company and substantially all of our income may be derived from dividends we receive from our PRC subsidiaries. Thus,
dividends paid to us by our subsidiaries in China may be subject to the 10% income tax if we are considered a “non-resident enterprise” under the EIT Law. If we are required under the EIT Law to pay
income tax for any dividends we receive from our PRC subsidiaries, it will materially and adversely affect the amount of dividends received by us from our PRC subsidiaries.
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We may be deemed a PRC resident enterprise under the EIT Law and be subject to the PRC taxation on our worldwide income.
The EIT Law also provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to
the uniform 25% corporate income tax rate as to their worldwide income (including dividend income received from subsidiaries). Under the Implementation for theEIT Law, “de facto management
body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition
and disposition of properties and other assets of an enterprise. Under the Notice on the Issues Regarding Recognition of Overseas Incorporated Domestically Controlled Enterprises as PRC Resident
Enterprises Based on the De Facto Management Body Criteria, or Circular 82, which was retroactively effective as of January 1, 2008 and amended on November 8, 2013, January 29, 2014 and
December 29, 2017, an overseas incorporated, domestically-controlled enterprise will be recognized as a PRC resident enterprise if it satisfies certain conditions. Further, the State Administration of
Taxation (the “SAT”) issued the Administrative Measures of Enterprise Income Tax of Chinese-controlled Offshore Incorporated Resident Enterprises (Trial), or Bulletin 45, which became effective on
September 1, 2011, and was amended on April 17, 2015, June 28, 2016 and June 15,2018, to provide further guidance on the implementation of Circular 82. Bulletin 45 clarified certain issues relating
to the determination of PRC tax resident enterprise status, post-determination administration and the authorities responsible for determining offshore-incorporated PRC tax resident enterprise status.
Bulletin 45 specifies that when provided with a copy of a Chinese tax resident determination certificate issued by the in-charge tax authorities from an offshore-incorporated PRC tax resident enterprise,
the payer should not withhold 10% income tax when paying Chinese-sourced dividends, interest and royalties to the offshore incorporated PRC tax resident enterprise. However, as Circular 82 and
Bulletin 45 only apply to enterprises incorporated under laws of foreign jurisdictions that are controlled by PRC enterprises or groups of PRC enterprises, it remains unclear how the tax authorities will
determine the location of “de facto management bodies” for overseas incorporated enterprises that are controlled by individual PRC residents or non-PRC enterprises such as our company. It is still
unclear whether PRC tax authorities would require us to be treated as a PRC resident enterprise. If we are treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our
worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations, although dividends distributed
from our PRC subsidiaries to us could be exempt from Chinese dividend withholding tax, since such income is exempted under the new EIT Law to a PRC resident recipient.
Dividends payable by us to our non-PRC investors and gain on the sale of our ADSs may become subject to taxes under PRC tax laws.
Under the Implementation for the EIT Law, a PRC income tax rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have an establishment or
place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such
dividends have their sources within the PRC. Similarly, any gain realized on the transfer of ADSs by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived
from sources within the PRC. For non-PRC individual investors, under the PRC Individual Income Law, there could be a PRC income tax at a rate of 20% for such dividends or gains. If we are
considered a PRC “resident enterprise,” it is unclear whether dividends we pay with respect to our ADSs, or the gain you may realize from the transfer of our ADSs, would be treated as income derived
from sources within the PRC and be subject to PRC tax. If we are required under the Implementation for the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that
are “non-resident enterprises,” or non-PRC individuals, or if you are required to pay PRC income tax on the transfer of our ADSs, the value of your investment in our ADSs may be materially and
adversely affected.
Indirect Transfers of Equity Interests in PRC Tax Resident Enterprises by Non-resident Enterprises May Cause Uncertainty on Tax Liabilities.
In accordance with the Circular on issues of enterprise Income Tax on Indirect Transfer of Assets by Non-PRC Resident Enterprise, which is issued by the SAT on February 3, 2015 and amended on
October 17, 2017 and December 29, 2017, or Circular 7, where a non-resident enterprise indirectly transfers equity interests or other properties of PRC tax resident enterprises, or PRC Taxable Property,
to avoid its tax liabilities by implementing arrangements without reasonable commercial purpose, such indirect transfer shall be recharacterized and recognized as a direct transfer of PRC Taxable
Property. As a result, gains derived from such indirect transfer and attributable to PRC Taxable Property may be subject to PRC withholding tax at a rate of up to 10%. In addition, as a general principle,
the SAT also issued the Administration of General Anti-Tax Avoidance (Trial Implementation), or GATA, which became effective on February 1, 2015 and empowers the PRC tax authorities to apply
special tax adjustments for “tax avoidance arrangements.”
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There is uncertainty as to the application of Circular 7 and GATA. For example, it may be difficult to evaluate whether or not the transaction has a reasonable commercial purpose, and such
evaluation may be based on ambiguous criteria which have not been formally declared or stated by tax authorities. As a result, any of our disposals or acquisitions of the equity interests of non-PRC
entities which indirectly hold PRC Taxable Property or any offshore transaction related to PRC Taxable Property, including potential overseas restructuring, might be deemed an indirect transfer under
PRC tax regulations. However, since Circular 7 specifies that it does not apply if a non-resident enterprise obtains the proceeds from indirect transfer of Chinese taxable property by trading stocks of a
listed foreign enterprise in the open market, for most of our investors, who either are not enterprises, or are non-resident enterprises but only trade stocks in the open market, they will not be required to
pay tax under Circular 7, or GATA.
If the value of our brand or image diminishes, it could have a material adverse effect on our business and results of operations.
We intend to continue promoting the “Xinyuan” brand in selected cities in our target markets by delivering quality products and attentive real estate-related services to our customers. Our brand is
integral to our sales and marketing efforts. Our continued success in maintaining and enhancing our brand and image depends to a large extent on our ability to satisfy customer needs by further
developing and maintaining the quality of our services across our operations, as well as our ability to respond to competitive pressures. If we are unable to satisfy customer needs or if our public image
or reputation were otherwise hindered, our business transactions with our customers may decline, which could in turn adversely affect our results of operations.
We may be required to record impairment charges in the future.
We record our real estate properties projects completed and under development at the lower of carrying amounts or fair value less selling costs. In accordance with ASC 360, Property, Plant and
Equipment, real estate property projects completed and under development are subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is recognized if the
carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be generated by the
assets. We have not recognized any fair value losses from our real estate properties projects completed and under development. If the projected profitability of a given project deteriorates due to a
decline in the pace of unit sales, a decline in selling prices, or some other factor, such project is reviewed for possible impairment by comparing the estimated future undiscounted cash flows for the
project to its carrying value. If the estimated future undiscounted cash flows are less than the project’s carrying value, the project is written down to its estimated fair value. If business conditions
deteriorate, there is a potential risk that impairment charges will be recorded, which may have a material adverse effect on our results of operation.
Failure to protect our brand or trademark may adversely affect our business.
We own trademarks for “(cid:0)(cid:0)” in the form of Chinese characters and our company logo in the PRC, United States, UK, EU, New Zealand, Australia, Singapore and Korea. We rely on those
countries’ intellectual property and anti-unfair competition laws and contractual restrictions to protect brand name and trademarks. We believe our brand, trademarks and other intellectual property
rights are important to our success. Any unauthorized use of our brand, trademarks and other intellectual property rights could harm our competitive advantages and business. Monitoring and preventing
unauthorized use is difficult. The measures we take to protect our intellectual property rights may not be adequate. Furthermore, the application of laws governing intellectual property rights in China
and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trademarks and other intellectual property rights, our reputation may be
harmed and our business may be adversely affected.
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In the PRC, the registration and protection of a company’s corporate name is regional and limited to its related industry. Although we have registered our corporate name “Xinyuan” in certain
provinces where we operate, we cannot prevent others from registering the same corporate name in other provinces or in other industries. If another company is the first to register “Xinyuan” as its
corporate name in a province other than Beijing, Tianjin, Henan Province, Shandong Province, Jiangsu Province, Anhui Province, Sichuan Province, Hunan Province, and Shaanxi Province or in
another industry, we will have to adopt another corporate name if we plan to enter that market or industry. Moreover, the use of "Xinyuan" by another company may lead to confusion in the market
place and reduce the value of our brandname.
We may be subject to additional payments of statutory employee benefits.
According to PRC laws and local regulations, we are required to pay various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance,
unemployment insurance and childbearing insurance to designated government agents for the benefit of all our employees. Since the Social Insurance Law of the PRC came into effect on July 1, 2011,
which was amended on December 29, 2018, the legal framework regulating employee social insurance has been further strengthened. The requirement of employee benefits has not been implemented
consistently by the local governments in China given the different levels of economic development in different locations.While we believe that our PRC subsidiaries have appropriately accrued for and
paid statutory employee benefits, we cannot be certain the revelant PRC authorities may not interprete local requirements differentlyn and require payments of additional employee benefit amounts in
the future.
Our property development schedule may be delayed and our development costs may increase as a result of delayed governmental demolition and resettlement processes if we were to acquire land
requiring demolition of existing properties.
According to the Regulations on the Expropriation and Compensation of Houses on State-owned Land, local PRC governments are responsible for the expropriation and compensation of houses on
State-owned land and may authorize entities like us to carry out the expropriation and compensation work. However, in practice, we may be required to pay the corresponding demolition and
resettlement costs. If the party subject to expropriation is not satisfied with the compensation, an administrative reconsideration or an administrative action can be brought, which may delay the project.
Our practice generally has been to acquire land where demolition of existing properties and resettlement of residents is not required. However, if we were to acquire land where such actions are
required, issues in the demolition and resettlement processes may affect our reputation, increase our costs and delay the pre-sales of the relevant project, which may in turn adversely affect our business,
financial position and operational performance.
To the extent demolition and resettlement are required in any of our future property developments, we may be required to compensate existing residents an amount calculated in accordance with
local resettlement compensations standards. These local standards may change from time to time without advance notice. If such compensation standards are changed to increase the compensation we
are required to pay, our land acquisition costs may increase, which could adversely affect our financial condition and results of operations. In respect of projects in which the resettlement cost are borne
by us, if we or the local government fail to reach an agreement over the amount of compensation with any existing owner or resident, any party may apply to the relevant authorities for a ruling on the
compensation amount. Dissenting owners and residents may also refuse to relocate or even initiate legal proceedings to challenge our land use rights, permits or approvals. Any administrative process,
legal proceedings, resistance or refusal to relocate may delay our future project development schedules, and an unfavorable final ruling may result in us paying more than the amount required by the
local standards or even losing the relevant certificates, permits or approvals. Any occurrence of the above factors may result in increases in our future development costs or delay the development
schedule of the relevant project which can adversely affect our cash flows, financial condition and results of operations.
We could be adversely affected by potential violations of the United States Foreign Corrupt Practices Act.
The United States Foreign Corrupt Practices Act, or FCPA, generally prohibits companies and their intermediaries from making improper payments to public officials for the purpose of obtaining or
retaining business. Our internal policies mandate compliance with these anti-corruption laws. We operate and retain employees in China, the United States, Malaysia and the UK, and we rely on our
management structure, regulatory and legal resources and effective operation of our compliance program to direct, manage and monitor the activities of our employees. Despite our training, oversight
and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from deliberate, reckless or inadvertent acts of our employees or agents that
contravene on compliance policies or violate applicable laws. Our continued expansion in China and the United States could increase the risk of such violations in the future. Expansion into other
countries could expose us to additional anti-bribery or anticorruption laws, and we could face additional risks if expand our operations into countries where the compliance culture is less robust.
Violations of the FCPA, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition.
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Risks Relating to the Residential Property Industry in China
Our operations are highly subject to government policies and regulations in the real estate market.
Since 2010 the PRC government has been tightening its control of the real estate market with the aim of curbing increases in property prices while also, since early 2015, trying to stimulate the
market to reduce inventory. A number of rules and regulations have been set forth by various PRC authorities concerning the real estate market. See “Item 4. Information on the Company — B.
Business Overview — Regulation — China” for more details on some of the PRC regulations.
Since 2016, the local governments of several cities in the PRC have implemented a series of measures designed to stabilize the growth of the property market on a more sustainable level. Such
tightening measures have affected some of the cities where we operate, including Zhengzhou, Suzhou, Chengdu, Jinan, Tianjin, Beijing, Xi’an and Changsha. These measures regulate various aspects of
the property market, including: (i) land acquisition financing, (ii) pre-sale management, (iii) sale price restriction (for example, Suzhou requires developers to file sale prices at the price filing systems of
relevant authorities), (iv) purchaser qualification and (v) purchaser financing. These local measures may also cause adverse and material impacts on our business operations and financial results.
However, the full effect and extent of these policies on the real estate industry and our business will depend in large part on the implementation and interpretation of the circulars by governmental
agencies, local governments and banks in the real estate industry. The PRC government’s policies and regulatory measures on the PRC real estate sector could limit our access to required financing and
other capital resources, adversely affect the property purchasers involved’ ability to obtain mortgage financing or significantly increase the cost of mortgage financing, reduce market demand for our
properties and increase our operating costs. We cannot be certain that the PRC government will not issue additional and more stringent regulations or measures or that agencies and banks will not adopt
restrictive measures or practices in response to PRC governmental policies and regulations, which could substantially reduce pre-sales of our properties and cash flow from operations and substantially
increase our financing needs, which would in turn materially and adversely affect our business, financial condition, results of operations and prospects.
The PRC government has adopted various measures to regulate foreign investment in the property development industry and may adopt further restrictive measures in the future.
The PRC government has implemented a number of regulations and measures governing foreign investment in the property development industry.
In July 2006, the Monitory of Construction, the National Development and Reform Commission (the “NDRC”), the PBOC, the State Administration for Industry and Commerce, or the SAIC, and
the SAFE, issued the Opinions on Regulating the Entry and Administration of Foreign Investment in the Real Estate Market, amended on August 19, 2015, which impose significant requirements on
foreign investment in the PRC real estate sector. For instance, these opinions set forth requirements for the procedures to set up a foreign-invested real estate enterprise (the “FIREE”) and the thresholds
for a FIREE to borrow domestic or overseas loans. In addition, since June 2007, a FIREE approved by local authorities is required to file such approvals with the MOFCOM or its provincial branches.
We cannot assure that any FIREE that we establish, or whose registered capital we increase, will be able to complete the filing procedures with MOFCOM in time or otherwise fully comply with those
specific requirements set for FIREEs.
The regulatory restrictions imposed on foreign investment in real estate projects has been and continues to be evolving. Currently, on March 15, 2019, the National People’s Congress adopted the
Foreign Investment Law of the PRC, or the FIL, which became effective on January 1, 2020. The FIL grants national treatment to foreign invested entities, except for those foreign invested entities that
operate in industries deemed to be either “restricted” or “prohibited” in a “negative list”. On June 30, 2019, the MOFCOM and the NDRC promulgated the Special Administrative Measures on the
Access of Foreign Investment (Negative List) (2019 Edition), or the 2019 Negative List, which took effect on July 30, 2019, which provide there are no specific restrictions for foreign investment in the
real estate industry. However, as the FIL has not specified the 2019 Negative List is “negative list” under the FIL, it is still unclear as to whether the “negative list” under the FIL will differ from the
2019 Negative List and impose other restrictions or limitations on foreign investment in real estate projects.
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The PRC government’s restrictive regulations and measures could increase our operating costs in adapting to these regulations and measures, limit our access to capital resources or even restrict our
business operations. We cannot be certain that the PRC government will not issue additional and more stringent regulations or measures, which could further adversely affect our business and prospects.
We face intense competition from other real estate developers.
The property industry in the PRC is highly competitive. In the high-growth tier I and tier II cities we focus on, local and regional property developers are our major competitors, and an increasing
number of large state-owned and private national property developers have started entering these markets. Many of our competitors, especially the state-owned and private national property developers,
are well capitalized and have greater financial, marketing and other resources than we have. Some also have larger land banks, greater economies of scale, broader name recognition, a longer track
record and more established relationships in certain markets. In addition, the PRC government’s recent measures designed to reduce land supply has further increased competition for land among
property developers.
Competition among property developers may result in increased costs for the acquisition of land for development, increased costs for raw materials, shortages of skilled contractors, oversupply of
properties, decrease in property prices in certain parts of the PRC, a slowdown in the rate at which new property developments will be approved and/or reviewed by the relevant government authorities
and an increase in administrative costs for hiring or retaining qualified personnel, any of which may adversely affect our business and financial condition. Furthermore, property developers that are
better capitalized than we are may be more competitive in acquiring land through the auction process. If we cannot respond to changes in market conditions as promptly and effectively as our
competitors or effectively compete for land acquisitions through the auction systems, our business and financial condition will be adversely affected.
In addition, risk of property over-supply is increasing in parts of China, where property investment, trading and speculation have become overly active. We are exposed to the risk that in the event
of actual or perceived over-supply, property prices may fall drastically, and our revenue and profitability will be adversely affected.
Our sales, revenues and operations will be affected if our customers are not able to secure mortgage financing on attractive terms, if at all.
A majority of the purchasers of our residential properties rely on mortgages to fund their purchases. If the availability or attractiveness of mortgage financing is reduced or limited, many of our
prospective customers may not desire or be able to purchase our properties and, as a result, our business, liquidity and results of operations could be adversely affected. Among other factors, the
availability and cost of mortgage financing may be affected by changes in PRC regulations or policies or changes in interest rates. The circulars issued by the PRC State Council and related measures
taken by local governments and banks have restricted and may continue to restrict the ability of purchasers to qualify for or obtain mortgage financing.
On March 30, 2015, the PBOC, the Ministry of Housing and Urban-Rural Development (the “MOHURD”) and the CBRC jointly issued the Circular on Issues concerning Individual Residential
Mortgage Policies in an effort to stimulate the market. The circular specifies the minimum down payment is 20% for purchasers of a first residential property for their households with their housing
fund loans and 40% for the purchasers of a second residential household property with housing fund loans with outstanding mortgages who apply for another mortgage. On August 27, 2015, the
MOHURD, the Ministry of Finance of the PRC (the “MOF”) and the PBOC jointly issued the Circular on Adjusting the Minimum Down Payment for the Purchase of Houses by Individuals with the
Housing Fund Loans, which provides that the purchasers of a second residential household property with housing fund loans are only required to pay a minimum down payment of 20% if all loans are
settled on their first residential property, in addition, Beijing, Shanghai, Guangzhou, and Shenzhen may, on the basis of the unified national policy and in accordance with local conditions, independently
determine the minimum down payment ratio for applying for housing fund loans to purchase a second residential household property. On February 1, 2016, the PBOC issued the Circular on Issues
concerning Adjusting the Individual Housing Loan Policies, which provides that, in the cities without restrictive measures for residential property purchase, the minimum down payment shall, in
principle, be 25% of the house price with housing fund loans for a first residential property for purchasers’ households, while the minimum down payment shall be at least 30% of the corresponding
house price for a second residential household property. And in the cities with restrictive measures for house purchase, the individual housing loan policies shall be subject to the previous provisions.
Furthermore, on April 12, 2019, the Circular on Matters relating to Adjusting the Policy for Individual Housing Loans via the Housing Provident Fund to Further Upgrade Services was issued, which
provides that the minimum down payment is 30% for purchasers of a first residential property other than economically affordable house for their households with their housing fund loans, and 60% for
the purchasers of a second residential household property other than economically affordable house with housing fund loans.
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We cannot predict how long these policies will continue or what other action, if any, the banks in cities in which we operate may take. In addition, from 2013, PRC banks have tightened the
conditions on which mortgage loans are extended to homebuyers by comparing the anticipated monthly repayment of the mortgage loan with the individual borrower’s monthly income and other
measures. Therefore, mortgage loans for home buyers have been subject to longer processing periods or even denied by the banks. We monitor our homebuyers’ outstanding mortgage loans on an
ongoing basis via our management reporting procedures and have taken the position that contracts with underlying mortgage loans with processing periods exceeding one year cannot be recognized as
revenue on an over time basis. As a result, we reversed contracted sales of the amounts related to apartments for which mortgage loans with processing periods exceeding one year when recognizing
revenue on an over time basis.
Risks Relating to China
PRC economic, political and social conditions as well as government policies can affect our business.
The PRC economy differs from the economies of most developed countries in many aspects, including:
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political structure;
degree of government involvement;
degree of development;
level and control of capital reinvestment;
control of foreign exchange; and
allocation of resources.
The PRC economy has been transitioning from a centrally planned economy to a more market-oriented economy. For more than two decades, the PRC government has implemented economic
reform measures emphasizing utilization of market forces in the development of the PRC economy. Although we believe these reforms will have a positive effect on China’s overall and long-term
development, we cannot predict whether changes in the PRC economic, political and social conditions, laws, regulations and policies will have any adverse effect on our current or future business,
financial condition or results of operations.
Changes in foreign exchange regulations may adversely affect our ability to transfer funds and subsequently impact the results of our operations.
We currently receive most of our revenues from operations in the PRC and such revenues are denominated in RMB. The PRC government regulates the conversion between RMB and foreign
currencies. Over the years, the PRC government has significantly reduced its control over routine foreign exchange transactions under current accounts, including trade and service related foreign
exchange transactions and payment of dividends. However, foreign exchange transactions by our PRC subsidiaries under capital accounts continue to be subject to significant foreign exchange controls
and require the approval of, or registration with, PRC governmental authorities. There can be no assurance that these PRC laws and regulations on foreign investment will not cast uncertainties on our
financing and operating plans in China. Under current foreign exchange regulations in China, subject to the relevant registration at the SAFE, we will be able to pay dividends in foreign currencies,
without prior approval from the SAFE, by complying with certain procedural requirements. However, there can be no assurance that the current PRC foreign exchange policies regarding debt service
and payment of dividends in foreign currencies will continue in the future. Changes in PRC foreign exchange policies might have a negative impact on our ability to service our foreign currency-
denominated indebtedness and to distribute dividends to our shareholders in foreign currencies.
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On March 30, 2015, the SAFE issued the Circular on Reforming the Administration Approach Regarding the Foreign Exchange Capital Settlement of Foreign-invested Enterprises, or Circular 19,
which became effective on June 1, 2015 and amended on December 30, 2019. Circular 19 provides that, the conversion of the Renminbi capital from foreign currency registered capital of foreign-
invested enterprises may be at foreign-invested enterprises’ discretion, which means that the foreign currency registered capital of foreign-invested enterprises for which the rights and interests of
monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry of monetary contribution has been registered) can be settled at the banks based on the actual
operational needs of the enterprises. In addition, foreign-invested enterprises with investment as their primary business (including foreign-invested investment companies, foreign-invested venture
capital enterprises and foreign-invested equity investment enterprises) are permitted to directly settle their foreign exchange capital or transfer the capital into Renminbi and then transfer the capital to
the account of invested enterprises, based on the actual investment scale and on the premise that the domestic investment project is authentic and compliant.
On June 9, 2016, the SAFE issued the Circular on Reforming and Regulating Policies on the control over Foreign Exchange Settlements under Capital Accounts, or Circular 16. Circular 16
provides that domestic enterprises may go through foreign exchange settlement formalities for their foreign debts at their discretion. However, Circular 19 and Circular 16 do not materially influence the
restriction on the use of foreign currency registered capital for foreign-invested enterprises, including prohibit foreign-invested enterprises from, among other things, using Renminbi capital converted
from its foreign currency registered capital for expenditures beyond its business scope.
On October 23, 2019, the SAFE issued the Circular on Further Promoting Cross-border Trade and Investment Facilitation, or Circular 28. Circular 28 provides that non-investment foreign-funded
enterprises are also allowed to lawfully make domestic equity investments by using their capital on the premise of no violation of prevailing special administrative measures for access of foreign
investments and the authenticity and compliance of domestic investment projects, and restrictions on foreign exchange settlement by using capital under domestic asset realization accounts is canceled.
However, it is still prohibited to use the capital of foreign-invested enterprises and capital in Renminbi obtained by them from foreign exchange settlement for the following purposes: (i) directly or
indirectly used for the payment beyond the business scope of the enterprises or the payment prohibited by laws and regulations; (ii) directly or indirectly used for investment in securities unless
otherwise provided by laws and regulations; (iii) directly or indirectly used for granting the entrust loans in Renminbi (unless permitted by the scope of business), repaying the inter-enterprise
borrowings (including advances by the third party) or repaying the bank loans in Renminbi that have been sub-lent to the third party; (iv) used for paying the expenses related to the purchase of real
estate not for self-use, except for the foreign-invested real estate enterprises.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to
distribute profits to us or otherwise adversely affect us.
On July 4, 2014, the SAFE issued the Circular of the State Administration of Foreign Exchange on Issues Concerning the Foreign Exchange Administration over the Overseas Investment and
Financing and Round-trip Investment by Domestic Residents via Special Purpose Vehicles, or the SAFE Circular 37, which replaced the former circular commonly known as “Circular 75” implemented
on October 21, 2005. The SAFE Circular 37 requires PRC residents to register with the competent local SAFE branch in connection with their direct establishment or indirect control of an offshore
special purpose vehicle, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests.
The SAFE Circular 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital
contribution by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the
required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border
foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Moreover, failure to comply with the various SAFE
registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.
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Additionally, as a result of uncertainty concerning the reconciliation of these notices with other approval or registration requirements, it remains unclear how these notices, and any future legislation
concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We believe that all of our shareholders who were PRC citizens or
residents at the time of our initial public offering completed their required registrations with the SAFE in accordance with Circular 75 before the promulgation of SAFE Circular 37 prior to, and
immediately after, the completion of our initial public offering. As a publicly traded company in the United States, we may not at all times know of the identities of all of our beneficial owners who are
PRC citizens or residents, and we may have little control over either our present or prospective direct or indirect PRC resident beneficial owners or the outcome of such registration procedures. We
cannot assure that the SAFE registrations of our present beneficial owners or future beneficial owners who are PRC citizens or residents have been or will be amended to reflect, among others, the
shareholding information or equity investments required by the SAFE Circular 37 and other SAFE requirements, at all times. The failure or inability of these PRC resident beneficial owners to comply
with applicable SAFE registration requirements may subject us to the sanctions described above, including sanctions which may impede our ability to contribute the additional capital from our proceeds
of any future offerings to our PRC subsidiaries, and our PRC subsidiaries’ ability to pay dividends or distribute profits to us.
We may be subject to fines or penalties if we fail to comply with any applicable laws, regulations or rules.
Historically, we experienced certain non-compliance incidents, some of our project companies commenced construction before obtaining construction work permits or construction work planning
permits. We believe these non-compliances did not have a material operational and financial impact on us. There is no assurance that our internal control measures will be effective and there will not be
any non-compliance incidents in the future.
In addition, PRC laws, regulations or rules governing our industry have been evolving rapidly, we cannot assure you that we will not be subject to fines or penalties arising from non-compliance
incidents if we fail to adapt to the new regulatory regime in a timely manner, or at all, which may have a material adverse effect on our business, financial condition and results of operation.
Certain portions of our property development projects and investment properties are designated as civil air defense properties and transfer of the right to use such area is subject to restrictions and
uncertainties.
Certain portions of our property development projects and investment properties are designated as civil air defense properties. According to the PRC laws and regulations, new buildings constructed
in cities should contain basement areas that can be used for civil air defense purposes in times of war. Under the Civil Air Defense Law of the PRC promulgated by the SCNPC on October 29, 1996, as
amended on August 27, 2009 and Management Measures for Peacetime Development and Usage of Civil Air Defense Properties promulgated by the House Civil Air Defense Office on November 2001,
after obtaining the approval from the civil air defense supervising authority, a developer can manage and use such areas designated as civil air defense properties at other time and generate profits from
such use.We had entered into contracts to transfer the right to use civil air defense properties in some of our property development projects to our customers as car parks and we intend to continue such
transfer. However, in times of war, such areas may be used by the government at no cost. In the event of war and if the civil air defense area of our projects is used by the public, we may not able to use
such area as car parks, and such area will no longer be a source of our revenue. In addition, while our business operations have complied with the laws and regulations on civil air defense property in all
material aspects, we cannot assure you that such laws and regulations will not be amended in the future which may make it more burdensome for us to comply with and increase our compliance cost.
The civil air defense areas of our projects are primarily used or to be used for car parks, representing an insignificant portion of our property portfolio.
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We may be subject to fines due to the lack of registration of our leases.
Pursuant to relevant PRC regulations, parties to a lease agreement are required to file the lease agreements for registration and obtain property leasing filing certificates for their leases. We have
leased certain properties from independent third-party landlords mainly for our office premises. However, we failed to register some lease agreements under which we are the tenant. The failure to
register the lease agreements does not affect the validity of the lease agreements under the relevant PRC laws and regulations, or our rights or entitlements to lease out the investment properties to
tenants. However, we may be required by relevant government authorities to file the lease agreements to complete the registration formalities and may be subject to a fine for non-registration within the
prescribed time limit, which may range from RMB1,000 to RMB10,000 per lease agreement. The imposition of the above fines could require us to make additional efforts and/or incur additional
expenses, any of which could materially and adversely impact our business, financial condition and results of operations. The registration of these lease agreements to which we are a party requires
additional steps to be taken by the respective other parties to the lease agreement which are beyond our control. We cannot assure you that the other parties to our lease agreements will be cooperative
and that we can complete the registration of these lease agreements and any other lease agreements that we may enter into in the future.
Interpretation of PRC laws and regulations involves uncertainty.
Our core business is conducted within China and is governed by PRC laws and regulations. The PRC legal system is based on written statutes, and prior court decisions can only be used as a
reference. Since 1979, the PRC government has implemented laws and regulations in relation to economic matters such as foreign investment, corporate organization and governance, commerce,
taxation and trade, with a view to developing a comprehensive system of commercial law, including laws relating to property ownership and development. However, due to the fact that these laws and
regulations have not been fully developed, and because of the limited volume of published cases and the non-binding nature of prior court decisions, interpretation of PRC laws and regulations involves
a degree of uncertainty. Some of these laws may be changed without being immediately published or may be amended with retroactive effect. Depending on the government agency or how an
application or case is presented to such agency, we may receive less favorable interpretations of laws and regulations than our competitors, particularly if a competitor has long been established in the
locality of, and has developed a relationship with, such agency. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
All these uncertainties may cause difficulties in the enforcement of our land use rights, entitlements under its permits, and other statutory and contractual rights and interests.
The PRC national and regional economies may be adversely affected by a recurrence of epidemic.
The PRC national and regional economies have been adversely affected by the recent novel coronavirus (COVID-19) outbreak, and may continue to be adversely affected by recurrences of
COVID-19 or other epidemics. The recent coronavirus outbreak may continue to affect our industry and cause temporary suspension of projects and shortage of labour and raw materials, which would
severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations. Our operations could also be disrupted if any of our employees or
employees of our subcontractors contracted or are thought to have contracted coronavirus or another disease that could cause an epidemic, since this could require us and our subcontractors to
quarantine some or all of these employees and temporarily close our works sites and other facilities used for our operations. In addition, our revenue and profitability could also be reduced to the extent
coronavirus any or another epidemic harm the overall economy in China. These adverse impacts, particularly if they materialise and persist for a substantial period, may significantly and adversely
affect our business operation and financial performance.
Additionally, certain areas of China, including the high growth cities where we operate, are susceptible to other epidemics such as Severe Acute Respiratory Syndrome (“SARS”), avian or swine
influenza. A recurrence of SARS, avian or swine influenza or any epidemic in these cities or other areas of China could result in material disruptions to our property developments, which in turn could
materially and adversely affect our financial condition and results of operations.
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We may face PRC regulatory risks relating to our equity compensation plans.
On February 15, 2012, the SAFE implemented the Notice on the Administration of Foreign Exchange Matters for Domestic Individuals Participating in the Stock Incentive Plans of Overseas Listed
Companies, or the Stock Option Notice. Under the Stock Option Notice, if a PRC resident participates in any employee stock incentive plan of an overseas listed company, a qualified domestic PRC
agent or the PRC subsidiary of such overseas listed company must, among other things, file, on behalf of such individual, an application with the SAFE or its local counterpart to obtain approval for an
annual allowance with respect to the foreign exchange in connection with the stock holding, unit holding, share option exercises, or the holding of other types of equities permitted by PRC law.
Concurrently, the qualified domestic PRC agent or the PRC subsidiary must also obtain approval from the SAFE or its local counterpart to open a special foreign exchange account at a PRC domestic
bank to hold the funds required in connection with the stock acquisition or option exercise, any returned principal or profits upon the sale of shares, any dividends issued on the stock and any other
income or expenditures approved by the SAFE or its local counterpart. In addition, the PRC agent or the PRC subsidiary is required to amend the SAFE registration with respect to the stock options or
other awards granted if there is any material change to the stock options or other awards, the PRC agent or the PRC subsidiary, the overseas listed company, or any other material changes. If we, or any
of these persons mentioned above, fail to comply with the relevant rules or requirements, we may be subject to penalties, and may become subject to more stringent review and approval processes with
respect to our foreign exchange activities, such as our PRC subsidiaries’ dividend payment to us or borrowing foreign currency loans, all of which may adversely affect our business and financial
condition.
Our auditor, like other independent registered public accounting firms operating in China, is not permitted to be subject to full inspection by the Public Company Accounting Oversight Board, and as
such, investors may be deprived of the benefits of such inspection.
Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the U.S. Securities and Exchange Commission (the “SEC”) as an auditor of
companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) is required by the laws of the United
States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditor is located in China, a jurisdiction where
the PCAOB is currently unable to conduct full inspections without the approval of the PRC authorities, our auditor, like other independent registered public accounting firms operating in China, is
currently not subject to regular full inspections by the PCAOB.
Inspection of other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as
part of the inspection process to improve future auditor quality. The inability of the PCAOB to conduct full inspections of independent registered public accounting firms operating in China makes it
more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures. As a result, investors may be deprived of the benefits of the PCAOB inspections. Investors
may lose confidence in our reported financial information and procedures and the quality of our financial statements.
We may be adversely affected by the settlement order between the SEC and certain PRC-based accounting firms, including our independent registered public accounting firm.
In December 2012, the SEC instituted proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against five PRC-based accounting firms, including our independent registered public
accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ work papers related to their audits
of certain PRC-based companies that are publicly traded in the United States. Rule 102(e)(1)(iii) grants the SEC the authority to deny to any person, temporarily or permanently, the ability to practice
before the SEC who is found by the SEC, after notice and opportunity for a hearing, to have willfully violated any such laws or rules and regulations. On January 22, 2014, an initial administrative law
decision was issued, censuring these accounting firms and suspending four of the five firms from practicing before the SEC for a period of six months. Four of these PRC-based accounting firms
appealed to the SEC against this decision and, on February 6, 2015, each of the four PRC-based accounting firms agreed to a censure and to pay a fine to the SEC to settle the dispute and avoid
suspension of their ability to practice before the SEC. The firms’ ability to continue to serve all their respective clients is not affected by the settlement. The settlement requires the firms to follow
detailed procedures to seek to provide the SEC with access to Chinese firms’ audit documents via the CRSC. If the firms do not follow these procedures, the SEC could impose penalties such as
suspensions, or it could restart the administrative proceedings. The settlement did not require the firms to admit to any violation of law and preserves the firms’ legal defenses in the event the
administrative proceeding is restarted. We are not involved in the proceedings brought by the SEC against the accounting firms. However, our independent registered public accounting firm is one of the
four accounting firms subject to the settlement order. We may therefore be adversely affected by any failure of our independent registered public accounting firm to satisfy its obligations in accordance
with the settlement, along with other U.S.-listed companies audited by them.
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In addition, on May 26, 2015, the MOF issued Notice on the Interim Provisions on the Audits Conducted by Accounting Firms concerning the Overseas Listing of Chinese Domestic Companies, or
Circular 9, which became effective on July 1, 2015. In accordance with Circular 9, auditors based outside of China, including our independent registered public accounting firm, are required to
cooperate with mainland Chinese auditors with requisite qualifications and enter into written arrangements with mainland Chinese auditors in order to conduct audit work for overseas listed mainland
Chinese companies, and auditors based outside of China shall undertake the auditing responsibilities which may be incurred. Hence, our independent registered public accounting firm may need to
establish appropriate arrangements with mainland Chinese auditors in order to continue to audit our financial statements, which may be difficult in light of the SEC’s administrative proceedings and the
settlement described above. If our auditor were unable to have alternate support or cooperation arrangements or otherwise were unable to address issues related to the production of documents in
accordance with the settlement order in the SEC proceedings and we were unable to timely find another independent registered public accounting firm to audit and issue an opinion on our financial
statements, our financial statements could be determined to not be in compliance with the requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such a determination
could ultimately lead to delisting of our ADSs from the NYSE or deregistration from the SEC, or both.
Risks Related to Our ADSs
The trading price of our ADSs has been and is likely to continue to be volatile, which could result in substantial losses to holders of our ADSs.
The trading price of our ADSs has been and is likely to continue to be volatile and could fluctuate widely in response to a variety of factors, many of which are beyond our control. For example, the
high and low sale prices of our ADSs in fiscal year 2019 were US$5.05 and US$3.66, respectively. In addition, the performance and fluctuation of the market prices of other companies with business
operations located mainly in China that have listed their securities in Hong Kong and/or the U.S. may affect the volatility in the prices of and trading volumes for our ADSs. Some of these companies
have experienced significant volatility, including significant price declines after their initial public offerings. The trading performances of these companies’ securities at the time of or after their
offerings may affect the overall investor sentiment towards other companies with business operations located mainly in China and listed in Hong Kong and/or the U.S. and consequently may impact the
trading performance of our ADSs. In addition to market and industry factors, the prices and trading volumes for our ADSs may be highly volatile for specific business reasons, including:
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variations in our results of operations or earnings that are not in line with market or research analyst expectations or changes in financial estimates by securities research analysts;
publication of operating or industry metrics by third parties, including government statistical agencies, that differ from expectations of industry or financial analysts;
announcements made by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures or capital commitments;
press and other reports, whether or not true, about our business, including negative reports published by short sellers, regardless of their veracity or materiality to us;
litigation and regulatory allegations or proceedings that involve us;
changes in pricing we or our competitors adopt;
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additions to or departures of our management;
actual or perceived general industry, regulatory, economic and business conditions and trends in China and globally, due to various reasons, including changes in geopolitical landscape, as some
investors or analysts may invest in or value our ADSs based on the economic performance of the Chinese economy, which may not be correlated to our financial performance;
political or market instability or disruptions, and actual or perceived social unrest in the U.S., Hong Kong or other jurisdictions;
fluctuations of exchange rates among the Renminbi, the Hong Kong dollar and the U.S. dollar; and
sales or perceived potential sales or other dispositions of existing or additional ADSs or other equity or equity-linked securities.
Any of these factors may result in large and sudden changes in the volume and trading price of our ADSs. In addition, the stock market has from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of particular companies and industries.
We may raise additional capital through the sale of additional equity or debt securities, which could result in additional dilution to our shareholders, or impose upon us additional financial obligations.
We may require additional cash resources to finance our continued growth or other future developments, including any investments or acquisitions we may decide to pursue. The amount and timing
of such additional financing needs will vary depending on the timing of our property developments, investments and/or acquisitions, and the amount of cash flow from our operations. If our resources
are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities. Sales of additional equity or convertible securities could result in additional dilution to our
shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations, including our
ability to pay dividends or redeem stock. We cannot guarantee that financing will be available in amounts or on terms acceptable to us, if at all.
Substantial future sales or the perception of sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs or common shares in the public market, or the perception that such sales could occur, could cause the market price of our ADSs to decline. As of December 31, 2019, we had
107,875,468 common shares outstanding, including 74,405,372 common shares represented by 37,202,686 ADSs. All ADSs are freely transferable without restriction or additional registration under the
Securities Act of 1933, as amended, (the “Securities Act”), other than those held by affiliates which are subject to volume and other restrictions as applicable under Rule 144 under the Securities Act.
The remaining common shares outstanding are available for sale, subject to any volume and other restrictions as applicable under Rule 144. The sale or perceived sale of a substantial amount of our
ADSs by any principal shareholder could adversely affect the prevailing market price for our ADSs. Such sales or perceived sales also might make it more difficult for us to sell equity or equity-related
securities in the future at a time and price that we deem appropriate. To the extent that common shares (in the form of ADSs) are sold into the market, the market price of our ADSs could decline.
The interests of our major shareholders may not be aligned with the interests of our other shareholders.
As of April 1, 2020, Mr. Yong Zhang, Chairman of our board of directors, and Ms. Yuyan Yang, also a board member, beneficially owned 29.14% and 26.45%, respectively of our share capital.
Accordingly, they each have substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and
other significant corporate actions. This concentration of ownership by our major shareholders may result in actions being taken even if opposed by our other shareholders. In addition, it may
discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might
reduce the price of our ADSs.
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If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
We are subject to reporting obligations under U.S. securities laws, including the SEC’s disclosure rules relating to an effective system of internal controls over financial reporting and of disclosure
controls. If we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that
we have effective internal control over financial reporting at a reasonable assurance level.
Moreover, effective internal control over financial reporting is necessary for us to produce reliable financial reports and is important to help prevent fraud. As a result, our failure to maintain
effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact
the trading price of our ADSs. Furthermore, we have incurred and expect to continue to incur considerable costs and devote significant management time and efforts and other resources to comply with
Section 404 of the Sarbanes-Oxley Act.
We are a foreign private issuer with the meaning of the rules under the Exchange Act, as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to United
States domestic issuers, including:
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the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current report on Form 8-K;
the section of the Exchange Act regulating the solicitation of proxies, consents or authorizations respect of a security registered under the Exchange Act;
the section of the Exchange Act requiring directors, officers and 10% holders to file public reporting of their stock ownership and trading activities and imposing liability on insiders who profit
from trades made in a short period of time;
the selective disclosure rules under Regulation FD restricting issuers from selectively disclosing material nonpublic information.
Accordingly, the information we are required to file with or furnish to the SEC is less extensive and less frequent compared to that required to be filed with the SEC by U.S. domestic issuers.
We are a foreign private issuer for purposes of the NYSE corporate governance requirements, as a result of which public investors may not have as many protections as they would if we were a U.S.
domestic public company.
As a foreign private issuer, we may rely on home country corporate governance practices instead of certain of the NYSE corporate governance requirements. We are incorporated under the laws of
the Cayman Islands. Under Cayman Islands law we are not required to adopt or maintain certain of the NYSE corporate governance rules. The NYSE requirements with which we are not required to
comply include rules requiring that:
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a majority of our board of directors consist of independent directors;
our compensation committee be composed entirely of independent directors;
our governance and nominating committee be composed entirely of independent directors;
the members of our audit committee satisfy certain independence criteria in addition to those of Rule 10A-3 of the Exchange Act;
our shareholders approve the adoption or material revision of any equity compensation plan; and
our shareholders approve certain issuances of our equity securities.
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We are currently following home country practice on the requirements described above. Accordingly, a majority of our board of directors is composed of management or former management
directors. Each of our compensation committee and governance and nominating committee include non-independent directors. In addition, we are not required to put forward for a shareholder vote new
equity plans or change to existing equity plans or other significant share issuance. For a more detailed discussion of the ways in which our corporate governance differs from that of a U.S. domestic
company listed on the NYSE, see “Item 16G. Corporate Governance.” As a result of our use of the “home country practice” exception from the NYSE corporate governance rules, you do not have same
shareholder protections as you would if we were a U.S. domestic public company.
We are not required to follow customary practices applicable to U.S. domestic companies with respect to determining and disclosing executive compensation.
As a foreign private issuer, we are not subject to many of the corporate governance requirements and disclosure requirements relating to executive compensation matters under the U.S. securities
laws. Under our compensation committee charter, only 50% of members of the committee at any time (less than a majority) must be independent of management, while a U.S. domestic issuer is
required to form a compensation committee composing entirely of independent directors. We are also not required to and do not report compensation of senior management or directors on an individual
basis. As a result, investors are not able to access for themselves appropriateness or reasonableness of the amount or form of compensation for individual executives. The SEC has a new adopted rule for
disclosure of a chief executive officer pay relative to that of the median total compensation for employees, does not apply to foreign private issuers.
We have entered into agreements that provide for the payment of annual bonuses based on a percentage of net income to certain of our executive officers. In other cases we have made arrangements
or established bonus plans that provide for the payment of performance bonuses to employees, including executive officers, based on assessment of their contributions to our business development,
improvement of operation management, and fund financing activities. These accrual and payments could result in a decrease of our net profit attributable to public shareholders.
You may not have the same voting rights as the holders of our common shares and may not receive voting materials in time to be able to exercise your right to vote.
Holders of our ADSs will not be able to exercise voting rights attaching to the underlying common shares represented by our ADSs on an individual basis. Holders of our ADSs appoint the
depositary or its nominee as their representative to exercise the voting rights attaching to the common shares represented by the ADSs. Holders of ADSs may not receive voting materials in time to
instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. As soon
as practicable after the depositary receives from us a notice of a shareholders’ meeting, the depositary will distribute to registered holders of ADRs a notice stating (a) such information as is contained in
such notice and any solicitation materials, (b) that each registered holder on the record date set for such purpose will, subject to any applicable provisions of Cayman Islands law, be entitled to instruct
the depositary as to the exercise of the voting rights and (c) the manner in which such instructions may be given, including instructions to give a discretionary proxy to a person designated by us. The
depositary will not itself exercise any voting discretion in respect of any common shares nor will it provide any instructions with respect to the common shares represented by any ADSs for which
voting instructions were not timely and properly received. There can be no guarantee that registered holders of ADRs will receive the notice described above with sufficient time to enable them to return
any voting instructions to the depositary in a timely manner. To the extent you hold your ADSs through a bank, broker or other nominee, you will be relying upon such institutions with respect to voting
matters.
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You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China based on United States or other foreign law against us or our
management named in the annual report.
We are incorporated in the Cayman Islands and conduct substantially all of our operations in China through our wholly-owned subsidiaries in China. Most of our assets are located in China. In
addition, many of our directors and senior executive officers reside within China and some or all of the assets of those persons are located outside of the United States. As a result, it may not be possible
to effect service of process within the United States or elsewhere outside China upon our directors and senior executive officers, including with respect to matters arising under U.S. federal securities
law or applicable state securities law. Even if you are successful in bringing an action of this kind, the respective law of the Cayman Islands and China may render you unable to enforce a judgment
against our assets or the assets of our directors and officers. Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States
(and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), the courts of the Cayman Islands will, at common law, recognize and enforce a
foreign money judgment of a foreign court of competent jurisdiction without any re-examination of the merits of the underlying dispute based on the principle that a judgment of a competent foreign
court imposes upon the judgment debtor an obligation to pay the liquidated sum for which such judgment has been given, provided such judgment (i) is final and conclusive, (ii) is not in respect of
taxes, a fine or a penalty; and (iii) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands. However, the
Cayman Islands courts are unlikely to enforce a judgment obtained from the U.S. courts under civil liability provisions of the U.S. federal securities law if such judgment is determined by the courts of
the Cayman Islands to give rise to obligations to make payments that are penal or punitive in nature. A Cayman Islands court may stay enforcement proceedings if concurrent proceedings are being
brought elsewhere. Moreover, the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.
You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the depositary will not offer those rights to ADS
holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or are exempt from registration under the Securities Act with
respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to
be declared effective. In addition, we may not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in
our rights offerings and may experience dilution in their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the
performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we
or the depositary deem it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
We are a Cayman Islands exempted company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less
protection of your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law of the Cayman Islands, as amended from time to time, and the common law of the
Cayman Islands. The rights of shareholders to take legal action against our directors and us, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman
Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the
Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities
of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands have a less
developed body of securities laws as compared to the United States, and provide significantly less protection to investors. In addition, Cayman Islands companies may not have standing to initiate a
shareholder derivative action before the federal courts of the United States.
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In mergers and consolidations where the merged company or consolidated company will continue to be a Cayman Islands entity, dissenting shareholders have the right to be paid the fair value of
their shares (which, if not agreed between the parties, will be determined by the Cayman Islands courts) if they follow required procedures, subject to certain exceptions. However, these rights have
never been tested before the Cayman Islands court and as a result, they may not be comparable to the appraisal rights that would ordinarily be available to dissenting shareholders of a U.S. company.
As a result of all of the above, our public shareholders may have more difficulty in protecting their interests through actions against our management, directors or major shareholders than would
shareholders of a corporation incorporated in a jurisdiction in the United States.
Our articles of association may contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our common shares and ADSs.
Our amended and restated articles of association contain provisions limiting the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These
provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain
control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more
series and to fix their designations, powers, preferences, privileges and relative participating, optional or special rights and their qualifications, limitations or restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our common shares, in the form of ADSs or
otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of
directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our common shares and ADSs may be materially and adversely affected.
We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences to U.S. holders of our ADSs or common shares.
The rules governing passive foreign investment companies (“PFICs”) can have adverse effects for United States federal income tax purposes. The tests for determining PFIC status for a taxable
year depend upon the relative values of certain categories of assets and the relative amounts of certain kinds of income. The determination of whether we are a PFIC depends on the particular facts and
circumstances (such as the valuation of our assets, including goodwill and other intangible assets) and may also be affected by the application of the PFIC rules, which are subject to differing
interpretations. Based on our estimated gross income, the average value of our assets, including goodwill and the nature of our business, although not free from doubt, we do not believe that we were
classified as a PFIC for United States federal income tax purposes for the taxable year ending December 31, 2019.
If we are a PFIC, U.S. Holders of our ordinary shares or ADSs would be subject to adverse United States federal income tax consequences, such as ineligibility for any preferred tax rates on capital
gains or on actual or deemed dividends, interest charges on certain taxes treated as deferred, and additional reporting requirements under United States federal income tax laws and regulations. A U.S.
Holder of our ordinary shares or ADSs may be able to mitigate some of the adverse United States federal income tax consequences described above with respect to owning the ordinary shares or ADSs
if we are classified as a PFIC, provided that such U.S. Holder is eligible to make, and validly makes, a “mark-to-market” election. In certain circumstances, a U.S. Holder can make a “qualified electing
fund” election to mitigate some of the adverse tax consequences described with respect to an ownership interest in a PFIC by including in income its share of the PFIC’s income on a current basis.
However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a qualified electing fund election.
See “Item 10. Additional Information — E. Taxation — U.S. Federal Income Taxation — Passive Foreign Investment Company.”
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ITEM 4.
INFORMATION ON THE COMPANY
A. History and Development of the Company
We are a Cayman Islands holding company and conduct business primarily through our operating subsidiaries in China and, as to certain operations, non-PRC based subsidiaries.
Our company was incorporated in the Cayman Islands on March 26, 2007 as an exempted company. Our company operates under Cayman Islands Companies Laws (2020 Revision). Our registered
address is located at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104 Cayman Islands. Our principal executive offices are located at 27/F,
China Central Place, Tower II, 79 Jianguo Road, Chaoyang District, Beijing 100025, People’s Republic of China. Our telephone number at this address is (86) 10 8588-9200.
For a discussion of our capital expenditures for the last three fiscal years, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources — Capital
Expenditures.”
The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants, including us, that make electronic filings with the
SEC using its EDGAR system, our website is www.xyre.com. The information contained on our website does not form part of this annual report.
B. Business Overview
We are a real estate developer that strategically focuses on selected high growth cities in China and the United States. Our standardized and scalable model emphasizes rapid asset turnover, efficient
capital management and strict cost control.
We focus on developing large scale quality residential projects, which typically consist of multiple residential buildings that include multi-layer apartment buildings, sub-high-rise apartment
buildings or high-rise apartment buildings. Several of our projects include auxiliary services and amenities such as retail outlets, leisure and health facilities, kindergartens and schools. We also develop
small-scale residential properties. Our China developments aim at providing middle-class consumers with a comfortable and convenient community life. In addition, we provide property management
services for our developments and other real estate-related services to our customers. We acquire development sites in China primarily through public auctions of government land and acquisitions of
entities.
We have expanded our business and operations significantly during the past three years. The number of projects we had under construction increased from 17 projects with a total GFA of 3,566,254
square meters as of December 31, 2016, to 28 projects with a total GFA of 4,018,171 square meters as of December 31, 2019. We have 12 additional projects with a total GFA of 3,201,119 square
meters under planning as of December 31, 2019. As of December 31, 2019, we have completed 60 projects with a total GFA of approximately 9,068,623 square meters and comprising a total of 104,129
units, more than 97.2% of which have been sold. For the three years ended December 31, 2017, 2018 and 2019, our revenues were US$1,976.9 million, US$2,217.6 million, and US$2,482.6
respectively. Our net income for the same periods was US$80.1 million, US$106.0 million, and US$83.0 respectively.
While our primary focus has been in China, we see potential opportunities for residential real estate development in other jurisdictions that might be attractive to both Chinese and U.S. buyers. In
2012, we acquired a 8,094 square meters parcel of land in the Williamsburg neighborhood of Brooklyn, New York, for US$54.2 million, on which we built 216 condominium units with a net saleable
floor area of approximately 30,855 square meters, the New York Oosten Project. Our New York Oosten Project started construction in November 2013 and delivered it in December 2016. As of
December 31, 2019, the project has recognized a total revenue of about US$260.1 million from the sales of 177 units out of 216 total units. In January 2016, we also acquired a parcel of land in
midtown Manhattan, New York, for US$57.5 million. As of December 31, 2019, we have completed superstructure construction, precast concrete facade, and windows installation at the Hudson Garden
project, BLOOM ON FORTY FIFTH. During the past year, the project’s design drawings were optimized, increasing the number of residential units from 82 to 92. Of the total sellable 34,903 square
feet of retail/commercial space, a total of 28,090 square feet have been leased to the U.S. department store retailer Target for a 20 year term and another 1,910 square feet have been leased to a
dermatologist's office for a 15 year lease term. The construction is currently ahead of schedule and under budget. The building will have 92 condominium units from floors two through seven with a unit
mix consisting of 17 studios, 45 one-bedroom units, 24 two-bedroom units, 2 three-bedroom duplex units, 2 three-bedroom pent house units, and 2 four-bedroom duplex units. In August 2016, we
acquired a parcel of land in the Flushing neighborhood of Queens, New York for US$66.0 million. The land allows for a mixed use development comprising approximately 30,112 square meters with
approved plans. At this RKO project in Flushing, New York City, as of December 31, 2019, the have engaged an architect firm to develop new architectural plans, and completed the schematic design
for the condo and hotel mixed-use development.
39
In 2014, we acquired 100% share of a Malaysian company, which is engaged in land reclamation development for a total of 170 acres (approximately 687,966 square meters). The reclamation work
was formally commenced in July 2018 and is expected to be completed in the first half of 2020.
On March 21, 2018, we acquired from ED Group, a 50% equity stake in MDL, the developer of the Madison Project, via our wholly-owned subsidiary Xinyuan International (HK) Property
Investment Co., Limited for a total consideration of US$19.1 million. The Madison Project site extends to 0.38 hectares (or approximately 0.94 acres) and is located adjacent to Canary Wharf, one of
Europe’s largest commercial centers. Permission was granted in March 2015 to develop a 53-story building comprised of 423 residential apartments, including 319 private apartments and 104 affordable
apartments, with approximately 425 square meters of community facilities. Construction is currently underway and completion of the project is expected to occur during for the third quarter of 2020. As
of December 31, 2019, all of the 104 affordable apartments have been pre-sold. Of the remaining 319 apartments, 135 apartments have been sold, representing 42.3% of the total number of units. We
will continue to seek for high-growth opportunities globally.
We also plan to retain and develop commercial portions of some of our properties such as shopping malls, supermarkets or hotels and to lease and manage those properties ourselves. As of
December 31, 2019, we have completed seven of such projects, including Xinyuan Priority Lifestyle Shopping Center with a total GFA of approximately 47,000 square meters, located in Zhengzhou
city, Henan Province, Xi’an Xinyuan Metropolitan Shopping Center with a total GFA of approximately 116,000 square meters, located in Xi’an city, Shaanxi Province, Xingyang Xindo Park Shopping
Center with a total GFA of approximately 15,000 square meters, located in Xingyang city, Henan Province, Changsha Xindo Park Shopping Center with a total GFA of approximately 12,000 square
meters, located in Changsha city, Hunan Province, Chengdu Xindo Park Shopping Center with a total GFA of approximately 19,000 square meters, located in Chengdu city, Sichuan Province,
Zhengzhou Xindo Park Shopping Center with a total GFA of approximately 24,000 square meters, located in Zhengzhou city, Henan Province, Kunshan Xindo Park Shopping Center with a total GFA of
approximately 4,000 square meters, located in Kunshan city, Jiangsu Province, and Target Shopping Center with a total GFA of approximately 28,090 square feet, located in New York. As of Decemer
29, 2019, we have four projects under construction in which we will retain approximately 203,000 square meters of GFA for development as commercial properties held for lease.
In November 2019, the Group acquired Beijing Ruizhuo Xitou Development Co., Ltd. (“Xitou”), a related party, for a total consideration of US$16,486,299, represents extinguishment of pre-
existing receivable. Xitou is primarily engaged in provision of online platform services for real estate project financing purposes. In November 2019, the Group acquired Beijing Ruizhuo Xichuang
Technology Development Co., Ltd. (“Xichuang”), a related party, for a total consideration of US$11,212,797, represents extinguishment of pre-existing receivable. Xichuang is primarily engaged in the
provision of online platform services for sourcing, sale and purchase of real estate properties. In November 2019, the Group acquired Beijing I-Journey Science and Technology Development Co,Ltd.
("I-Journey"), a related party, for a total consideration of US$21,062,847, represents extinguishment of pre-existing receivable. I-journey is primarily engaged in the sale of household robots and
provision of community cloud services. The acquisitions of Xitou, Xichuang and I-journey were in line with the Group’s strategy to extend its business to provide real estate and property management
related technology services.
In addition to real estate development and sales, we offer a wide range of property management services covering the pre-delivery and post-delivery phases to property developers, property owners
and property occupants for their enjoyment of community life. We also lease and manage certain properties such as shopping malls, supermarkets and hotels. Moreover, we are engaged in various other
business activities related to our property development operations, including the development and management of industrial parks, the operation of a real estate private financing platform, the
development of cloud-based enterprise resource planning software applications, the development of smart home technology products and the development of an online property sales platform.
40
Our Markets
We currently operate in 20 markets in China - Beijing, Shanghai, Tianjin, Chengdu in Sichuan Province, Hefei in Anhui Province, Jinan and Qingdao in Shandong Province, Suzhou, Kunshan and
Xuzhou in Jiangsu Province, Zhengzhou in Henan Province, Changsha in Hunan Province, Sanya in Hainan Province, Xi’an in Shaanxi Province, Zhuhai and Foshan in Guangdong Province, Dalian in
Liaoning Province, Wuhan in Hubei Province and Huzhou and Taizhou in Zhejiang Province. During 2019, we also operated in three locations in the United States - Irvine, California; Reno, Nevada;
the neighborhoods of Williamsburg, Brooklyn and Flushing, Queens, New York; in Malaysia and in the United Kingdom.
The following table sets forth the numbers of our projects and the total GFA in each location indicated as of December 31, 2019:
Properties
under
Construction
(m 2 )
Properties
under
planning
(m 2 )
Properties
held for
sale (m 2 )
Completed
projects (m 2 )
Total
number
of projects
Total
GFA (m 2 )
China
Beijing
Chengdu
Zhengzhou
Jinan
Hefei
Suzhou
Kunshan
Xuzhou
Sanya
Shanghai
Changsha
Xi’an
Zhuhai
Tianjin
Qingdao
Dalian
Wuhan
Huzhou
Foshan
Taizhou
Sub Total
United States
Irvine (1)
Nevada (2)
New York
Total
-
741,874
1,636,254
566,431
-
165,388
107,935
-
-
-
72,257
-
-
144,581
156,531
103,845
-
,118,436
194,404
–
4,007,936
–
–
10,235
4,018,171
102,300
-
1,585,800
-
-
156,653
-
-
-
-
-
226,000
70,000
-
380,000
44,500
185,000
-
262,400
158,354
3,171,007
–
–
30,112
3,201,119
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2,865
N/A
–
2,865
133,095
651,420
4,090,124
1,192,388
145,455
781,456
867,541
232,602
117,585
57,770
342,644
285,997
-
139,691
–
–
–
–
–
–
9,037,768
–
–
30,855
9,068,623
2
4
48
7
1
10
4
2
1
1
3
2
1
2
2
2
1
1
2
1
97
1
1
3
102
235,395
1,393,294
7,312,178
1,758,819
145,455
1,103,497
975,476
232,602
117,585
57,770
414,901
511,997
70,000
284,272
536,531
148,345
185,000
118,436
456,804
158,354
16,216,711
2,865
N/A
71,202
16,290,778
(1) The finished condominium project is located in Irvine, California, United States. We acquired 15 units with a total GFA of 2,865 square meters of the total 72 units from a major United States
developer in August 2012. All units were sold as of December 31, 2015.
(2) Northern Nevada Land Portfolio is a project portfolio comprised of 325 finished lots and 185 acres of undeveloped land at eight different sites in the northern Nevada region near the Reno-Spark
metropolitan area. All lots and acres were sold as of December 31, 2015.
41
For a discussion of revenues from each geographical segment in each of 2018 and 2019, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results — Discussion of
Segment Operations.”
Our Property Projects
Overview
We offer the following four main types of real estate property products:
• multi-layer apartment buildings, which, in China, are typically 6 stories or less and normally require 9 to 12 months to construct after we obtain the related construction permit;
•
•
•
sub-high-rise apartment buildings, which, in China, are typically to 11 stories and normally require 12 to 18 months to construct after we obtain the related construction permit;
high-rise apartment buildings, which, in China, are typically 12 to 33 stories and normally require 18 to 24 months to construct after we obtain the related construction permit; and
offices, mixed-use and commercial properties which we have offered since 2012.
Our projects are in one of the following five stages:
•
•
•
•
•
properties under construction, comprising properties for which the construction permits have been obtained;
properties under planning, comprising properties for which we have entered into land grant contracts and are in the process of obtaining the required permits to begin construction;
completed projects, comprising projects for which construction has been completed;
properties held for lease, comprising projects for which construction has been completed and which we plan to hold and manage and;
properties held for sale, comprising land and properties which we purchase and hold for sale.
Properties under Construction and Properties under Planning
The following table sets forth each of our properties currently under construction or planning as of December 31, 2019:
Project Name
Location
Type of
Products (1)
Construction
Commencement
Date
Pre-sale
Commencement
Date (2)
Total
Site Area (m 2 )
Total
GFA (m 2 )
Total
Number Of
Units (3)
Number Of
Units Sold
GFA
Sold (m 2 )
Jinan Royal Palace
Zhengzhou Fancy City II (North)
Zhengzhou International New City III A
Hudson Garden project
Changsha Furong Thriving Family
Kunshan Xinyu Jiayuan
Tianjin Spring Royal Palace II
Zhengzhou International New City III B
Zhengzhou International New City III D
Zhengzhou Hangmei International Wisdom City I
Jinan
Zhengzhou
Zhengzhou
New York
Changsha
Kunshan
Tianjin
Zhengzhou
Zhengzhou
Zhengzhou
H
C
H
S
MU
MU
M/H
H
H/C
H
02/2014
05/2017
11/2017
07/2017
07/2017
12/2017
10/2015
11/2017
08/2017
03/2018
06/2014
10/2017
12/2017
04/2020
07/2018
09/2018
01/2018
04/2018
06/2018
05/2018
140,155
30,175
22,225
2,323
23,418
18,068
133,499
26,102
15,119
73,300
449,613
108,724
96,018
10,235
72,257
107,935
144,581
118,780
46,074
143,181
6,512
3,070
864
92
705
874
1,076
1,336
448
1,538
5,307
2,965
862
-
701
474
628
1,332
448
1,011
435,862
101,889
95,996
-
72,145
54,138
81,623
117,966
45,178
94,215
42
Project Name
Location
Type of
Products (1)
Construction
Commencement
Date
Pre-sale
Commencement
Date (2)
Total
Site Area (m 2 )
Total
GFA (m 2 )
Total
Number Of
Units (3)
Number Of
Units Sold
GFA
Sold (m 2 )
Chengdu Xinyuan City
Xingyang Splendid IV
Qingdao Royal Dragon Bay
Jinan Royal Spring Bay
Xinyuan Golden Water View City
Zhengzhou Fancy City III
Zhengzhou International New City III C
Zhengzhou International New City IV
Suzhou Galaxy Bay
Suzhou Gusu Shade I
Dalian International Health Technology Town I
Xingyang Splendid V
Zhengzhou International New City IV B10
Zhengzhou International New City A04
Foshan Xinchuang AI International Science and
Technology Innovation Valley I
Suzhou Suhe Bay (4)
Suzhou Gusu Shade II (5)
Huzhou Silk Town (6)
Subtotal
Tongzhou Xinyuan Royal Palace
Xinyuan Chang’an Royal Palace
Zhengzhou International New City (pending staging)
Zhuhai Xin World
Lingshan Bay Dragon Seal
Zhengzhou Hangmei Project (pending staging)
Wuhan Canglong Royal Palace
Dalian International Health Technology Town II
Foshan Xinchuang AI International Science and
Technology Innovation Valley II
Taizhou Yihe Yayuan (7)
Suzhou He'an Garden (8)
Flushing Project
Subtotal
Total
Chengdu
Zhengzhou
Qingdao
Jinan
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Suzhou
Suzhou
Dalian
Zhengzhou
Zhengzhou
Zhengzhou
Foshan
Suzhou
Suzhou
Huzhou
Beijing
Xi’an
Zhengzhou
Zhuhai
Qingdao
Zhengzhou
Wuhan
Dalian
Foshan
Taizhou
Suzhou
New York
MU
H
MU
M/H
H/C
H
H
H
H/C
M
M/H
H
H
H
H
H
M
MU
H
MU
TBD
MU
M/H
TBD
MU
M/H
MU
H
H
MU
06/2018
05/2018
08/2018
09/2018
10/2017
03/2018
06/2018
09/2018
07/2018
09/2018
10/2018
04/2019
07/2018
04/2018
05/2019
04/2018
10/2018
08/2019
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
09/2018
09/2018
11/2018
12/2018
11/2018
10/2018
10/2018
12/2018
12/2018
11/2018
12/2018
07/2019
12/2018
11/2019
10/2019
08/2018
05/2019
12/2019
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
200,906
9,976
64,442
69,587
45,067
27,599
27,231
50,966
21,183
10,063
58,740
34,308
35,181
19,200
66,665
16,627
10,219
84,166
1,336,510
46,769
80,673
206,728
14,107
340,400
205,201
53,787
37,078
86,775
61,107
118,667
3,895
1,255,187
2,591,697
741,874
151,835
156,531
116,818
331,369
80,603
82,290
199,651
76,546
11,957
103,845
80,486
92,294
104,949
194,404
62,561
14,324
118,436
4,018,171
102,300
226,000
1,393,100
70,000
380,000
192,700
185,000
44,500
262,400
158,354
156,653
30,112
3,201,119
7,219,290
TBD
985
809
1,925
6,558
747
1,749
1,710
718
78
933
527
1,432
663
540
479
96
1,262
37,726
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
TBD
2,111
657
619
410
755
723
1,587
1,666
711
65
54
496
1,288
512
103
479
54
87
196,001
60,805
92,978
46,676
74,863
73,882
69,422
179,214
72,765
8,532
33,054
54,266
51,211
22,117
12,671
62,561
6,909
21,883
26,105
2,238,822
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
37,726
26,105
2,238,822
(1) “M” refers to multi-layer buildings, “H” refers to high-rise buildings, “S” refers to sub-high-rise buildings, “C” refers to commercial properties and “MU” refers to office, mixed-use and
commercial properties.
(2) Pre-sale commencement dates refer to dates on which we began or expect to begin pre-sale activities after receiving the relevant pre-sale permits.
(3) “TBD” refers to “to be determined” as of December 31, 2019.
(4) The Company owns 16.66% equity interest in a joint venture, Suzhou Hengwan Real Estate Co., Ltd. which develops Suzhou Suhe Bay. The Company accounts for its investment under the equity
method.
(5) The Company owns a 19.99% equity interest in Suzhou Litai Real Estate Co., Ltd., which develops Suzhou Gusu Shade II. The Company accounts for its investment under the equity method.
(6) The Company owns 78.46% equity interest in a joint venture, Huzhou Xinhong Town Construction and Development Co., Ltd. which develops Huzhou Silk Town. The Company accounts for its
investment under the equity method.
(7) The Company owns 40% equity interest in Taizhou Yiju Real Estate Co., Ltd. which develops Taizhou Yihe Yayuan. The Company accounts for its investment under the equity method.
(8) The Company owns 24% equity interest in Suzhou Kairongchen Real Estate Co., Ltd. which develops Suzhou He'an Garden. The Company accounts for its investment under the equity method.
43
Properties under Construction
Zhengzhou, Henan Province
Zhengzhou Fancy City II (North). The land is located west of Songshan Road within the 4th Ring Road in Zhengzhou. This project covers a site area of 30,175 square meters and is expected to have
a total GFA of 108,724 square meters, of which 100,380 square meters are for multi-layer buildings and 8,344 square meters are for retail stores. We acquired the site in April 2016 and commenced
construction in May 2017, and expect to deliver units in 2019. This project, when completed, will consist of 3,070 units. We started pre-sales in October 2017, and as of December 31, 2019, we had sold
2,965 units with a total GFA of 101,889 square meters.
Zhengzhou International New City III A. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 22,225 square meters and is expected to have a total
GFA of 96,018 square meters, of which 95,504 square meters are for high-rise buildings and 514 square meters are for retail stores. We acquired the site in May 2017 and commenced construction in
November 2017, and expect to deliver units in 2020.This project, when completed, will consist of 864 units. We started pre-sale in December 2017, and as of December 31, 2019, we had sold 862 units
with a total GFA of 95,996 square meters.
Zhengzhou International New City III B. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 26,102 square meters and is expected to have a total
GFA of 118,780 square meters, of which 118,780 square meters are for high-rise buildings. We acquired the site in May 2017 and commenced construction in November 2017, and expect to deliver
units in 2020.This project, when completed, will consist of 1,336 units. We started pre-sale in April 2018, and as of December 31, 2019, we had sold 1,332 units with a total GFA of 117,966 square
meters.
Zhengzhou International New City III D. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 15,119 square meters and is expected to have a total
GFA of 46,074 square meters, of which 44,293 square meters are for high-rise buildings, 885 square meters are for retail stores, and 896 square meters are for basements. We acquired the site in August
2016 and commenced construction in August 2017, and expect to deliver units in 2020.This project, when completed, will consist of 448 units. We started pre-sale in June 2018, and as of December 31,
2019, we had sold 448 units with a total GFA of 45,178 square meters.
44
Zhengzhou Hangmei International Wisdom City I. The land is located in Xinzheng District in Zhengzhou. This project covers a site area of 73,300 square meters and is expected to have a total GFA
of 143,181 square meters, of which 143,181 square meters are for high-rise buildings. We acquired the site in December 2017 and commenced construction in March 2018, and expect to deliver units in
2020.This project, when completed, will consist of 1,538 units. We started pre-sale in May 2018, and as of December 31, 2019, we had sold 1,011 units with a total GFA of 94,215 square meters.
Xingyang Splendid IV. The land is located southwest of Guangwu Road and Wangcun Road in Xingyang. This project covers a site area of 9,976 square meters and is expected to have a total GFA
of 151,835 square meters, of which 136,658 square meters are for high-rise buildings and 15,177 square meters are for retail stores. We acquired the site in September 2014 and commenced construction
in May 2018, and expect to deliver units in 2021. This project, when completed, will consist of 985 units. We started pre-sales in September 2018. As of December 31, 2019, we had sold 657 units with
a total GFA of 60,805 square meters.
Xinyuan Golden Water View City. The land is located Heizhuzhuang of Jinshui District in Zhengzhou. This project covers a site area of 45,067 square meters and is expected to have a total GFA of
331,369 square meters, of which 298,095 square meters are for high-rise buildings, 24,526 square meters are for public rental housing, 3,161square meters are for retail stores, and 5,587 square meters
are for basements. We acquired the site in June 2017 and commenced construction in October 2017, and expect to deliver units in 2021. This project, when completed, will consist of 6,558 units. We
started pre-sales in November 2018. As of December 31, 2019, we had sold 755 units with a total GFA of 74,863 square meters.
Zhengzhou Fancy City III. The land is located west of Songshan Road within the 4th Ring Road in Zhengzhou. This project covers a site area of 27,599 square meters and is expected to have a total
GFA of 80,603 square meters, of which 78,075 square meters are for high-rise buildings, 1,048square meters are for retail stores, and 1,480square meters are for basements. We acquired the site in
December 2017 and commenced construction in March 2018, and expect to deliver units in 2020. This project, when completed, will consist of 747 units. We started pre-sales in October 2018. As of
December 31, 2019, we had sold 723 units with a total GFA of 73,882 square meters.
Zhengzhou International New City III C. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 27,231 square meters and is expected to have a total
GFA of 82,290 square meters, of which 74,327 square meters are for high-rise buildings, and 7,962 square meters are for retail stores. We acquired the site in Feburary 2017 and commenced
construction in June 2018, and expect to deliver units in 2021.This project, when completed, will consist of 1,749 units. We started pre-sale in October 2018, and as of December 31, 2019, we had sold
1,587 units with a total GFA of 69,422 square meters.
Zhengzhou International New City IV. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 50,966 square meters and is expected to have a total GFA
of 199,651 square meters, of which 191,584 square meters are for high-rise buildings, and 8,067 square meters are for retail stores. We acquired the site in May 2018 and commenced construction in
September 2018, and expect to deliver units in 2021.This project, when completed, will consist of 1,710 units. We started pre-sale in December 2018, and as of December 31, 2019, we had sold 1,666
units with a total GFA of 179,214 square meters.
Xingyang Splendid V. The land is located southwest of Guangwu Road and Wangcun Road in Xingyang. This project covers a site area of 34,308 square meters and is expected to have a total GFA
of 80,486 square meters, of which 78,220 square meters are for high-rise buildings, and 2,266 square meters are for retail stores. . We acquired the site in September 2014 and commenced construction
in Apirl 2019, and expect to deliver units in 2021. This project, when completed, will consist of 527 units. We started pre-sales in July 2019. As of December 31, 2019, we had sold 496 units with a total
GFA of 54,266 square meters.
Zhengzhou International New City IV B10. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 35,181 square meters and is expected to have a total
GFA of 92,294 square meters, of which 91,425 square meters are for high-rise buildings, and 869 square meters are for retail stores. We acquired the site in July 2018 and commenced construction in
September 2018, and expect to deliver units in 2021.This project, when completed, will consist of 1,432 units. We started pre-sale in December 2018, and as of December 31, 2019, we had sold 1,288
units with a total GFA of 51,211 square meters.
45
Zhengzhou International New City A04. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 19,200 square meters and is expected to have a total
GFA of 104,949 square meters, of which 102,919 square meters are for high-rise buildings, and 2,030 square meters are for retail stores. We acquired the site in May 2018 and commenced construction
in September 2018, and expect to deliver units in 2021.This project, when completed, will consist of 663 units. We started pre-sale in November 2019, and as of December 31, 2019, we had sold 512
units with a total GFA of 22,117 square meters.
Jinan, Shandong Province
Jinan Royal Palace. The land is located south of Qingyuan Road and east of Lashanhe Road in the Huaiyin District in Jinan. This project covers a site area of 140,155 square meters and is expected
to have a total GFA of 449,613 square meters, of which 399,903 square meters are for high-rise buildings, 26,081 square meters are for retail stores and 23,629 square meters are for basements. We
acquired the site in November 2013, commenced construction of this project in February 2014, and began to deliver units in 2016. This project, when completed, will consist of 6,512 units. We started
pre-sales in June 2014, and as of December 31, 2019, we had sold 5,307 units with a total GFA of 435,862 square meters.
Jinan Royal Spring Bay. The land is located in Zhangqiu District in Zhangqiu. This project covers a site area of 69,587 square meters and is expected to have a total GFA of 116,818 square meters,
of which 83,983 square meters are for high-rise buildings, 27,798 square meters are for multi-layer buildings, 987 square meters are for retail stores and 4,050 square meters are for basements. We
acquired the site in June 2018, commenced construction of this project in September 2018, and expect to deliver units in 2020. This project, when completed, will consist of 1,925 units. We started pre-
sales in December 2018, and as of December 31, 2019, we had sold 410 units with a total GFA of 46,676 square meters.
Qingdao, Shandong Province
Qingdao Royal Dragon Bay. The land is located in Huangdao District in Qingdao. This project covers a site area of 64,442 square meters and is expected to have a total GFA of 156,531 square
meters, of which 118,788 square meters are for high-rise buildings, 2,805 square meters are for retail stores, and 34,938 square meters are for multi-layer buildings. We acquired the site in July 2018,
commenced construction in August 2018, and expect to deliver units in 2021. This project, when completed, will consist of 809 units. We started pre-sales in November 2018, and as of December 31,
2019, we had sold 619 units with a total GFA of 92,978 square meters.
Kunshan, Jiangsu Province
Kunshan Xinyu Jiayuan. The land is located in Huaqiao District South of Kunshan. This project covers a site area of 18,068 square meters and is expected to have a total GFA of 107,935 square
meters, of which 103,046 square meters are for high-rise buildings, and 4,889 square meters are for office buildings. We acquired the site in July 2017 and commenced construction of this project in
December 2017, and expect to deliver units in 2020. This project, when completed, will consist of 874 units. We started pre-sales in September 2018, and as of December 31, 2019, we had sold 474
units with a total GFA of 54,138 square meters.
Suzhou, Jiangsu Province
Suzhou Galaxy Bay. The land is located in Taicang District in Suzhou. It will cover a site area of 21,183 square meters and is expected to have a total GFA of 76,546 square meters, of which 73,452
square meters are for high-rise buildings, and 3,094 square meters are for retail stores. We acquired the site in December 2017 and commenced construction of this project in July 2018, and expect to
deliver units in 2020. This project, when completed, will consist of 718 units. We started pre-sales in December 2018, and as of December 31, 2019, we had sold 711 units with a total GFA of 72,765
square meters.
46
Suzhou Gusu Shade I. The land is located in Gusu District in Suzhou. It will cover a site area of 10,063 square meters and is expected to have a total GFA of 11,957 square meters, of which 11,957
square meters are for multi-layer buildings. We acquired the site in March 2018 and commenced construction of this project in September 2018, and expect to deliver units in 2020. This project, when
completed, will consist of 78 units. We started pre-sales in November 2018, and as of December 31, 2019, we had sold 65 units with a total GFA of 8,532 square meters.
Suzhou Gusu Shade II. The land is located in Gusu District in Suzhou. It will cover a site area of 10,219 square meters and is expected to have a total GFA of 14,324 square meters, of which 14,324
square meters are for multi-layer buildings. We acquired the site in June 2018 and commenced construction of this project in Octember 2018, and expect to deliver units in 2020. This project, when
completed, will consist of 96 units. We started pre-sales in May 2019, and as of December 31, 2019, we had sold 54 units with a total GFA of 6,909 square meters.
Suzhou Suhe Bay. The land is located in Wujiang District in Suzhou. It will cover a site area of 16,627 square meters and is expected to have a total GFA of 62,561 square meters, of which 62,561
square meters are for multi-layer buildings. We acquired the site in Apirl 2018 and commenced construction of this project in autumn 2018, and expect to deliver units in 2020. This project, when
completed, will consist of 479 units. We started pre-sales in November 2018, and as of December 31, 2019, we had sold 479 units with a total GFA of 62,561 square meters.
Changsha, Hunan Province
Changsha Furong Thriving Family. The land is located in Shanmu Road of East Coast Town in Changsha. This project covers a site area of 23,418 square meters and is expected to have a total
GFA of 72,257 square meters of which 69,729 square meters are for high-rise buildings, and 2,528 square meters are for retail stores. We acquired the site in January 2017 and commenced construction
of the project in July 2017, and expect to deliver units in 2020. This project, when completed, will consist of 705 units. We started pre-sales in July 2018, and as of December 31, 2019, we had sold 701
units with a total GFA of 72,145 square meters.
Tianjin
Tianjin Spring Royal Palace II. The land is located in Sicundian Town in the Wuqing District of Tianjin. This project covers a site area of 133,499 square meters and is expected to have a total GFA
of 144,581 square meters, of which 71,602 square meters are for high-rise buildings, 1,291 square meters are for retail stores, and 71,688 square meters are for multi-layer buildings. We acquired the site
in November 2014, commenced construction in October 2015, and expect to deliver units in 2020. This project, when completed, will consist of 1,076 units. We started pre-sales in January 2018, and as
of December 31, 2018, we had sold 628 units with a total GFA of 81,623 square meters.
Chengdu, Sichuan Province
Chengdu Xinyuan City. The land is located in Pidu District in Chengdu. This project covers a site area of 200,906 square meters and is expected to have a total GFA of 741,874 square meters, of
which 716,713 square meters are for high-rise buildings, and 25,161 square meters are for retail stores. We acquired the site in Decmber 2017, commenced construction in June 2018, and expect to
deliver units in 2020. We started pre-sales in September 2018, and as of December 31, 2018, we had sold 2,111 units with a total GFA of 196,001 square meters.
Dalian, Liaoning Province
Dalian International Health Technology Town I. The land is located in Lvshunkou District in Dalian. This project covers a site area of 58,740 square meters and is expected to have a total GFA of
103,845 square meters, of which 71,676 square meters are for high-rise buildings, 5,112 square meters are for retail stores, 27,077 square meters are for multi-layer buildings. We acquired the site in
August 2018, commenced construction in October 2018, and expect to deliver units in 2020. This project, when completed, will consist of 933 units. We started pre-sales in December 2018, and as of
December 31, 2019, we had sold 54 units with a total GFA of 33,054 square meters.
47
Foshan, Guangdong Province
Foshan Xinchuang AI International Science and Technology Innovation Valley I. The land is located in Gaoming District in Foshan. This project covers a site area of 66,665 square meters and is
expected to have a total GFA of 194,404 square meters, of which 190,514 square meters are for high-rise buildings, 3,890 square meters are for retail stores. We acquired the site in May 2019,
commenced construction in May 2019, and expect to deliver units in 2021. This project, when completed, will consist of 540 units. We started pre-sales in October 2019, and as of December 31, 2019,
we had sold 103 units with a total GFA of 12,671 square meters.
Huzhou, Zhejiang Province
Huzhou Silk Town. The land is located in Wuxing District in Huzhou. This project covers a site area of 84,166 square meters and is expected to have a total GFA of 118,436 square meters, of which
113,905 square meters are for high-rise buildings, 4,530 square meters are for retail stores. We acquired the site in Autunm 2019, and expect to deliver units in 2021. This project, when completed, will
consist of 1,262 units. We started pre-sales in December 2019, and as of December 31, 2019, we had sold 87 units with a total GFA of 21,883 square meters.
U.S.
Hudson Garden project. The land is located on 10th Avenue and between 44th Street and 45th Street in Manhattan, New York. This project is expected to have a total GFA of 10,235 square meters.
We acquired the site in April 2016 and commenced construction in July 2017. This project, when completed, will consist of 92 units. We anticipate starting pre-sales in the First half of 2020.
Properties under Planning
Tongzhou Xinyuan Royal Palace. The land is located in Liyuan Town in the southern area of Tongzhou District in Beijing, and is currently under planning. It will cover a site area of 46,769 square
meters and is expected to have a total GFA of 102,300 square meters. We acquired the site in April 2016.
Xinyuan Chang’an Royal Palace. The land is located southwest corner of Shenzhou 3th Road and Aerospace Middle Road in Xi’an Aerospace Base, and is currently under planning. It will cover a
site area of 80,673 square meters and is expected to have a total GFA of 226,000 square meters. We acquired the site in May 2017.
Zhengzhou International New City (pending staging). The land is located within the south 3rd Ring Road in Zhengzhou, and is currently under planning. It will cover a site area of 206,728 square
meters and is expected to have a total GFA of 1,393,100 square meters. We acquired the site in 2017.
Lingshan Bay Dragon Seal. The land is located in Huangdao District in Qingdao. It will cover a site area of 340,400 square meters and is expected to have a total GFA of 380,000 square meters. We
acquired the site in July 2017.
Zhengzhou Hangmei Project (pending staging). The land is located in Xinzheng District in Zhengzhou. It will cover a site area of 205,201 square meters and is expected to have a total GFA of
192,700 square meters. We acquired the site in December 2017.
Wuhan Canglong Royal Palace. The land is located in Jiangxia District in Wuhan. It will cover a site area of 53,787 square meters and is expected to have a total GFA of 185,000 square meters. We
acquired the site in May 2018.
Dalian International Health Technology Town II. The land is located in Lvshunkou District in Dalian. It will cover a site area of 37,078 square meters and is expected to have a total GFA of 44,500
square meters. We acquired the site in August 2018.
Foshan Xinchuang AI International Science and Technology Innovation Valley II. The land is located in Gaoming District in Foshan. It will cover a site area of 86,775 square meters and is expected
to have a total GFA of 262,400 square meters. We acquired the site in June 2019.
Taizhou Yihe Yayuan. The land is located in Luqiao District in Taizhou. It will cover a site area of 61,107 square meters and is expected to have a total GFA of 158,354 square meters. We acquired
the site in May 2019.
48
Suzhou He'an Garden. The land is located in New District in Suzhou. It will cover a site area of 118,667 square meters and is expected to have a total GFA of 156,653 square meters. We acquired
the site in May 2019.
U.S. Flushing Project. The land is located at 135-35 Northern Blvd in Flushing, Queens, New York, and is currently under planning. It is expected to have a total GFA of 30,112 square meters. We
acquired the site in August 2016.
Completed Projects
The following table sets forth each of our completed projects as of December 31, 2019.
Project Name
Zhengzhou Longhai Star Garden
Zhengzhou Xinyuan Splendid:
Zhengzhou Xinyuan Splendid 1A
Zhengzhou Xinyuan Splendid 1B
Zhengzhou Xinyuan Splendid 2A
Zhengzhou Xinyuan Splendid 2B
Zhengzhou Xinyuan Splendid 2C
Zhengzhou Xinyuan Splendid 3A3B3C
Zhengzhou Xinyuan Splendid Haojinge
Zhengzhou Xinyuan Splendid City Homestead
Zhengzhou Xinyuan Splendid Subtotal
Zhengzhou City Manor
Zhengzhou City Family
Zhengzhou Central Garden-East
Zhengzhou Central Garden-West
Jinan City Family
Suzhou Lake Splendid
Hefei Wangjiang Garden
Suzhou Colorful Garden
Jinan Elegant Scenery
Zhengzhou Finance Square
Zhengzhou Yipin Xiangshan Phase I
Jinan International City Garden
Zhengzhou Xinyuan Colorful Garden
Xuzhou Colorful Garden
Suzhou International City Garden
Chengdu Xinyuan Splendid I
Chengdu Xinyuan Splendid II
Zhengzhou Modern City
Kunshan International City Garden
Zhengzhou Yipin Xiangshan Phase II
Zhengzhou Century East A
Location
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Jinan
Suzhou
Hefei
Suzhou
Jinan
Zhengzhou
Zhengzhou
Jinan
Zhengzhou
Xuzhou
Suzhou
Chengdu
Chengdu
Zhengzhou
Kunshan
Zhengzhou
Zhengzhou
Type of
Products
M/H/S
M/S
M
M
M
S
M/S
H
M
M
M
M/H/S
M/H/S
M
M/H/S
M/H
M/H
H/S
H
M/S
H/S
M/H
M/H
H
H
H
H/S
M/H
M/S
M/H
Completion
Date
Total Site
Area (m 2 )
Total
GFA (m 2 )
Total
Number of
Units
Number
of Units
Sold
GFA
Sold (m 2 )
11,719
35,444
21,800
23,460
19,295
9,968
51,014
8,298
23,606
192,885
63,089
21,380
60,849
79,464
47,411
130,945
51,939
41,365
61,502
8,410
57,289
93,928
74,462
46,777
119,089
34,007
30,497
60,556
200,008
81,345
22,418
39,975
62,623
43,673
39,996
27,041
21,748
114,774
31,089
45,378
386,322
118,716
39,226
165,206
190,384
61,065
198,113
145,455
81,506
100,386
67,225
94,249
264,357
191,781
101,762
204,872
231,032
217,009
231,905
497,948
200,164
76,588
239
484
333
271
86
132
792
166
369
2,633
1,633
720
1,624
1,796
785
2,326
1,649
970
1,127
917
979
4,672
2,233
858
2,436
4,081
2,782
2,934
5,133
2,209
765
239
484
333
271
86
132
792
166
369
2,633
1,633
720
1,624
1,796
785
2,326
1,649
970
1,127
917
979
4,639
2,233
858
2,435
4,081
2,782
2,934
5,132
2,209
764
39,975
62,623
43,673
39,996
27,041
21,748
114,774
31,089
45,378
386,322
118,716
39,226
165,206
190,384
61,065
198,113
145,455
81,506
100,386
67,225
94,249
263,585
191,781
101,762
204,147
231,032
217,009
231,905
497,948
200,164
76,469
12/2000
07/2002
04/2004
04/2003
06/2004
04/2004
08/2005
11/2004
08/2005
03/2006
12/2006
09/2007
09/2007
11/2007
01/2009
04/2009
04/2009
06/2009
06/2009
12/2009
01/2010
01/2010
01/2012
12/2011
06/2011
10/2012
12/2012
12/2012
01/2013
12/2013
49
Project Name
Zhengzhou Century East B
Zhengzhou Royal Palace
Suzhou Xin City
Jinan Xinyuan Splendid
Beijing Xindo Park
Zhengzhou Xin City
Xingyang Splendid I
Zhengzhou Thriving Family
Suzhou Lake Royal Palace
Shanghai Royal Palace
Chengdu Thriving Family
Sanya Yazhou Bay No.1
Kunshan Royal Palace
Changsha Xinyuan Splendid
Xi’an Metropolitan
Jinan Xin Central
Zhengzhou Xindo Park
Henan Xin Central I
Zhengzhou Fancy City I
Zhengzhou Fancy City II (South)
Kunshan Xindo Park
New York Oosten
Xingyang Splendid II
Xuzhou Colorful City
Tianjin Spring Royal Palace I
Zhengzhou International New City I
Henan Xin Central II
Xingyang Splendid III
Changsha Mulian Royal Palace
Zhengzhou International New City II
Total
Location
Type of
Products
Completion
Date
Total Site
Area (m 2 )
Total
GFA (m 2 )
Total
Number of
Units
Number
of Units
Sold
GFA
Sold (m 2 )
Zhengzhou
Zhengzhou
Suzhou
Jinan
Beijing
Zhengzhou
Zhengzhou
Zhengzhou
Suzhou
Shanghai
Chengdu
Sanya
Kunshan
Changsha
Xi’an
Jinan
Zhengzhou
Zhengzhou
Zhengzhou
Zhengzhou
Kunshan
New York
Zhengzhou
Xuzhou
Tianjin
Zhengzhou
Zhengzhou
Zhengzhou
Changsha
Zhengzhou
H
M/H
H
M/H
MU
H
H
H
M/H
H
H
MU
M/S/H
H/C
MU
MU
C
H
H
H
H/C
S
MU
M/H
M/H
H
H
H
H
H
08/2013
06/2014
09/2015
10/2015
11/2015
03/2016
03/2016
04/2016
06/2016
07/2016
08/2017
10/2017
11/2017
12/2017
11/2017
11/2017
12/2018
09/2018
12/2018
12/2018
10/2018
12/2016
12/2019
06/2019
12/2019
12/2019
12/2019
09/2019
12/2019
12/2019
51,372
45,716
51,246
200,180
57,862
61,078
40,782
44,169
114,624
28,600
75,008
78,765
145,776
89,460
85,118
51,352
40,218
86,781
50,656
27,486
47,523
8,094
60,556
45,046
131,021
89,088
37,126
47,709
32,158
41,821
166,470
135,920
127,291
572,170
133,095
210,724
115,431
131,510
169,674
57,770
203,379
117,585
280,591
251,652
285,997
194,410
134,064
261,492
166,709
84,274
89,002
30,855
118,530
130,840
139,691
356,587
109,522
121,113
90,992
176,037
1,709
2,061
1,334
7,387
1,446
2,639
1,427
1,913
1,569
622
2,515
1,605
2,658
2,952
2,602
2,715
2,170
3,177
1,725
766
1,077
216
1,575
1,453
1,050
3,135
1,360
1,518
694
1,558
1,707
2,061
1,334
7,371
1,397
2,518
1,164
1,536
1,569
535
2,462
1,553
2,603
2,923
2,463
2,645
2,160
3,012
1,477
765
1,052
177
1,456
1,302
1,045
3,046
1,128
1,084
694
1,495
166,470
135,920
127,291
566,092
123,971
208,230
113,690
129,550
169,674
46,406
195,263
114,620
278,922
246,191
271,807
186,844
133,457
253,634
159,285
82,531
86,209
21,657
98,019
122,503
131,544
350,630
103,987
118,864
90,992
170,027
3,557,725
9,068,623
104,129
101,199
8,907,910
As of December 31, 2019, we have completed 60 projects with a total GFA of approximately 9,068,623 square meters and comprising a total of 104,129 units, more than 97.2% of which have been
sold. The status of completed projects in the last three years is discussed below.
Zhengzhou Xin City. The land is located south of Yongping Road and east of Kangping Road in the New-East-Zheng District of Zhengzhou. This project covers a site area of 61,078 square meters
and is expected to have a total GFA of 210,724 square meters, of which 195,537 square meters are for high-rise buildings, 10,467 square meters are for retail stores, 4,720 square meters are for
basements. We acquired the site in December 2011, commenced construction of this project in March 2013, and began to deliver units in 2015. This project consists of 2,639 units. We started pre-sales
in September 2013, and as of December 31, 2019, we had sold 2,518 units with a total GFA of 208,230 square meters.
Zhengzhou Thriving Family. The land is located south of Bairong Road and east of Nangang Road in Zhengzhou. This project covers a site area of 44,169 square meters and is expected to have a
total GFA of 131,510 square meters, of which 113,753 square meters are for high-rise buildings, 1,135 square meters are for retail stores, 3,159 square meters are for basements and 13,463 square
meters are for public rental housing. We acquired the site in September 2013, commenced construction of this project in April 2014, and delivered it in 2016. This project consists of 1,913 units. We
started pre-sales in June 2014, and as of December 31, 2019, we had sold 1,536 units with a total GFA of 129,550 square meters.
50
Xingyang Splendid I. The land is located south of Zhengshang Road in Xingyang. This project covers a site area of 40,782 square meters and is expected to have a total GFA of 115,431 square
meters, of which 115,431 square meters are for high-rise buildings. We acquired the site in November 2013, commenced construction of this project in April 2014, and began to deliver units in 2016.
This project consists of 1,427 units. We started pre-sales in May 2014, and as of December 31, 2019, we had sold 1,164 units with a total GFA of 113,690 square meters.
Suzhou Lake Royal Palace. The land is located east of Yinshanhu Road and north of Xingguo Road in the Wuzhong economic development zone in Suzhou. This project covers a site area of
114,624 square meters and is expected to have a total GFA of 169,674 square meters, of which 117,517 square meters are for high-rise buildings, 50,747 square meters are for multi-layer buildings and
1,410 square meters are for retail stores. We acquired the site in September 2013, commenced construction of this project in April 2014, and began to deliver units in 2016. This project consists of 1,569
units. We started pre-sales in July 2014, and as of December 31, 2018, we had sold 1,569 units with a total GFA of 169,674 square meters.
Shanghai Royal Palace. The land is located in Zhaoxiang Town in the Qingpu District of Shanghai. This project covers a site area of 28,600 square meters and is expected to have a total GFA of
57,770 square meters, of which 45,652 square meters are for high-rise buildings and 12,118 square meters are for retail stores. We acquired the site in April 2014, commenced construction of this project
in August 2014, and began to deliver units in 2016. This project consists of 622 units. We started pre-sales in January 2015, and as of December 31, 2019, we have sold 535 units with a total GFA of
46,406 square meters.
Chengdu Thriving Family. The land is located in the Huayangyixin Community of Chengdu. This project covers a site area of 75,008 square meters and is expected to have a total GFA of 203,379
square meters, of which 176,477 square meters are for high-rise buildings and 26,902 square meters are for retail stores. We acquired the site in January 2014, commenced construction of this project in
June 2014, and began to deliver units in 2016. This project, when completed, will consist of 2,515 units. We started pre-sales in September 2014, and as of December 31, 2019, we had sold 2,462 units
with a total GFA of 195,263 square meters.
Sanya Yazhou Bay No.1. The land is located in the Creative Industry Park in the Yacheng Town of Sanya. This project covers a site area of 78,765 square meters and is expected to have a total GFA
of 117,585 square meters, of which 105,569 square meters are for high-rise buildings, 9,808 square meters are for multi-layer buildings and 2,208 square meters are for retail stores. We acquired the site
in January 2014, commenced construction of this project in November 2014, and began to deliver units in 2016. This project, when completed, will consist of 1,605 units. We started pre-sales in
November 2014, and as of December 31, 2019, we had sold 1,553 units with a total GFA of 114,620 square meters.
Kunshan Royal Palace. The land is located east of Xihuan Road and south of Guiyi Road in the Huaqiao Town in Kunshan. This project covers a site area of 145,776 square meters and is expected
to have a total GFA of 280,591 square meters, of which 65,178 square meters are for multi-layer buildings, 205,445 square meters are for high-rise buildings, 640 square meters are for basements and
9,328 square meters are for retail stores. We acquired the site in October 2013, commenced construction of this project in October 2013, and began to deliver units from 2015. This project, when
completed, will consist of 2,658 units. We started pre-sales in November 2013, and as of December 31, 2019, we had sold 2,603 units with a total GFA of 278,922 square meters.
Changsha Xinyuan Splendid. The land is located on Dongfanghong South Road in the Yuelu District of Changsha. This project covers a site area of 89,460 square meters and is expected to have a
total GFA of 251,652 square meters, of which 229,366 square meters are for high-rise buildings and 22,286 square meters are for retail stores. We acquired the site in March 2014, commenced
construction of this project in August 2014, and began to deliver units in 2016. This project, when completed, will consist of 2,952 units. We started pre-sales in November 2014, and as of December 31,
2019, we had sold 2,923 units with a total GFA of 246,191 square meters.
Xi’an Metropolitan. The land is located north of Fenghe Road in Xi’an. This project covers a site area of 85,118 square meters and is expected to have a total GFA of 285,997 square meters, of
which 207,080 square meters are for high-rise buildings, 16,119 square meters are for retail stores, and 62,798 square meters are for office buildings. We acquired the site in July 2014, commenced
construction of this project in December 2014, and began to deliver units in 2016. This project, when completed, will consist of 2,602 units. Pre-sales started in December 2014, and as of December 31,
2019, we had sold 2,463 units with a total GFA of 271,807 square meters.
51
Jinan Xin Central. The land is located south of Huayuan Road and west of Huaxin Road in Jinan. This project covers a site area of 51,352 square meters and is expected to have a total GFA of
194,410 square meters, of which 99,284 square meters are for high-rise buildings, 32,371 square meters are for retail stores, 51,022 square meters are for office buildings, 6,231 square meters are for
public rental housing and 5,502 square meters are for basements. We acquired the site in March 2015, commenced construction of this project in May 2015, and began to deliver units in 2016. This
project, when completed, will consist of 2,715 units. We started pre-sales in May 2015, and as of December 31, 2019, we had sold 2,645 units with a total GFA of 186,844 square meters.
Zhengzhou Xindo Park (commercial). The land is located south of Bairong Road and west of Daxue Road in Zhengzhou. This project covers a site area of 40,218 square meters and is expected to
have a total GFA of 134,064 square meters, of which 109,948 square meters are for office buildings and 24,116 square meters are for retail stores. We acquired the site in September 2013, commenced
construction of this project in January 2015, and began to deliver units in 2017. This project, when completed, will consist of 2,170 units. We started pre-sales in April 2015, and as of December 31,
2019, we had sold 2,160 units with a total GFA of 133,457 square meters.
Henan Xin Central I. The land is located south of Bairong Road and east of Xingyuan Road in Zhengzhou. This project covers a site area of 86,781 square meters and is expected to have a total
GFA of 261,492 square meters, of which 210,939 square meters are for high-rise buildings, 16,028square meters are for retail stores, 26,040 square meters are for public rental housing and 8,485 square
meters are for basements. We acquired the site in December 2014 and commenced construction in July 2015, and began to deliver units in 2017. This project, when completed, will consist of 3,177
units. We started pre-sales in July 2015, and as of December 31, 2019, we had sold 3,012 units with a total GFA of 253,634 square meters.
Zhengzhou Fancy City I. The land is located south of Dingsheng Road and west of Siji Road, in Zhengzhou. This project covers a site area of 50,656 square meters and is expected to have a total
GFA of 166,709 square meters, of which 134,039 square meters are for high-rise buildings, 10,167 square meters are for retail stores, 16,741 square meters are for public rental housing and 5,762 square
meters are for basements. We acquired the site in December 2014 and commenced construction in September 2015, and began to deliver units in 2017. This project, when completed, will consist of
1,725 units. We started pre-sales in October 2015, and as of December 31, 2019, we had sold 1,477 units with a total GFA of 159,285 square meters.
Zhengzhou Fancy City II (South). The land is located west of Songshan Road within the 4th Ring Road in Zhengzhou. This project covers a site area of 27,486 square meters and is expected to have
a total GFA of 84,274 square meters, of which 78,445 square meters are for high-rise buildings, 3,628 square meters are for retail stores and 2,201 square meters are for basements. We acquired the site
in April 2016 and commenced construction in June 2016, and expect to deliver units in 2018. This project, when completed, will consist of 766 units. We started pre-sales in June 2016, and as of
December 31, 2019, we had sold 765 units with a total GFA of 82,531 square meters.
Kunshan Xindo Park. The land is located in the Huaqiao area of Kunshan, which is within the Shanghai Outer Ring Expressway. This project covers a site area of 47,523 square meters and is
expected to have a total GFA of 89,002 square meters, of which 72,750 square meters are for high-rise buildings and 16,252 square meters are for retail stores. We acquired the site in April 2016,
commenced construction of this project in July 2016, and expect to deliver units in 2018. This project, when completed, will consist of 1,077 units. We started pre-sales in July 2016, and as of December
31, 2018, we had sold 1,052 units with a total GFA of 86,209 square meters.
Xingyang Splendid II. The land is located south of Zhengshang Road in Xingyang. This project covers a site area of 60,556 square meters and is expected to have a total GFA of 118,530 square
meters, of which 118,530 square meters are for high-rise buildings. We acquired the site of 7,577 square meters in November 2013 and 52,979 square meters in August 2014, commenced construction of
this project in December 2014, and began to deliver units in 2017. This project, when completed, will consist of 1,575 units. We started pre-sales in December 2014, and as of December 31, 2019, we
had sold 1,456 units with a total GFA of 98,019 square meters.
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Xuzhou Colorful City. The land is located south of Kuangshan Road in the Quanshan District in Xuzhou. This project covers a site area of 45,046 square meters and is expected to have a total GFA
of 130,840 square meters, of which 17,600 square meters are for multi-layer buildings, 93,889 square meters are for high-rise buildings 6,972 square meters are for retail stores and 12,379 square meters
are for basements. We acquired the site in December 2011, commenced construction of this project in June 2013, and began to deliver units in 2016. This project, when completed, will consist of 1,453
units. We started pre-sales in November 2013, and as of December 31, 2019, we had sold 1302 units with a total GFA of 122,503 square meters.
Tianjin Spring Royal Palace I. The land is located in Sicundian Town in the Wuqing District of Tianjin. This project covers a site area of 131,021 square meters and is expected to have a total GFA
of 139,691 square meters, of which 73,383 square meters are for high-rise buildings, 5,328 square meters are for retail stores, and 60,979 square meters are for multi-layer buildings. We acquired the site
in November 2014, commenced construction in October 2015, and began to deliver units in 2017. This project, when completed, will consist of 1,050 units. We started pre-sales in October 2015, and as
of December 31, 2019, we had sold 1,045 units with a total GFA of 131,544 square meters.
Zhengzhou International New City I. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 89,088 square meters and is expected to have a total GFA of
356,587 square meters, of which 292,330 square meters are for high-rise buildings, 21,896 square meters are for retail stores, 36,789 for public rental housing and 5,573 square meters are for basements.
We acquired the site in February 2016 and commenced construction in August 2016, and expect to deliver units in 2018. This project, when completed, will consist of 3,135 units. We started pre-sales in
September 2016, and as of December 31, 2019, we had sold 3,046 units with a total GFA of 350,630 square meters.
Henan Xin Central II. The land is located south of Bairong Road and Xingyuan Road in Zhengzhou. This project covers a site area of 37,126 square meters and is expected to have a total GFA of
109,522 square meters, of which 92,687 square meters are for high-rise buildings, 3,947 square meters are for retail stores, 1,654 square meters are for basements and 11,234 square meters are for public
rental housing. We acquired the site in December 2014 and commenced construction in September 2016, and expect to deliver units in 2018. This project, when completed, will consist of 1,360 units.
We started pre-sales in October 2016, and as of December 31, 2019, we had sold 1,128 units with a total GFA of 103,987 square meters.
Xingyang Splendid III. The land is located south of Zhengshang Road in Xingyang. This project covers a site area of 47,709 square meters and is expected to have a total GFA of 121,113 square
meters, of which 117,505 square meters are for high-rise buildings and 3,608 square meters are for retail stores. We acquired the site in September 2013 and commenced construction in June 2017, and
expect to deliver units in August 2019. This project, when completed, will consist of 1,518 units. We started pre-sales in June 2017. As of December 31, 2019, we had sold 1,084 units with a total GFA
of 118,864 square meters.
Changsha Mulian Royal Palace. The land is located in the Yuhua District of Changsha. This project covers a site area of 32,158 square meters and is expected to have a total GFA of 90,992 square
meters, of which 57,033 square meters are for high-rise buildings, 32,351 square meters are for multi-layer building and 1,608 square meters are for retail stores. We acquired the site in October 2016
and commenced construction in May 2017, and expect to deliver units in August 2019. This project consisted of 694 units. We started pre-sales in August 2017, and all of the 694 units have been sold.
Zhengzhou International New City II. The land is located within the south 3rd Ring Road in Zhengzhou. This project covers a site area of 41,821 square meters and is expected to have a total GFA
of 176,037 square meters, of which 159,563 square meters are for high-rise buildings, 12,708 square meters are for retail stores and 3,766 square meters are for basements. We acquired the site in July
2016 and commenced construction in July 2017, and expect to deliver units in 2019. This project, when completed, will consist of 1,558 units. We started pre-sale in August 2017, and as of December
31, 2019, we had sold 1,495 units with a total GFA of 170,027 square meters.
New York Oosten. The land is located in the Williamsburg neighborhood of Brooklyn, New York, United States. This project covers a site area of 8,094 square meters and is expected to have a total
GFA of 30,855 square meters for sub-high-rise buildings. We acquired the site in September 2012, commenced construction of this project in November 2013, and began to deliver units in 2016. This
project consists of 216 units. Presales started in June 2014, and as of December 31, 2019, 177 units with a total GFA of 21,657 square meters had been sold.
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Properties Held for Lease
Xinyuan Priority Lifestyle Shopping Center. In 2012, we began to hold and manage our first retail property, Xinyuan Priority Lifestyle Shopping Center, located in Zhengzhou city, Henan Province.
As part of the Zhengzhou Modern City project, the shopping center has a construction GFA of 47,109 square meters. The shopping center formally opened in September 2013 and provided retail
services, including fashion and jewelry, leisure and entertainment, food and beverage, a supermarket, children’s education and other ancillary services, appealing to mid-to-high income customers within
a radius of three to five kilometers. We have already set up a team specialized in commercial space planning and execution under the administration of Henan Xinyuan Priority Commercial Management
Co., Ltd., one of our subsidiaries that specializes in retail property management.
Xi’an Xinyuan Metropolitan Shopping Center. In 2016, we completed the Xi’an Xinyuan Metropolitan Shopping Center, located in Xi’an, Shaanxi Province. As part of the Xi’an Metropolitan
project, the shopping center has a construction GFA of 116,288 square meters. The Xi’an Metropolitan Shopping Center formally opened in December 2016 and provides retail services including
fashion, food and beverage, family activities, jewelry and clothing, a movie theater, and education, among other services, appealing to customers within a radius of three to five kilometers. The shopping
center is managed by Xi’an Xinyuan Metropolitan Business Management Co. Ltd., one of our subsidiaries that specializes in retail property management.
Xingyang Xindo Park Shopping Center. In 2017, we completed the Xingyang Xindo Park Shopping Center, located in Xingyang, Henan Province. As part of the Xingyang Splendid II project, the
shopping center has a construction GFA of 15,419 square meters. The Xingyang Xindo Park Shopping Center formally opened in October 2017 and provides retail services including a supermarket,
food and beverage, jewelry and clothing, leisure and entertainment, family activities, a movie theater and other ancillary services, appealing to customers within a radius of three to five kilometers. The
shopping center is managed by Henan Xinyuan Priority Commercial Management Co., Ltd., one of our subsidiaries that specializes in retail property management.
Changsha Xindo Park Shopping Center. In 2017, we completed the Changsha Xindo Park Shopping Center, located in Changsha, Hunan Province. As part of the Changsha Xinyuan Splendid
project, the shopping center has a construction GFA of 12,187 square meters. The Changsha Xindo Park Shopping Center formally opened in August 2017 and will provide retail services including
children’s education, a supermarket, food and beverage, a beauty and fitness center and other ancillary services, appealing to customers within a radius of three to five kilometers. The shopping center is
managed by Hunan Huaiwei Business Management Co., Ltd., one of our subsidiaries that specializes in retail property management.
Chengdu Xindo Park Shopping Center. In 2017, we completed the Chengdu Xindo Park Shopping Center, located in Chengdu, Sichuan Province. As part of the Chengdu Thriving Family project,
the shopping center has a construction GFA of 18,936 square meters. The Chengdu Xindo Park Shopping Center formally opened in October 2018 and provides retail services including a supermarket,
clothing, food and beverage, leisure and entertainment, children’s education, a movie theater and other ancillary services, appealing to customers within a radius of three to five kilometers. The shopping
center is managed by Chengdu Xinyuan Commercial Management Co., Ltd., one of our subsidiaries that specializes in retail property management.
Zhengzhou Xindo Park Shopping Center. In 2018, we completed the Zhengzhou Xindo Park Shopping Center, located in Zhengzhou, Henan Province. As part of the Zhengzhou Xindo Park project,
the shopping center has a construction GFA of 24,423 square meters. The Zhengzhou Xindo Park Shopping Center formally opened in October 2018 and provides retail services including a
supermarket, food and beverage, leisure and entertainment, children’s education, a movie theater and other ancillary services, appealing to customers within a radius of three to five kilometers. The
shopping center is managed by Henan Xinyuan Priority Commercial Management Co., Ltd., one of our subsidiaries that specializes in retail property management.
Kunshan Xindo Park Shopping Center. In 2018, we completed the Kunshan Xindo Park Shopping Center, located in Kunshan, Jiangsu Province. As part of the Kunshan Xindo Park project, the
shopping center has a construction GFA of 3,904 square meters. The Kunshan Xindo Park Shopping Center formally opened in March 2019 and provides retail services including a supermarket, food
and beverage, children’s education, a movie theater and other ancillary services, appealing to customers within a radius of three to five kilometers.
Target Shopping Center. Target will occupy approximately 28,090 square feet, or 81%, of the retail space to operate a full-service Target store featuring both their retail department store as well as
their grocery store. Target has taken possession of the space and is currently building out their store with a plan to open for business this summer.
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Our Property Development Operations in China
We have a systematic and standardized process to project development in China, which we implement through several well-defined phases. A significant portion of our process is dedicated to land
acquisition, which is segmented into three stages: (i) opportunity identification, (ii) initial planning and budgeting and (iii) land acquisition. The following diagram sets forth the key stages of our
property development process.
LAND ACQUISITION PROCESS
Project Planning
and Design
Project Construction
and Management
Pre-sale, Sale
and Marketing
After-sale
and Delivery
Opportunity
Identification
- Strategic planning
- Geographic and
market analysis
- Auction opportunity
research
Initial Planning
- Feasibility study
- Preliminary design
- Costing and
financial
evaluation
Land
Acquisition
- Financial
projection
- Internal approval
- Bidding process
Opportunity Identification
- Outsource architectural
and engineering design
- Design management
- Arrange financing
- Outsource construction
- Pre-sale
- Construction supervision
- Quality control
- Completion inspection
- Landscaping and fixture installation
- Marketing
- Advertising
- Customer financing
- Delivery
- Registration
assistance
- Feedback collection
- Property
management
The first stage of our development process involves the identification of new opportunities for upcoming land auctions or acquisition of entities in our selected high growth cities around China. Our
Land Development Department prepares a strategic plan that specifies our future project development plans and land acquisition requirements. They also conduct in-depth demographic and market
research regarding our selected cities. We have formulated a set of criteria in selecting suitable high growth cities to expand our operations based on certain indicators, including, among others:
• middle to upper rankings in economic strength;
•
•
•
•
•
populations greater than five million;
clear city development and planning;
sustainable land supply at reasonable prices for future developments;
acceptable competition levels in the real estate market; and
lower level of property speculation.
Initial Planning and Budgeting
Once an upcoming land auction or acquisition has been identified, our Land Development Department will conduct a feasibility study based on our collected data as well as preliminary design and
pre-planning of the proposed development project on the land site. We will also budget costs and financial requirements for the proposed project to identify whether the land site is suitable for our
requirements.
The key factors we consider in land site selection are:
•
•
•
•
•
•
site area and suitability;
location within the city;
neighboring environment and amenities;
existing or planned infrastructure;
announced government planning for the vicinity; and
projected cost, investment and financial return ratios.
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We evaluate projects through a rigorous planning and approval process. We consider detailed input from each of our Land Development Department, Planning-Design Department, Operations
Department, Financial Department and local team. The proposed project, once vetted and approved by various departments, will be submitted to the investment committee of our board for approval.
Land Acquisition
Once we receive approval for a proposed project, we will proceed to bid for the land site. We acquire land for development primarily through the governmental auction process, or acquisition of
entities. When deciding to whom the land use rights should be granted, the relevant authorities and entities may consider not only the bidding price, but also the bidder’s real estate
development experience, development track record, credit history, qualification and development proposal in connection with their local zoning, urbanization and development plans.
If opportunities arise, we will also consider obtaining land use rights from third parties through negotiation, co-development or other joint venture arrangements. We decide on whether to develop
by ourselves or to partner with third business partners through joint ventures or associations, by taking into account various factors, such as estimated land acquisition costs, the development scales of
the potential projects, the specialty and resources possessed by the potential business partner, as well as the expected commercial terms available to us upon negotiation. With portions of initial capital
contributed by the third-party business partners, we can invest in property projects with relatively lower capital outlay.
Project Planning and Design
Our project planning and design process includes concept and architectural design, budgeting, quality control, output examination as well as customer experience after delivery review. We believe
careful planning is essential to control costs, build quality and improve efficiency of our development schedule.
We outsource substantially our design work to reputable third-party design firms. Our design team works closely with our external designers and architects to ensure that our designs comply with
PRC laws and regulations, and meet our design, smart house and other project objectives. Our senior management is also actively involved in the process, especially in the master planning and
architectural design of our projects.
Project Construction and Management
We outsource all of our construction work to independent construction companies which are selected mainly through our invitation to tender bids for the project. We generally hire more than one
contractor for each of our projects, with each contractor responsible for a designated portion of the project on a “turnkey” basis. We have established a selection procedure in order to ensure compliance
with our quality and workmanship standards. We closely supervise and manage the entire project construction process, utilizing our enterprise resource planning systems to monitor and analyze
information regarding the process on a real-time basis. We collect information throughout the development cycle on the entire project, including information from our third-party contractors, to avoid
unanticipated delays and cost overruns.
Pre-Sales, Sales and Marketing
Like other developers, we pre-sell properties prior to the completion of their construction in mainland China. Under PRC pre-sales regulations, property developers must satisfy specific conditions
before they can pre-sell their properties under construction. The major mandatory conditions include:
•
•
•
•
•
the land premium must have been paid in full;
the land use rights certificate, the construction site planning permit, the construction work planning permit and the construction permit must have been obtained;
at least 25% of the total project development cost must have been incurred;
the progress and the expected completion and delivery date of the construction must be fixed;
the pre-sale permit must have been obtained; and
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•
certain milestones in the construction processes specified by the local government authorities must have been completed.
These major mandatory conditions are designed to require a certain level of capital expenditure and substantial progress in project construction before the commencement of pre-sales. Generally,
the local governments also require developers and property purchasers to use standard pre-sale contracts prepared under the auspices of the government. Developers are required to file all pre-sale
contracts with local land bureaus and real estate administrations after entering into such contracts.
We maintain an internal marketing and sales force for our development projects and also use outside sales agencies for all of our projects and some of our projects also utilize our internal sales. Our
marketing and sales teams work closely with each other and with our external sales agents to survey the demographics for a particular project area to determine the appropriate advertising, promotion,
and selling plans for that project. We develop customer awareness through our marketing and promotion efforts and through referrals from satisfied customers. A sales team at each project is responsible
for following through on the entire sales process including setting monthly sales targets, controlling prices, implementing special promotions, monitoring external sales agency performance, and
processing customer feedback.
Most of our customers purchase our properties using mortgage financing. The maximum loan-to-value ratio of the mortgage loan is also subject to change according to the economic policies of the
central and local governments and banks in China. A typical sales transaction in which a portion of the purchase price is financed by a mortgage loan consists of three steps. First, the customer pays a
deposit to us. Within seven days after paying the deposit, the customer will sign a purchase contract with us and make down payment to us in cash. After making the down payment, the customer
arranges for a mortgage loan for the balance of the purchase price. Once the loan is approved, the mortgage loan proceeds are paid to us directly by the bank. Finally, we deliver the property to the
customer. Legal title, as evidenced by a property ownership certificate issued by local land and construction bureaus, may not pass for a period of six to twelve months following delivery and
acceptance.
After-Sale Services and Delivery
We assist customers in arranging for and providing information relating to financing. We also assist our customers in various title registration procedures relating to their properties, and we have set
up an ownership certificate team to assist purchasers to obtain their property ownership certificates. We offer various communication channels to customers to provide their feedback about our products
or services. We also cooperate with property management companies that manage our properties and ancillary facilities, such as schools and clubhouses, to handle customer feedback.
We endeavor to deliver the units to our customers on a timely basis. We closely monitor the progress and quality of construction of our property projects and conduct pre-delivery property
inspections to ensure timely and qualified delivery. The time frame for delivery is set out in the sale and purchase agreements entered into with our customers, and according to purchase agreements, we
are subject to penalty payments to the purchasers for delay in delivery caused by us. Once a property development has been completed, has passed the requisite government inspections and is ready for
delivery, we notify our customers and hand over keys and possession of the properties.
To ensure quality property management, we provide property management services to purchasers until they have become statutorily entitled to elect their own property management companies. As
of December 31, 2019, owners of all of our developments who had become statutorily entitled to elect their property management companies had continued to choose us to manage their properties.
Our property management services include security, landscaping, building management and management of public facilities and equipment, and additional services, such as cultural activities,
housekeeping and repair. We are currently managing approximately 20.06 million square meters, comprising more than 126,539 residential units.
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Our U.S. Property Development Operations
We expanded into the United States market in 2012. Investment decisions with respect to the United States market are carried out through the investment committee of our board of directors. We
currently seek investment opportunities mainly through off-market transactions, including resales and distressed sales. We currently consider the following factors when selecting a project:
•
•
•
Geographic location. We intend to focus in areas that are economically active and diversified, and attractive to immigrants on the east and the west coasts.
Risk adjusted financial returns.
Funding opportunities.
We set up a specialized United States project team in 2012, comprised of U.S. local consultants and employees with substantial experience and understanding in various areas of the U.S. real estate
market. As of December 31, 2019, we have a team of about seven people in the United States. Their major responsibilities include project research, land valuation, property development management,
contracts, and contract terms verification. We also work with outside consultants and agents familiar with the United States markets.
To date, our acquisitions in the United States have been opportunistic and have not followed a specific development model. Our first property development project in the United States, named the
New York Oosten Project, is in the Williamsburg neighborhood of Brooklyn, New York. We commenced construction of the development project in November 2013. We started marketing and pre-sale
of our property upon receiving approval from the state attorney general in March 2014. As of December 31, 2019, we delivered 177 of 216 units with a total GFA of 21,657 square meters for a total of
US$260.1 million.
In January 2016, we also acquired a parcel of land in midtown Manhattan, New York, for US$57.5 million. The land allows for approximately 10,235 sellable & rentable square meters. Our Hudson
Garden project in Manhattan, New York has completed construction up to the 6th floor. With design drawing optimization, the total number of units increased from 82 to 92.
In August 2016, we acquired a parcel of land in the Flushing neighborhood of Queens, New York for US$66.0 million. The land allows for approximately 30,112 sellable & rentable square meters.
We continue to progress the planning, governmental approvals and pre-development activities of our ground-up development project of a landmarked property in Flushing, New York. We continue to
execute on planning, governmental approvals, and pre-development of our ground-up development project in Flushing, New York. After the Landmark Protection Committee’s approval on our
landmark protection plan, we were awarded with a Certificate of Appropriateness.
Our Leased Properties and Real Estate Related Services
Ancillary to our property development operations, we also lease certain properties, including an elementary school, two basements, seven clubhouses, thirteen parking facilities, fifteen
kindergartens, seven shopping malls and a department. The rental income of our lease operations represented approximately 0.4%, 0.4% and 0.7% respectively, of our revenues for the years ended
December 31, 2017, 2018 and 2019.
We provide property management services through Xinyuan Science and Technology Service Co., Ltd. For the years ended December 31, 2017, 2018 and 2019, revenues from our real estate related
services represented 2.1%, 2.9% and 2.7% of our total revenue for those periods, respectively.
Quality Control
We emphasize quality control to ensure that our buildings and residential units meet our standards and provide high quality service. We select only experienced design and construction companies.
We provide customers with warranties covering the building structure and certain fittings and facilities of our property developments in accordance with the relevant regulations. To ensure construction
quality, our construction contracts contain quality warranties and penalty provisions for poor work quality. In the event of delay or poor work quality, the contractor may be required to pay pre-agreed
penalties, damages, as well as compensation we paid to customers for late delivery, under our construction contracts. Our construction contracts do not allow our contractors, without prior consent from
us, to subcontract or transfer their contractual arrangements with us to third parties. We typically withhold 5% of the agreed construction amount for two to five years after completion of the
construction as a deposit to guarantee quality, which provides us assurance for our contractors’ work quality.
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Our contractors are also subject to our quality control procedures, including examination of materials and supplies, on-site inspection and production of progress reports. We require our contractors
to comply with relevant laws and regulations of the jurisdictions in which we operate, as well as our own standards and specifications. We also employ independent surveyors to supervise the
construction progress. In addition, the construction of real estate projects is regularly inspected and supervised by PRC governmental authorities and the relevant authorities of the jurisdictions in which
we operate.
Competition
The real estate industry in China is highly competitive. We compete primarily with local and regional property developers, but an increasing number of large national property developers have also
started to enter these markets. Competitive factors include the geographical location of the projects, the types of products offered, brand recognition, price, design and quality. See “Item 3. Key
Information — D. Risk Factors — Risks Relating to the Residential Property Industry in China — We face intense competition from other real estate developers.” In the cities in which we operate, our
major competitors include China Overseas Property Ltd., China Vanke Co., Ltd., Sunshine 100, China Resources Land Limited, Sunac China Holding Limited, Henan Zhengshang Real Estate Co., Ltd.,
Evergrand Group, Longfor Real Estate Co., Ltd, Greenland Group, China Overseas Property, Country Garden, and KWG Property Holding Ltd.
In the United States, we anticipate that our direct competition may come from developers of adjacent projects or other property developers in target markets. In addition, we may also face
competition from other Chinese real estate developers expanding or establishing their business in the United States.
Intellectual Property Rights
We rely on a combination of trademarks, service marks, domain name registrations, copyright protection and contractual restrictions to establish and protect our brand name and logos, marketing
designs and internet domain names.
We have registered the trademark of “(cid:0)(cid:0)” and the associated logo for the real estate related service in the PRC. We have also applied the same trademark to other goods and services directly or
indirectly related to our business operations, to strengthen the protection of our trademark and brand. All these trademark applications are registered or pending examination and approval. We have also
registered the Internet domain name “www.xyre.com” and other related domain names.
We own trademarks for “(cid:0)(cid:0)” in the form of Chinese characters and our company logo in the United States, UK, EU, New Zealand, Australia, Singapore, Korea, Hong Kong and Cayman Islands.
We also hold the international registration of our company logo issued by the International Trademark System.
In the PRC, the registration and protection of a company’s corporate name is regional and limited to its related industry. Although we have registered our corporate name “Xinyuan” in the provinces
where we operate, we cannot prevent others from registering the same corporate name in other provinces or in other industries. If a company first registers “Xinyuan” as its corporate name in a province
other than Henan Province, Shandong Province, Jiangsu Province, Anhui Province and Sichuan Province or in another industry, we will have to adopt another corporate name if we plan to enter that
market or industry.
Insurance
We obtain insurance against losses or damage to our PRC properties during the construction phase of our projects. We do not maintain insurance policies for properties that we have delivered to our
customers. Although we require our contractors to maintain insurance coverage on our properties under construction, typically they do not do so, which we believe is customary practice in China. We
believe that third-party contractors should bear liabilities from tortious acts or other personal injuries on our project sites, and we do not maintain insurance coverage against such liabilities. There are
certain types of losses, such as losses from natural disasters, terrorist attacks, construction delays and business interruptions, for which insurance is either not available or not available at a reasonable
cost. We believe our practice is consistent with the customary industry practice in China.
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With respect to our U.S. operations, we follow local requirements and maintain insurance coverage for projects through the end of the construction.
Environmental Matters
As a developer of property in the PRC, we are subject to various environmental laws and regulations set by the PRC national, provincial and municipal governments. These include regulations on
air pollution, noise emissions, as well as water and waste discharge. We have never been required to pay any penalties associated with the breach of any such laws and regulations in the past.
Compliance with existing environmental laws and regulations has not had a material adverse effect on our financial condition and results of operations, and we do not believe it will have such an impact
in the future.
Our projects are normally required to undergo an environmental impact assessment by government-appointed third parties, and a report of such assessment needs to be submitted to the relevant
environmental authorities in order to obtain their approval before commencing construction. Upon completion of each project, the relevant environmental authorities inspect the site to ensure the
applicable environmental standards have been complied with, and the resulting report is presented together with other specified documents to the relevant construction administration authorities for their
approval and record. Approval from the environmental authorities of such report is required before we can deliver our completed work to our customers. In the past, we have not experienced any
difficulties in obtaining those approvals for commencement of construction and delivery of completed projects. However, we cannot assure you that we will not experience any difficulties in the future.
See “Item 4. Information on the Company — B. Business Overview — Regulation — China — Regulations on Environmental Protection in Construction Projects.”
In connection with our current and any future properties in the United States, our relevant property subsidiaries are or will be subject to a variety of local, state and federal statutes, ordinances, rules
and regulations concerning the protection of health and the environment. The particular environmental laws which apply to any given community, will vary according to the site, its location, the site’s
environmental conditions and the present and former use of the site. Likewise, the particular procedures and approval or other requirements will vary from project to project.
Regulation
China
The PRC government regulates the real estate industry. This section summarizes the principal PRC regulations relating to our business.
We operate our business in China under a legal regime consisting of the National People’s Congress, the PRC State Council, which is the highest authority of the executive branch of the PRC
central government, and several ministries and agencies under its authority, including the MOHURD, MLR, the MOFCOM, the NDRC, the SAIC, the SAFE, and their respective authorized local
counterparts.
Regulations on Land
The Law of the PRC on Land Administration, implemented on June 25, 1986 and amended on December 29, 1988, August 28, 2004 and August 26, 2019 by the Standing Committee of National
People’s Congress, distinguishes between the ownership of land and the right to use land. All land in the PRC is either state-owned or collectively-owned, depending on location. Generally, land in
urban areas within a city or town is state-owned, and all land in the rural areas of a city or town and all rural land, unless otherwise specified by law, are collectively-owned.
Although all land in the PRC is owned by the governments or by the collectives, private individuals and businesses are permitted to hold, lease and develop land for a specified term without ever
owning the land, the duration of which depends on the use purpose of the land. These rights to use land are termed land use rights.
Under the Interim Regulations of the PRC on Grant and Transfer of the Right to Use State-owned Land in Urban Areas, implemented on and effective as of May 19, 1990 by the PRC State Council,
enterprises, companies and other organizations who intend to hold, lease and develop the land (each, a “Land User”), pay a premium to the government as consideration for the grant of the land use
rights on terms of use prescribed by the government, and a Land User may transfer, lease and mortgage or otherwise commercially exploit the land use rights within such terms of use. The land
administration authority enters into a contract with the Land User for grant of the land use rights. The Land User pays the grant premium as stipulated in the grant contract. After paying the grant
premium in full, the Land User registers with the land administration authority and obtains a land use rights certificate. The certificate evidences the acquisition of the land use rights.
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The Regulations on the Grant of State-Owned Construction Land Use Rights through Competitive Bidding, Auction and Listing-for-Sale (formerly known as the Regulation on the Grant of State-
Owned Land Use Rights through Competitive Bidding, Auction and Listing-for-Sale), implemented by the MLR on May 9, 2002 and amended on September 28, 2007, provides that the land for
industrial use (except for mining), commercial use, tourism, entertainment and commodity housing development is granted by way of competitive bidding, public auction or listing-for-sale. The land use
rights are granted to the bidder with the highest bid/tender in accordance with the terms and conditions of the bid/tender, or to the bidder who can best fulfill the comprehensive evaluation standards of
the bid. The successful bidder/tender will then enter into a grant contract with the local land administration authority. Only after the successful bidder/tender has paid the land premium in full under the
land grant contract, can the successful bidder/tender apply for the land registration and obtain the land use right certificate.
The Property Law of the PRC, or the Property Law, implemented on March 16, 2007 and effective as of October 1, 2007, further clarified land use rights in the PRC with the following rules:
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the land use rights for residences will be automatically renewed upon expiry;
the car parks and garages within the building area planned for vehicle parks must be used to meet the needs of the owners who live in the building first;
the construction of buildings must abide by relevant laws and regulations with regard to the construction planning and may not affect the ventilation of or lighting to the neighboring buildings;
and
where the land use rights for construction use are transferred, exchanged, used as a capital contribution, donated to others or mortgaged, an application for modification registration must be
filed with the registration department.
In accordance with the Notice on Further Strengthening the Administration of the Costs and Revenues Associated with Land Grant, jointly issued by the MOF, the MLR, the PBOC, the Ministry of
Supervision and the National Audit Office on November 18, 2009, all payments for land use rights paid for through installments must be made in full within one year in principle. In certain
circumstances the payment term may be extended to two years upon the approval of the competent authorities. In addition, the initial installment payment may not be less than 50% of the overall
amount owed for the land use rights. The notice also provides that the local-level governments should strictly enforce relevant regulations to impose penalties on real estate developers that have delayed
the payment of land premiums or construction for reasons other than force majeure or restrict such developers from acquiring new land during the period such payments are delayed.
The Circular of the MLR and the MOHURD on Further Strengthening Administration over Land-use and Constructions of Real Estate, implemented on September 21, 2010, specifies that when
any bidder participates in a competitive bidding, public auction or listing-for-sale, in addition to the provision of a valid identification certificate and payment of bidding deposit, the bidder shall be also
required to submit (i) a letter of commitment specifying that the bidding deposit is not from a bank loan, shareholder loan, etc., and (ii) a credit certificate issued by a commercial financial institution. If
the land is left idle for more than one year by a real estate developer, the developer and its controlling shareholder shall be prohibited from taking part in any competitive bidding, public auction or
listing-for-sale for the grant of land use rights. Furthermore, real estate developers must commence the construction of a housing project within one year from the date of delivery of the land as
stipulated in the land grant contract, and complete the construction within three years from the date of commencement of construction.
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The Emergency Notice on Further Tightening the Administration on Real Estate Land Use and Reinforcing the Control Results of Real Estate Market implemented on July 19, 2012, further
emphasized the strict enforcement of current regulations on land grants:
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the plot area ratio for residential land shall not be less than 1.0;
for all types of housing construction projects, construction work shall be commenced within one year of the date when the land is delivered as set forth in the land grant contract and shall be
completed within three years after its commencement date;
the bidding deposit for a land grant shall not be less than 20% of the base price; and
the land grant contract shall be signed within 10 working days after a land grant deal is concluded, a down payment of 50% of the land premium shall be made within one month after signing
the contract, and the remaining payment shall be made in a timely manner in accordance with the contract; in no event should it be more than one year.
On May 22, 2014, the MLR issued the Provisions on the Economical and Intensive Use of Land, which took effect on September 1, 2014 and amended on July 24, 2019. It provides that commercial
land shall be granted via tender, auction and listing process to determine the user and the price. Compensation for all types of land supply shall not be lower than the minimum standard stipulated by the
government. It is prohibited to reduce or relieve the land grant price in a disguised form by way of exchanging projects with land, returning fees after collecting them or granting subsidies or awards.
On November 24, 2014, the PRC State Council issued Interim Regulations on Real Estate Registration, which took effect on March 1, 2015 and amended on March 24, 2019. It stipulates the
registration authorities and the procedures for registration of rights of real estate rights, including land use rights, which applies to first registration, change of registration, transfer of registration,
cancellation of registration, correction of registration, dissidence registration, advance notice registration, close-down registration and other affairs concerning registration of real estate. Further, on
January 1, 2016, MLR issued Implementing Rules of the Interim Regulations on Real Estate Registration, which is amended on July 24, 2019, which details the rules of the registration procedures for
registration of different kind of rights of real estate.
The Administrative Measures for the Preliminary Review of Land Use for Construction Projects, implemented by the MLR on July 25, 2001, revised on October 29, 2004, amended on November
12, 2008 and November 29, 2016 and took effect on January 1, 2017, simplify the content of preliminary review of land for construction, reduce the documents necessary for examination and approval,
and improve the efficiency of examination and approval. Furthermore, under the Circular of the Ministry of Land and Resources on Improving and Optimizing the Preliminary Review and Examination
of Land Use for Construction Projects, implemented on November 30, 2016 and effective as of January 1, 2017, the procedure of preliminary review and examination and approval of land for
construction is requested to be improved and optimized. Where a project does not involve any new land for construction, and is constructed by use of the approved land for construction within the scope
of land for urban construction as determined by the overall planning on land utilization, the preliminary review may not be carried out for the land used for the project.
Regulations on Establishment of a Real Estate Development Enterprise
In accordance with the Law of the PRC on Administration of Urban Real Estate, or Urban Real Estate Law, implemented by the Standing Committee of the National People’s Congress on July 5,
1994 and amended on August, 30, 2007, August 27, 2009, and August 26, 2019, a developer is defined as “an enterprise which engages in the development and sale of real estate for the purposes of
making profits.”
Under the Regulations on Administration of Development and Operation of Urban Real Estate, or Development Regulations, implemented by the PRC State Council on and effective as of July 20,
1998 and amended on January 8, 2011, March 19, 2018 and March 24, 2019, a real estate development enterprise must satisfy the following requirements:
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has a registered capital of not less than RMB1 million; and
has four or more full time professional real estate/construction technicians and two or more full time accounting officers, each of whom must hold the relevant qualifications.
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The Development Regulations also allow people’s governments of the provinces, autonomous regions and/or municipalities directly under the central government to impose more stringent
requirements regarding the registered capital and qualifications of professional personnel of a real estate development enterprise according to the local circumstances.
To establish a real estate development enterprise, the developer is required to apply for registration with the department of administration of industry and commerce. The developer must also report
its establishment to the real estate administration authority in the location of the registration authority within 30 days upon receipt of its business license.
Regulations on Foreign-Invested Real Estate Enterprise
Industrial Restriction
Pursuant to the Special Administrative Measures on the Access of Foreign Investment (Negative List) (2019 Edition) (the “2019 Negative List”) jointly issued by the NDRC and the MOFCOM on June
30, 2019 and enforced on July 30, 2019, the foreign investment related to real estate development does not fall within the category of industries in which foreign investment is restricted or prohibited.
The 2019 Negative List enumerates the restricted industries and the prohibited industries in relation to foreign investment, and the industries such as real estate development industry which do not fall
within the 2019 Negative List, shall be administered under the principle of equal treatment to domestic and foreign investment. On March 15, 2019, the Foreign Investment Law of the People’s
Republic of China, or the “FIL”, was issued by SCNPC and took effect on January 1, 2020, which also provides that the industries in which foreign investment is not restricted and prohibited shall be
administered under the principle of equal treatment to domestic investment, however, where verification and record-filing of a foreign investment are required, relevant provisions of the State shall still
be followed.Circular No. 171
Considering the increasing foreign investment in the real estate industry in recent years, the MOHURD, the MOFCOM, the NDRC, the PBOC, the SAIC, and the SAFE jointly implemented the
Opinions on Regulating the Entry and Administration of Foreign Investment in the Real Estate Market, or Circular No. 171, on July 11, 2006 and amended on August 19, 2015, which may impact
foreign investment in the real estate industry in the following areas:
Circular No. 171 requires a FIREE, with total investments equating to or exceeding US$10 million to have a registered capital consisting of certain percentage of its total amount of investment.
FIREEs with total investments below US$10 million must have a registered capital in amounts pursuant to and consistent with existing regulations.
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Upon payment of the land use rights grant premium, the FIREE can apply to the land administration authority for a land use rights certificate. Upon obtaining the land use rights certificate, an
FIREE may then obtain a recertification of its existing Foreign-Invested Enterprises Approval Certificate, or FIEAC, and the Business License, with the same validity period as that of such
land use rights certificate; following which, the FIREE may apply to the tax administration for tax registration purposes.
• When a foreign investor merges with a domestic real estate enterprise, or acquires a FIREE’s equity or project, the investor is required to submit a guarantee which ensures the compliance with
the provisions of the land use rights grant contract, construction site planning permit and construction work planning permit, and the land use rights certificate, and the modification certification
issued by the construction authorities, and the tax payments certification issued by the relevant tax authorities.
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Foreign investors which merge with domestic real estate development enterprises by share transfers or other methods, or which acquire the equity of a PRC party in joint venture enterprises,
must allocate their employees appropriately, deal with bank debts and settle the lump sum payment of the transfer price through self-owned funds. However, a foreign investor with an
unfavorable record may not be allowed to conduct any of the aforesaid activities.
FIREEs which have failed to obtain a land use rights certificate, or which have under 35% of the total capital required for the project, will not be allowed to obtain a loan in or outside China,
and foreign exchange administration departments will not approve any settlement of foreign loans by such enterprises.
Any Chinese or foreign investors in an FIREE may not guarantee fixed profit returns or provide other arrangements to the same effect for any party in any form.
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Circular No. 50
On May 23, 2007, the MOFCOM and the SAFE issued the Notice on Further Strengthening and Standardizing the Approval and Administration of Foreign Direct Investments in Real Estate
Enterprise, or Circular No. 50, and amended on October 28, 2015. Some of the key developments in this area are as follows:
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the local governments/authorities that approve FIREE establishments are now required to file such approvals with the MOFCOM;
prior to establishing a FIREE, foreign investors are required to obtain land use rights or the ownership of a real estate project, or the investor should have entered into an indicative land grant
contract or indicative project purchase agreement with the land administrative department, developer of the land or owner of the property;
the practice of allowing foreign investors taking over local project companies by way of roundtrip investment is strictly controlled; and
foreign-invested enterprise that intends to engage in real estate development, or an existing FIREE which intends to undertake a new real estate development project, must first apply to the
relevant authorities for such business scope and scale expansion in accordance with laws and regulations on foreign investments.
Circular No. 23
Under the Circular on Properly Conducting Filing for the Record for Foreign Investment in the Real Property Sector, or Circular No. 23, implemented by the MOFCOM on June 18, 2008 and
effective as of July 1, 2008, the MOFCOM delegated to its provincial branches the review of filing records in relation to FIREE’s establishment, capital increase, equity transfer, merger and acquisition,
etc. Under Circular No. 23, the local branches of the MOFCOM submit all the application documents that were previously required to be filed with the MOFCOM to the aforesaid provincial branches of
the MOFCOM for review. Within five days of receipt of the MOFCOM’s request, the provincial branches of the MOFCOM that have reviewed such filings must submit all of the aforementioned
materials to the MOFCOM.
Notwithstanding the above, Circular No. 23 does not de-regulate the Chinese real estate market. The previous material requirements for granting approval under Circular No. 171 and Circular No.
50 still apply.
Circular 122
On August 19, 2015, six PRC regulatory agencies, including the MOHURD and the SAFE, implemented the Notice on Adjusting Policies on Entry and Administration of Foreign Investment in the
Real Estate Market, or Circular 122, among other things, according to which, the requirement of fully payment of its capital contributions of FIREE, no longer exists when the FIREE applies to
domestic loans, overseas loans, and settlement of foreign exchange loans, and the FIREE may directly apply to bank the registration of foreign exchange regarding foreign direct investment in
accordance with the relevant rules on foreign exchange administration. Similarly, Circular 122 does not de-regulate the Chinese real estate market. The previous material requirements for granting
approval under Circular No. 171 and Circular No. 50 still apply.
On November 6, 2015, the MOFCOM and the SAFE jointly promulgated the Circular on Further Improving the Registration of Foreign Investments in Real Estate which has simplified the
administrative procedures for foreign invested real estate companies. According to the circular, the local departments of the MOFCOM shall approve the establishment and changes of foreign-invested
real estate enterprises in accordance with the laws and statutes concerning foreign investment and provide information on real estate projects in the foreign investment information system of MOFCOM.
In addition, the public registration on the website of MOFCOM is canceled. Furthermore, the MOFCOM will randomly select foreign-invested real estate enterprises for examinations on a quarterly
basis.
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Regulations on Qualifications of Developer
Under the Rules on the Administration of Qualifications of Real Estate Developers implemented on March 29, 2000 by the MOHURD and effective on the same day (amended on May 4, 2015) a
developer must apply for registration of its qualifications. An enterprise may not engage in the development and sale of real estate without a qualification classification certificate for real estate
development.
In accordance with the above rules, developers are classified into four classes: class I, class II, class III and class IV. A developer that passes the qualification examination will be issued a
qualification certificate of the relevant class by the relevant construction authority.
A developer of any qualification classification may only engage in the development and sale of real estate within its approved scope of business and may not engage in business of another
classification. A class I developer is not restricted as to the scale of the real estate projects to be developed and may undertake real estate development projects anywhere in the country. A developer of
class II or lower may only undertake projects with a gross area of less than 250,000 square meters and the specific scope of business must be as confirmed by the local construction authority.
Under the Development Regulations, real estate administration authorities examine all applications for the registration of the qualifications of a developer when it reports its establishment, by
considering its assets, professional personnel and business results. A developer may only undertake real estate development projects in compliance with the approved qualification registration.
After a newly established developer reports its establishment to the real estate administration authority, the latter will issue a temporary Qualification Certificate to the eligible developer within 30
days of its receipt of the above report. The developer must apply for the qualification classification by the real estate administration authority within one month before expiry of the temporary
Qualification Certificate.
Regulations on Development of a Real Estate Project
Commencement of a Real Estate Project and the Idle Land
According to the Circular on the Implementation of the Catalog for Restricted Land Use Projects (2012 Edition) and the Catalogue for Prohibited Land Use Projects (2012 Edition) implemented
by the MLR and the NDRC in May 23, 2012, the area of a plot of land to be granted for residential use may not exceed (i) seven hectares for small cities and towns, (ii) 14 hectares for medium-sized
cities or (iii) 20 hectares for large cities. The plot area ratio for residential land should not be lower than 1.0. No land may be granted for “villa” real estate projects.
Under the Urban Real Estate Law, those who have obtained the land use rights through grant must develop the land in accordance with the terms of use and within the period of commencement
prescribed in the contract for the land use rights grant.
According to the Measures on Disposing Idle Land implemented by the MLR and effective as of April 28, 1999, as amended on May 22, 2012 and effective as of July 1, 2012, with regards to the
land for a real estate project which is obtained by grant and is within the scope of city planning, if the construction work has not been commenced within one year upon the commencement date as set
forth in the land use rights grant contract, or the construction and development has been started but the area of land that is under construction and development is less than one third of the total area of
land that should have been under construction and development, or the invested amount is less than 25% of the total investment, and the construction and development of which has been suspended for
more than one year, a surcharge on idle land equivalent to 20% of the grant premium may be levied; if the construction work has not been commenced within two years, the land can be confiscated
without any compensation, unless the delay is caused by force majeure, or the acts of government or acts of other relevant departments under the government, or by indispensable preliminary work.
The Emergency Notice on Further Tightening the Administration on Real Estate Land Use and Reinforcing the Control Results of Real Estate Market implemented on July 19, 2012, requires that
the Measures on Disposing Idle Land be strictly implemented, and the land authority dispose of, case by case, idle land and publish related information on the website designated by the MLR. With
regard to land users who have committed acts such as failing to make payments for land grants, leaving land idle, hoarding land, land speculation, developing land in excess of its actual development
capacity, or failing to fulfill the land use contract, they may be prohibited by the land authority from participating in land auctions for a certain period of time.
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Planning of a Real Estate Project
The Law of the PRC on Urban and Rural Planning, implemented by the National People’s Congress on October 28, 2007 and effective as of January 1, 2008 and amended on April 24, 2015 and
April 23, 2019 replacing the previous City Planning Law of the PRC, provides that a developer who has obtained land use rights by grant must, after obtaining approval for a construction project and
signing a land use rights grant contract, apply to the city planning authority for the Permit for Construction Site Planning It further provides that a developer who has a proposed construction project
within the planning area of a city or town must, after obtaining a Permit for Construction Site Planning, prepare the necessary planning and design work, and submit the detailed planning and design
report, together with the land use rights certificate, to the city planning authority or the town government designated by the provincial government, and apply for the Permit for Construction Work
Planning.
Construction of a Real Estate Project
On June 25, 2014, the MOHURD implemented the Measures for the Administration of Construction Permits for Construction Projects, which was amended on September 28, 2018. Under the
measures, after having obtained a Permit for Construction Work Planning, a developer needs to file an application for a Construction Permit with the local construction authority above the county level.
Completion of a Real Estate Project
Construction projects shall be delivered for use only after passing the inspection and acceptance examinations under the Construction Law of the PRC which was implemented on November 1,
1997 and amended on April 22, 2011.
According to the Development Regulations, the Regulations on the Acceptance Examination Upon the Completion of Construction Work and Municipal Infrastructure implemented on December 2,
2013 by the MOHURD, the Regulations on the Administration of Quality of Construction Works implemented and implemented by the PRC State Council on January 30, 2000, and the Measures on the
Administration of Reporting Details regarding Acceptance Examination Upon Completion of Construction Work and Municipal Infrastructure implemented and implemented on April 4, 2000 by the
MOHURD and amended on October 19, 2009, a real estate project must comply with the relevant laws and regulations, requirements on construction quality, safety standards and technical guidance on
survey, design and construction work, as well as provisions of the relevant construction contract. After the completion of works for a project, the developer must apply for an acceptance examination to
the construction authority and must also report details of the acceptance examination to the construction authority. A real estate development project may only be delivered after passing the inspection
and acceptance examinations. For a housing estate or building complex, an acceptance examination shall be conducted upon completion of the entire project. In the case of a cluster of real estate
development projects, such as a residential area developed in phases, separate acceptance examinations may be carried out for each completed phase.
Regulations on Sale of Commodity Properties
Under the Measures for Administration of Sale of Commodity Properties implemented by the MOHURD on April 4, 2001 and effective June 1, 2001, the sale of commodity properties can include
both pre-completion and post-completion sales.
Pre-completion Sales
In accordance with the Measures for the Administration of Pre-completion Sale of Urban Commodity Properties, or Urban Pre-completion Sale Measure, implemented in November 15, 1994 by the
MOHURD and amended on August 30, 2007 and on August 27, 2008, a developer intending to sell a commodity building before its construction work’s completion must attend to the necessary pre-
completion sale registration with the real estate administration authority of the relevant city or county to obtain a Permit for Pre-completion Sale of Commodity Properties.
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Commodity properties may only be sold before completion if:
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the grant land premium has been paid in full for the grant of the land use rights involved and a land use rights certificate has been obtained;
a permit for construction work planning and a construction permit have been obtained;
the funds invested in the development of the commodity properties put up for pre-completion sale represent 25% or more of the total investment in the project and the progress of works and the
completion and delivery dates have been ascertained; and
the pre-completion sale has been registered and a permit for pre-completion sale of commodity properties has been obtained.
The Circular on Issues Relevant to Further Strengthening the Regulation of the Real Property Market and Improving the System for Pre-sale of Residential Premises, implemented by the
MOHURD on April 13, 2010, provides that:
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for residential projects for which a pre-sale permit has not yet been obtained, real estate developers may not pre-sell such premises, collect or collect in a disguised manner, deposits, reservation
fees or other such fees from purchasers in the form of subscriptions, reservations lot drawings or the issuance of VIP cards, or participate in any exhibition;
where a real estate developer has obtained a pre-sale permit for its residential project, it must publicize all premises available for sale and the prices of each unit at one time within 10 days, and
must sell the premises to the public with clearly marked prices as filed. Real estate developers may not sell the premises reserved for self-use to the public before the initial registration of the
housing ownership, pre-sell premises through a refund of the sales amount to the purchaser or the guarantee of a lease of the property after sales, or conduct sham transactions;
pre-sale permits can only be issued for an entire building but not for individual floors or units; and
all proceeds from the pre-sale of commodity residential premises must be deposited into accounts monitored by the regulatory authorities to ensure that such proceeds are used for construction
of the commodity residential premises.
Management of Proceeds from Pre-sales of Properties
The Pre-completion Sale Measures also provide that the proceeds obtained by a real estate developer from the advance sale of commodity properties must be used for the construction of the
relevant projects. The specific measures for the supervision of proceeds from the pre-sale of commodity properties are formulated by the real estate administration authorities.
Under the Implementing Regulations on Supervision of Proceeds from Pre-sales of Commodity Properties of Jinan City, implemented by Jinan Committee of Construction on September 26, 2005
and effective as of October 26, 2005, the proceeds from pre-sales of properties must be used in the construction of pre-sale projects, including the purchase of construction materials and equipment,
remittance of construction fees and taxes payable, and should not be used for other purposes.
In accordance with the Implementing Opinions on Strengthening the Management for sale of Urban Commodity Properties, implemented by the People’s Government of Sichuan Province on
March 23, 2000, the proceeds from pre-sales of properties must be deposited in a special bank account opened by the developers, may only be used for the relevant construction work and may not be
used for other purposes. The relevant banks monitor the use of the proceeds of pre-sales and ensure that the proceeds are used in the designated way.
In accordance with the Regulations on Supervision of Proceeds from the Pre-sales of Commodity Properties in Zhengzhou, implemented by the Zhengzhou People’s Government on November 19,
2009 and effective as of December 20, 2009, the proceeds from the pre-sales of properties must be used for the construction of the same, which includes the purchase of construction materials and
equipment, remittance of fees for construction and taxes payable.
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The Notice on Enhancing the Management on Use of Fund of Pre-sales of Commodity Properties of Beijing City, implemented and effective as of December 16, 2015 provides that the real estate
development enterprise may withdraw funds for construction purpose from accounts monitored by the regulatory authorities if the sale scale confirmed by pre-sale contracts signed online is less than
half of the authorized scale of pre-sale.
Post-completion Sales
In accordance with the Measures for Administration of Sale of Commodity Properties implemented by the MOHURD on April 4, 2001, commodity properties may be put up for post-completion
sale only when the following preconditions for such sale have been satisfied:
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the developer offering to sell the post-completion properties has a valid business license and a qualification classification certificate;
the developer has obtained a land use rights certificate or other approval documents of land use;
the developer has the relevant permit for construction project planning and the permit for construction;
the commodity properties have been completed, inspected and accepted as qualified;
the relocation of the original residents has been settled;
the supplementary and essential facilities for supplying water, electricity, heating, gas, communication, etc. have been made ready for use, and other supplementary facilities and public facilities
have been made ready for use, or the schedule of construction and delivery date of such facilities have been specified; and
the property management plan has been completed.
Prior to a post-completion sale of a commodity property, a real estate developer is required to submit the Real Estate Development Project Manual and other documents showing that the
preconditions for a post-completion sale have been fulfilled to the real estate development authority.
Regulations on Property Ownership Certificates
Under the Measures for Administration of Sale of Commodity Properties, the developers must submit the documents relating to the application for property ownership certificates to the local real
estate administration authorities within 60 days after the delivery of the property to customers. The developers are required to assist customers in applying for amendments in the procedures for land use
rights and registration procedures for property ownership.
In accordance with the Pre-completion Sale Measures, the purchasers must apply for property ownership certificates to the local real estate administration authorities within 90 days after the
delivery of pre-sale property to purchasers. The developers are required to assist and provide the purchasers with necessary verifying documents. Where the purchasers fail to obtain the property
ownership certificates within 90 days thereafter due to the developer’s fault, unless otherwise provided between the developers and the purchasers, the developers will be liable for the breach of
contract.
Regulations on Transfer, Mortgage and Lease
Transfer
According to the Urban Real Estate Law and the Provisions on Administration of Transfer of Urban Real Estate implemented on August 7, 1995 by the MOHURD and amended on August 15,
2001, a real estate owner may sell, bequeath or otherwise legally transfer real estate to another person or legal entity. When transferring a building, the ownership of the building and the land use rights
to the site on which the building is situated are transferred as well.
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The parties to a transfer must enter into a real estate transfer contract in writing and register the transfer with the real estate administration authority having jurisdiction over the location of the real
estate within 90 days of the execution of the transfer contract.
Where the land use rights were originally obtained by grant, the real property may only be transferred if:
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the grant premium has been paid in full for the grant of the land use rights as provided by the grant contract and a land use rights certificate has been obtained; and
the development has been carried out according to the grant contract: in the case of a project for which buildings are developed, development representing more than 25% of the total
investment has been completed; in the case of a whole land lot development project, construction works have been carried out as planned, water supply, sewerage, electricity supply, heat
supply, access roads, telecommunications and other infrastructure or utilities have been made available, and the site has been leveled and made ready for industrial or other construction
purposes.
Mortgages of Real Estate
Under the Urban Real Estate Law, the Property Law, and the Measures on the Administration of Mortgage of Buildings in Urban Areas implemented by the MOHURD in May 9, 1997 and amended
on August 15, 2001, when a mortgage is created on the ownership of a building on state-owned land legally obtained, a mortgage will be simultaneously created on the land use rights of the land on
which the building is erected. Land use rights occupied by the properties will also be mortgaged at the same time. The mortgager and the mortgagee sign a mortgage contract in writing. Within 30 days
after a real estate mortgage contract has been signed, the parties to the mortgage must register the mortgage with the real estate administration authority in the city where the real estate is situated. A real
estate mortgage contract will become effective on the date of registration of the mortgage. If a mortgage is created on the property placed on pre-sale or which is still undergoing construction, the
registration authority will, when registering the mortgage, record such details on the mortgage contract. If the construction of the property is completed during the term of a mortgage, the parties
involved will have to re-register the mortgage after the issuance of the relevant certificates evidencing the rights and ownership to the real estate.
Lease
Under the Urban Real Estate Law and the Measures for Administration of Leases of Commodity Properties implemented by the MOHURD on December 1, 2010 and effective as of February 1,
2011, the parties to a lease of a building are required to enter into a lease contract in writing. When a lease contract is signed, amended or terminated, the parties must register the details with the real
estate administration authority in which the building is situated.
On May 17, 2016, the PRC State Council implemented the Opinions on Accelerating to Cultivate and Develop the Housing Leasing Market, according to which real estate developers are
encouraged to engage in housing leasing business. Among others, the government intends to (i) support real estate developers to expand their business scopes, develop housing leasing business by
taking advantage of their completed real properties; (ii) encourage real estate developers to rent the commercial housing in stock and (iii) guide real estate developers to cooperate with the housing
leasing enterprises for developing housing leasing business.
Regulations on Real Estate Financing
The Opinions of the MOHURD and Other Departments on Adjusting the Housing Supply Structure and Stabilizing the Property Prices, issued on May 24, 2006 by the General Office of the PRC
State Council, provides that, to tighten the control of advancing loan facilities, commercial banks are not allowed to advance their loan facilities to developers who do not have the required 35% or more
of the total capital for the construction projects. The commercial banks should be prudent in granting loan facilities and/or revolving credit facilities in any form to the developers who have a large
number of idle land parcels and unsold commodity properties. Banks may not accept mortgages of commodity properties remaining unsold for more than three years. In terms of minimum down
payment, this Opinion provides that:
•
•
the minimum down payment for any purchase of first self-use residential property with a unit GFA of less than 90 square meters is 20% of the purchase price of the property; and
the minimum down payment for any purchase of first self-use residential property with a unit GFA of 90 square meters or more is 30% of the purchase price of the property.
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The Circular on Strengthening the Management of Commercial Real Estate Credit Facilities, issued on September 27, 2007 by the PBOC and the CBRC, as supplemented on December 5, 2007
reinstates the minimum down payment requirements contained in the Opinion of the MOHURD and Other Departments on Adjusting the Housing Supply Structure and Stabilizing the Property Prices
issued on May 24, 2006, and further provides that if a family member (including the purchaser and his / her spouse and their children under 18) has financed the purchase of a residential property with
loans from banks, any member of the family that purchases another residential property will be regarded as a second-time property purchaser.
The Circular of the State Council on Firmly Curbing Precipitous Rise of Some Urban Housing Prices implemented on April 17, 2010 by the PRC State Council, provides for the implementation of
a stricter differentiated housing loan policy, including:
•
•
•
purchasers of a first residential property for a household with a GFA of greater than 90 square meters must make down payments of no less than 30% of the purchase price;
purchasers of a second residential property for a household must make down payments of no less than 50% of the purchase price and the interest rate of any mortgage for such property must
equal at least the benchmark interest rate plus 10%; and
the minimum down payment amount and applied interest rate must be increased significantly for purchasers of a third residential property.
On May 26, 2010, the MOHURD, the PBOC and the CBRC jointly issued a notice clarifying the criteria for determining a “second residential household property.” Among other matters, the
requirements on down payments and interest rates for mortgages on a second residential property will also apply to non-local resident purchasers (i.e., purchasers who cannot provide proof that they
have been making individual income tax payments or social security payments in the relevant local area for more than one year) applying for housing-related mortgage financing, regardless of whether
there is any residential property under the name of a member of their households at the time of application.
On March 30, 2015, the MOF and the SAT jointly issued the Notice on Adjustment of Business Tax Policies on Individual Transfer of House, or Circular 39, which became effective on March 31,
2015. According to Circular No. 39, individual property owners are exempt from paying business tax on the sale of an ordinary housing if he has owned and held it for at least two years.
The Circular on Issues Relevant to Improving the Regulation and Control of the Real Property Market implemented by the General Office of the PRC State Council on January 26, 2011, provides
that all local governments and the ministries and commissions under the PRC State Council must comply with the following requirements:
•
•
•
•
•
if an individual transfers a house within five years after purchasing it, all his or her income from such sale will be subject to business tax;
a household purchasing a second residential household property by mortgage financing, the down payment must not be less than 60% of the purchase price, and the interest rate for a mortgage
on such property must not be less than 1.1 times of the benchmark interest rate;
local governments are required to strengthen the administration of housing land supply and the land supply for housing for low-income people and shantytown renovation. Small and medium-
sized common commodity property must not be less than 70% of the total housing land supply;
a local resident household having one residential household property, or a non-local resident household that is able to provide the individual income tax payment certificate or social insurance
contribution certificate for a certain number of years, may only be allowed to purchase one more residential property;
a local resident household having two or more residential property, or a non-local resident household having one or more residential property or is unable to provide the individual income tax
payment certificate or social insurance contribution certificate for a certain number of years, may not be allowed to purchase any residential property in the local area.
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In accordance with the Circular of the MOHURD and the SAFE on Further Regulating the Administration of Houses Purchase by Overseas Entities and Individuals implemented on November 4,
2010, except as otherwise provided in the law, an overseas individual may only purchase one house unit for personal residence, and an overseas entity establishing domestic branches or representative
offices may only purchase non-residential houses in the city of registration for business purposes.
On February 20, 2013, the PRC State Council, in an executive meeting, stated that it is still a national policy to take action to curb investment and speculation in the housing market. The PRC State
Council required the local governments continue to stabilize the housing price and restrict the speculation in the housing market. The meeting also determined that the trial regions for real property tax
will be enlarged.
On February 26, 2013, the General Office of the PRC State Council announced the Circular on Continuing to Improve the Regulation and Control of the Real Estate Market, which among others,
provides the following requirements:
•
•
•
•
•
all municipalities directly under the central government, municipalities with independent planning status, and provincial capital cities (excluding Lhasa) must promulgate their own plans and
targets for price controls on newly constructed commodity properties (excluding low-cost housing projects) in 2013 based on the principle of stabilizing the current market price. Such plans
and targets must be published within the first quarter of 2013;
limitations on the purchase of commodity properties must be strictly implemented, and the scope of such limitations must cover all newly constructed commodity properties and second-hand
properties located within the entire administrative area of the city in question;
non-local resident families that already hold a property and non-local resident families that cannot prove their local payment of tax and/or social insurance for a required period of time shall be
suspended from purchasing any property within the local administrative area;
for those cities with excessive growth in housing prices, the local counterparts of the PBOC may further increase down payment ratios and interest rates for loans to purchase second properties
in accordance with the price control policies and targets of the corresponding local governments;
the gains generated from the sale of a self-owned property shall be subject to individual income tax at a rate of 20%, if the original value of such property can be verified through historical
information such as tax filings and property registration.
On September 29, 2014, PBOC and CBRC issued the Circular of PBOC and CBRC on Further Improving Financial Services for Housing, among other incentive policies, which specifies that the
minimum down payment is 30% of the purchase price for purchasers of a first residential property for their households, and the minimum loan interest rate is 70% of the benchmark rate, to be decided
by banking financial institutions in light of risk conditions. For purchasers of a second residential property for their households who have paid off the loan that financed their first house and reapply for a
loan to finance an ordinary commodity house for the purpose of improving their living conditions, the loan policies for a first house will apply.
On October 9, 2014, the MOHURD, the MOF, and the PBOC jointly issued the Circular of MOHURD, MOF and PBOC on Developing the Business of Individual Housing Loan through Housing
Fund, which specifies that employees who make their payment of housing fund for consecutive 6 months may apply for individual housing loans through the housing fund and local authorities may
raise the amount that a person can apply for under certain conditions.
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In light of the weakening in the property market in China, on March 30, 2015, the PBOC, the MOHURD and the CBRC jointly issued the Circular on Issues concerning Individual Residential
Mortgage Policies in an effort to stimulate the market. The circular reduces the minimum down payment ratios from 30% to 20% for first home buyers who use the housing provident fund for their
purchase and from 60% to 40% for second home buyers with outstanding mortgages who apply for another mortgage. In addition, the circular provides that home buyers who use the housing provident
fund for their home purchase are only required to pay a minimum down payment of 30% for their purchase of a second house if all loans are settled on their first home.
On August 27, 2015, the MOHURD, the MOF and the PBOC jointly issued the Circular on Adjusting the Minimum Down Payment for the Purchase of Houses by Individuals on the Housing
Provident Fund Loans. The circular provides that home buyers who use the housing provident fund for their home purchase are only required to pay a minimum down payment of 20% for their purchase
of a second house if all loans are settled on their first home.
On September 24, 2015, the PBOC and the CBRC jointly issued the Circular on Issues Concerning Further Improving Differentiated Housing Loan Policies, which provided that in the cities
without restrictive measures for house purchase, the minimum down payment ratio shall be 25% or higher for the first home buyers who use the commercial individual housing loans.
On September 29, 2015, the MOHURD, the MOF and the PBOC jointly issued the Notice on further improving the Usage Efficiency of Housing Provident Fund, according to which, in the case of
any cities with sub-districts avail the housing provident fund with an efficiency index less than 85%, the cities shall increase the housing provident fund loans based on the housing price, loan needs and
repayment capacities. The term of the indebtedness can be extended to 5 years after one’s retirement but is limited to 30 years.
On February 1, 2016, the PBOC and the CBRC jointly issued Circular of the People’s Bank of China and the China Banking Regulatory Commission on Issues Concerning Adjusting the Individual
Housing Loan Policies. It provides that in the cities without restrictive measures for house purchase, the minimum down payment ratio, in principal, shall be 25% for the first home buyers who use the
commercial individual housing loans common, and the said percentage may be lowered by 5% in different regions; with respect to second home buyers with unsettled house purchase loans who
purchase for improving living conditions and use commercial individual housing loans, the minimum down payment ratio shall be at least 30%.
On February 17, 2016, the MOF, the SAT and the MOHURD jointly issued Circular on Adjusting Deed Tax and Business Tax Policies for Real Estate Transactions. Regarding deed tax, it provides
that for first home buyers purchasing the only residence for their families (family members include the buyer, the buyer’s spouse and under-age children, as applicable hereinafter) with an area of 90
square meters or less, the deed tax is reduced to 1%; for a residence with an area of more than 90 square meters, the deed tax is reduced to 1.5%. For second home buyers purchasing a second residence
with an area of 90 square meters or less, the deed tax is reduced to 1%; for residences with an area of more than 90 square meters, the deed tax is reduced to 2%. Regarding business tax, it provides that
for any individual who sells his/her ordinary housing that is purchased and owned less than two years, full business tax is levied; for an individual who sells his/her ordinary housing purchased and
owned not less than two years ago, the business tax is exempted. However, the circular specifies that the policies regarding deed tax and business tax shall not apply to Beijing, Shanghai, Guangzhou
and Shenzhen, where the business tax for transfer of residences by individuals as stipulated in the Circular of the Ministry of Finance, and the State Administration of Taxation on Adjusting Business Tax
Policies for Transfer of Residences by Individuals still apply. Furthermore, the MOF and the SAT jointly implemented the Circular on Issues concerning the Taxation Basis for Deed Tax, House
Property Tax, Land Value-added Tax and Individual Income Tax after the Pilot Collection of Value-Added Tax in Lieu of Business Tax on April 25, 2016 which deducts VAT from the taxation basis of
Deed Tax, House Property Tax, Land Value-added Tax and Individual Income Tax.
Regulations on Housing Prices and Real Estate Tax
On January 7, 2010, the general office of the PRC State Council issued the Circular of the General Office of the State Council on Accelerating the Stable and Smooth Development of Real Estate
Market to all ministries and provincial-level local governments to control the rapid increase in housing prices and cool down the real estate market in China. The circular reiterated that the purchasers of
a second residential property for their households must make down payments of not less than 40% of the purchase price and the real estate developers must commence the sale within the mandated
period as set forth in the pre-sale approvals and at the publicly announced prices. Further, in order to implement the requirements set out in the PRC State Council’s circular, the MLR, issued a notice on
March 8, 2010 in relation to increasing the supply of, and strengthening the supervision over, land for real estate development purposes. The MLR’s notice stipulated that the floor price of a parcel of
land must not be lower than 70% of the benchmark land price set for the area in which the parcel is located, and that real estate developers participating in land auctions must pay a deposit equivalent to
20% of the land parcel’s floor price.
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On March 16, 2011, the NDRC, issued the Provisions on Selling Real Estate at Expressly Marked Prices, which was implemented on May 1, 2011 to regulate price manipulation and arbitrary price
increases by, among other things, requiring developers to re-register with the appropriate government department before increasing real estate prices. PRC government agencies have also implemented
several other regulations in a continuous bid to promote the construction of public housing, especially rental housing projects. The urban public rental housing policy is targeted at low to middle income
families, new employees without housing and migrants with stable employment in urban areas. Several policies, such as increasing financial aid from central finance agencies and local governments,
improving project planning and establishing a sound regulatory mechanism, have been implemented to ensure the successful promotion of affordable housing projects.
In addition to the notice above, local government authorities of several municipalities and cities such as Beijing, Zhengzhou, Jinan, Chengdu and Hefei have successively implemented more
detailed regulations to restrict residents who have not resided in the local area for a certain period of time (ranging from 1 year to 5 years, evidenced by their individual income tax payment track
records) from purchasing residential property in that area.
On February 15, 2012, the MLR issued the Circular on Issues Relevant to the Regulation and Control of the Real Property Market in 2012, which provides that governments must strictly maintain
the current range of restrictions on the real estate market.
On April 17, 2014, the General office of the PRC State Council issued a notice that, among other things, specifically emphasizes the importance of adopting real estate tax. On November 24, 2014,
the Provisional Regulations on Registration of Real Estate was implemented by PRC State Council and became effective on March 1, 2015. It provides that PRC has established a nationwide property
registration system to provide a uniform platform through which ownership information of every registered property can be shared in real-time among different regions in China. If the PRC government
promulgates regulations of real estate tax in the future, it may adversely affect the real estate market in China.
On March 7, 2016, during the National People’s Congress and the Chinese Political Consultative Conference, the All-China Federation of Industry and Commerce made a proposal concerning
propelling relief of real estate inventory. The proposal includes suggestions such as introducing real estate trusts, using individual income tax to charge against interest of housing loans.
Regulations on Housing Supply and Improving the Healthy Development of the Real Estate Market
The Opinion of the MOHURD and Other Departments on Adjusting the Housing Supply Structure and Stabilizing Property Prices, implemented on March 25, 2015, provides the following:
•
•
•
•
commercial banks may not grant loans to any developer whose total investment capital contributed is less than 35% and may not accept any premises that have been left vacant for more than
three years as security;
land that has been left idle for two years or more will be repossessed by the government without any compensation payment to the developer. Also, land will be treated as being left idle if
construction has been halted for more than one year and the total area developed is less than one-third of the whole project area or the capital invested is less than a quarter of the total
investment;
there will be no supply of land for villas and other equivalent real estate development projects, while land allocation for low-density, large housing developments will remain tight; and
no planning permit, construction permit or premises pre-sale permit is to be issued for projects that do not comply with the abovementioned requirements, in particular composite structure
projects that exceed planning requirements.
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The Circular on Increasing the Supply of, and Strengthening the Supervision over, Land for Real Estate Development Purposes issued on March 8, 2010 by the MLR, provides that:
•
•
•
the floor price of a parcel of land must not be lower than 70% of the benchmark land price set for the area in which the parcel is located;
real estate developers participating in land auctions must pay a deposit equivalent to 20% of the land parcel’s floor price; and
real estate developers must report to the competent land authorities when they commence and complete the construction of each project, and the land authorities will conduct inspections
according to the corresponding land grant contract.
This circular also reiterated the policy that the initial installment payment made by real estate developers for a parcel of land must not be less than 50% of the overall amount owed for the land use
rights.
Regulations on Environmental Protection in Construction Projects
Under the Regulations on the Administration of Environmental Protection in Construction Project, or Environmental Regulations, implemented by the PRC State Council on November 29, 1998
and amended on July 16, 2017 and effective as of October 1, 2017, each construction project is subject to an environmental impact assessment by the relevant authorities.
According to the Environmental Regulations, a developer is required to submit an environmental impact report, or an environmental impact report form, or an environmental impact registration
form (as the case may be) to the relevant environmental protection administration for approval during the project’s feasibility analysis stage. In the meantime, if any ancillary environmental protection
facilities are necessary in the construction project, such facilities are required to be designed, constructed and used in conjunction with the main project. After completion of the project, the developers
are required to apply to the relevant environmental protection administrations for final acceptance examination in respect of any ancillary environmental protection facilities. Construction projects are
approved for use after passing the said acceptance examination.
The Environmental Impact Assessment Law, implemented by the National People’s Congress on October 28, 2002 and effective as of September 1, 2003 and amended on July 2, 2016, provides that
if the environmental impact assessment documents of a construction project have not been examined by the relevant environmental protection administrations or are not approved after examination, the
authority in charge of examination and approval of the project may not approve construction on the project, and the construction work unit may not commence work.
According to the Fire Prevention Law of the People’s Republic of China promulgated by the SCNPC on April 29, 1998 and implemented on September 1, 1998, later amended on October 28, 2008
and implemented on May 1, 2009, and latest amended and implemented on April 23, 2019, fire prevention facilities design and works for construction projects shall conform to state’s fire prevention
technical standards for engineering construction. Provisions on Supervision and Administration of Fire Prevention of Construction Projects promulgated by the Ministry of Public Security of the
People’s Republic of China on April 30, 2009, implemented on May 1, 2009 and later amended on July 17, 2012 and implemented on November 1, 2012 shall apply to the fire prevention supervision
and administration of new construction, expansion, reconstruction (including indoor and outdoor improvement, thermal insulation in buildings and modification of uses) and other construction projects.
This provision also specify the procedure and standard for review of fire facilities design and acceptance of fire prevention facilities.
Regulations on Civil Air Defense Property
Pursuant to the National Defense Law of the PRC promulgated by the NPC on March 14, 1997 and amended by SCNPC on August 27,2009, national defense assets are owned by the State. Pursuant
to the Civil Air Defense Law of the PRC promulgated by the SCNPC on October 29, 1996 and amended on August 27, 2009, State supports and encourages the enterprises in kinds of way to invest in
the construction of civil air defense property. The civil air defense property is used and managed at ordinary time by its investor who derives profits therefrom. The design, construction and quality of
the civil air defense property must conform to the protection and quality standards established by the State. The use of civil air defense property at ordinary time shall not impair its function of air
defense. Pursuant to the Interim Measures for Quality Supervision and Management of Civil Air Defense Property promulgated by the National Civil Air Defense Office on February 13, 2001, the
construction of the civil air defense property shall be subject to the supervision of the relevant quality supervision department of civil air defense.
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Regulations on Property Management
The Property Management Rules, amended by the PRC State Council on August 26, 2007 and effective as of October 1, 2007 and amended on February 6, 2016, provide that property owners have
the right to appoint and dismiss property service enterprises (formerly known as property management enterprises). The rules also establish a regulatory system for property service enterprises, which
encompasses the following regulations:
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•
•
the Measures for the Administration of Qualifications of Property Service Enterprises (formerly known as the Measures for the Administration of Qualifications of Property Management
Enterprises) amended by the MOHURD and effective as of November 26, 2007, amended on May 4, 2015 and January 21, 2017, provide that property service enterprises must apply to the
local branch of the MOHURD and undertake a qualification examination to obtain a Property Service Qualification Certificate. A property service enterprise must pass the Property Service
Qualification (formerly known as the Property Management Qualification), or PSQ examination, in order to engage in property management. Property service enterprises are classified as class
I, II or III. Different classes of service enterprises have different establishment requirements and may manage different types of premises. However, the Measures for the Administration of
Qualifications of Property Service Enterprises expired on March 8, 2018, the qualifications of property service enterprises are cancelled and no administrative approval is required for operating
property service.
the Measures on the Administration of Bid Soliciting and Bidding Concerning Preliminary Property Management, implemented on June 26, 2003 by the MOHURD, provide that prior to the
selection of the Property Owners’ Committee, or the POC, the property developer will select a property management enterprise to provide property management services.
the NDRC and the MOHURD jointly implemented the Measures on the Administration of Property Management Service Fees on November 13, 2003, which provide that property management
fees will be determined by mutual consent between the POC and the property management enterprise, and set forth in writing in the property management service contract.
Xinyuan Science and Technology Service Co., Ltd. is a class I property management company.
Regulations on Urban Landscaping Services
The Regulations Regarding Urban Landscape implemented on June 22, 1992, amended on January 8, 2011 and March 1, 2017 by the PRC State Council and the Measures on the Administration of
Qualifications of Urban Landscaping Enterprises (“Urban Landscaping Measures”) implemented on July 4, 1995, as amended on October 9, 2009, provide the following:
•
•
any enterprise that wishes to provide landscaping services must apply to the MOHURD’s local branch for an urban landscaping qualification, or ULQ certificate; and
if a landscaping enterprise wishes to provide landscaping service outside the province where it is registered, it must establish branches in such locales and submit its original ULQ certificate for
filing with the MOHURD’s respective local branch.
While the Urban Landscaping Measures were abolished on February 18, 2016, the requirements are still being implemented by the MOHURD and its local branches in practice.
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United States
Our operations in the United States will be subject to extensive regulations imposed and enforced by various federal, state, and local governing authorities. These regulations are complex and
include building codes, land zoning and other entitlement restrictions, health and safety regulations, labor practices, marketing and sales practices, environmental regulations, and various other laws,
rules, and regulations. Collectively, these regulations have a significant impact on the site selection and development of our properties, our design and construction techniques, our relationships with
customers, employees, and suppliers, subcontractors, and many other aspects of our business.
C. Organizational Structure
Xinyuan is a holding company established in the Cayman Islands that operates its business and operations through its subsidiaries. For its operations in each of the PRC and the United States, the
Group has a local holding company which owns the operating entities. The Group establishes a separate entity for each development project. In addition, the Group has various subsidiaries which have
been created for use in various future ventures, and subsidiaries which provide real estate and property management related technology services. Please refer to Exhibit 8.1 to this Annual Report on
Form 20-F for a listing of the Company’s subsidiaries, including country of incorporation. Please refer to Note 1 of our audited consolidated financial statements for the ownership percentages of the
Group’s principal subsidiaries.
Effective October 11, 2019, Xinyuan's property management service ("Xinyuan Service"), entity was listed on the Hong Kong Stock Exchange under code ‘01895’, with 25% of the outstanding
shares issued to new investors, following an internal reorganizaton pursuant to which Xinyuan Service became a subsidiary of Xinyuan Real Estate, Ltd. The initial public offering price for each share
was HK$2.08, resulting in an initial market valuation of HK$1.04 billion. Xinyuan Real Estate, Ltd. will remain the largest shareholder with 60% of total shares held, and Xinyuan Service will still be
consolidated on Xinyuan’sfinancial statements.
D. Property, plant and equipment
Our headquarters and some of our subsidiaries are located in Beijing, China, where we lease approximately 8,338 square meters of office space. We also lease a total of approximately 14,063 square
meters of office space in other cities where our subsidiaries are located, which includes approximately 1,383 square meters in Jinan, Shandong Province, 1,966 square meters in Suzhou, Jiangsu
Province, 1,136 square meters in Kunshan, Jiangsu Province, 276 square meters in Xuzhou, Jiangsu Province, 4,611 square meters in Zhengzhou, Henan Province, Shaanxi Province, 2,751 square
meters in Changsha and 943 square meters in Wuhan, Hunan Province, 517 square meters in Chengdu, Sichuan Province, 367 square meters in New York and 115 square meters in Malaysia.
ITEM 4A. UNRESOLVED STAFF COMMENTS
None.
ITEM 5.
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included
elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information — D. Risk Factors” or in other parts of this
annual report on Form 20-F.
In accordance with Instruction 6 to Item 5, information with respect to the fiscal year 2017 has been omitted from this Item 5. Such information has previously been reported and is available in Item
5 of the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 2018.
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A. Operating Results
Overview
Since our inception in 1997, we have completed 60 projects with total GFA of 9,068,623 square meters. As of December 31, 2019, we had 40 projects in 17 cities in China and the United States
with estimated total GFA of 7,242,225 square meters under construction and planning, of which 28 projects with estimated total GFA of 4,041,106 square meters were under construction. As of
December 31, 2018, we had 42 projects in 14 cities in China and the United States with estimated total GFA of 7,541,823 square meters under construction and planning, of which 29 projects with
estimated total GFA of 4,480,111 square meters were under construction . In addition, we had 1 project in London, United Kingdom with estimated total GFA of 29,767 square meters under
construction.
Our total revenue, derived primarily from sales of residential real estate, was US$2,217.6 million in 2018 and US$2,482.6 million in 2019. Our net income was US$106.0 million and US$83.0
million, respectively, for the same periods. We acquire land in China primarily through auctions of government land and acquisition of landowning entities. These acquisition methods allow us to obtain
unoccupied land with unencumbered land use rights, which in turn enables us to save the time and expenses associated with protracted legal processes to obtain title, demolition and re-settlement and to
commence construction quickly.
The most significant factors that directly or indirectly affect our financial performance and results of operations are:
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•
•
•
•
•
•
Economic growth and demand for residential property in China and, since 2012, in the United States;
PRC government policies and regulations, including tax guidelines and lending policies for the real estate sector;
Location, number and type of our property developments;
Availability and cost of financing;
Acquisition of quality land use rights or title to quality properties in our target markets;
Changes in the price of raw materials and labor costs; and
Our execution capability to support business expansion.
Principal Factors Affecting Our Results of Operations
Economic growth and demand for residential property in China and since 2012, in the United States
Our business and results of operations are significantly affected by trends and developments in the PRC economy, including disposable income levels, urbanization rate, population growth, and
availability of project and consumer financing, which affect demand for residential properties in China. During the past decade, China has experienced significant economic growth, which has created a
favorable operating environment for us in the cities where we operate. As of December 31, 2019, 97.2% of the units in our completed projects have been sold. We have periodically experienced some
volatilities in demand due to the strict mortgage policy and other measures taken by the PRC government to slow down the rapid increase in housing prices, such as the Circular on Continuing to
Improve the Regulation and Control of the Real Estate Market announced by the General Office of the PRC State Council in February 2013 which, among others, requires an individual income tax at a
rate of 20% on gains generated from the sale of a self-owned property (See “Item 4. Information on the Company — B. Business Overview — Regulation — China — Regulations on Real Estate
Financing”). However, we expect continuing economic growth in China, rising disposable income levels and population growth in our target cities to support demand for residential properties over the
next several years. If we continue to expand our business operations in the United States, trends and development in the U.S. economy, including developments in the United States housing markets,
will become increasing important to our business and results of operations.
PRC government policies and regulations
Our business and results of operations are significantly affected by PRC government policies and regulations, particularly those that relate to land sales and development, project and consumer
financing, property sales and transfers, property taxation and residential property prices.
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We believe that it is in the PRC government’s interest to stabilize the market and to encourage the urbanization process and that increases of disposable income will continue to support the long-
term growth of China’s real estate market. Accordingly, we expect that the government will maintain policies that will foster long-term healthy growth and curb potential bubbles in the market.
However, we cannot assure that the PRC government will not adopt further measures in the future that may adversely affect our business and financial performance or that a real estate bubble will not
develop despite government efforts to discourage such development.
Moreover, a substantial portion of our customers depend on mortgage financing to purchase our properties. Although government policies have generally fostered the growth of private home
ownership, regulations have been adopted in recent years to tighten and then loosen mortgage lending rules.
Such policies relate to, among other matters, down payment requirements and ratios, minimum loan interest rates ad amount or percentage or mortgage financing.
The down payment ratio, the loan interest rate and the size of mortgage financing are important factors that affect our results of operations, and we cannot guarantee that our operations will not be
adversely affected by future government policies.
The PRC government will also from time to time introduce sales tax incentives or disincentives to either stimulate or dampen demand. For example, the required holding period for avoidance of
business tax on capital gains on sale of real estate was recently reduced from five years to two years with the promulgation of Circular 39 on March 30, 2015 in an effort to stimulate the weakening
property market in China.
Location, number and type of our property developments
The amount of revenue we record in any given period is affected by a number of factors, including the number, type and location of properties we have under construction and their stage of
completion, whether the completed units have been sold and the realized selling prices for such units. The average selling prices of our projects vary depending on the types and sizes of the units sold
and on the location of the projects. As the overall development moves closer to completion, the sales prices tend to increase because a more established residential community is offered to purchasers.
The type of property development affects the estimated construction period of the project, which largely determines the revenue recognition method we apply. Revenue recognized in any period at a
point in time depends on the number, aggregate GFA and average selling prices of units completed and sold during the period. Revenue recognized in any period on an over time basis depends on
contracted sales of units in the relevant project and the completion progress of a project (measured by the ratio of cost incurred to total estimated cost). As the completion and sales of our projects are
not spread evenly over time, our results of operations may differ significantly from period to period.
Availability and cost of financing
Like other property developers, we require substantial capital investment for the acquisition of land use rights and the construction of our projects. Our ability to secure financing for such purposes
affects the number of projects we are able to develop at any time. Over the past ten years, the PBCO has alternatively tightened or loosened the credit supply by increasing or decreasing the reserve
requirement ratios of commercial banks and financial institutions. Any future increases in the reserve requirement ratio will reduce the amount of commercial bank credit available to businesses in
China and may affect our ability to obtain sufficient funding from banks to finance our business expansion. The cost of our financing also affects our operating results. We typically obtain bank
borrowings for up to 65% of the cost of our land use rights to fund PRC project developments after we receive the required permits. Interest rates on our commercial bank borrowings vary and are
linked to benchmark lending rates published by the PBOC, which fluctuate from time to time.
In addition to bank debt, we obtain financing through the issuance of debt securities and through onshore corporate bonds issued by our subsidiary, Xinyuan China. As of December 31, 2019, we
had outstanding US$978.1 million aggregate principal amount of Senior Secured Notes with interest rates ranging from 7.75% to 14.2%. Also as of December 31, 2019, Xinyuan China had outstanding
US$98.9 million in corporate bonds. For more detailed discussion of the bank borrowing and debt securities, see Item 5. Operating and Financial Review and Prospects - B. Liquidity and Capital
Resources.
78
Acquisition of land use rights or title to properties in target markets
Our business model depends to a large extent on our ability to acquire land use rights for development sites and proceed quickly with construction to shorten our development cycle. As a
consequence, we are frequently surveying the market for attractive development opportunities in our target cities. Under current regulations and market practice, land use rights for residential
development purposes in China may be acquired from local governments through a competitive auction or other bidding process, in which the minimum reserve price is determined based on the
appraised value. Land use rights may also be acquired in the secondary markets. We also utilize a negotiated land acquisition model, which involves deposits on certain lands that we are most interested
in acquiring, which we believe will improve our chances of successfully acquiring desired land.
Government land auctions are a transparent and competitive process for bringing development land to market, allowing the developer to acquire clean title and the ability to proceed immediately
with development. However, as competition for development sites increases, the auction mechanism tends to lead to higher prices. In 2018 and 2019, land use rights costs, including auction price and
taxes, constituted 42.2% and 45.7% respectively, of our costs of revenue. During 2019, we incurred an aggregate of US$177.5 million for land acquisitions in China, including deposits for potential
acquisitions under the negotiated land acquisition model.
We acquire our developments sites or land held for sale in the United States generally through off-market transactions, including resales and distressed sales. During 2019, we did not purchase any
new property in the United States.
On March 21, 2018, we acquired from ED Group, a 50% equity stake in MDL, the developer of the Madison Project, via our wholly-owned subsidiary Xinyuan International (HK) Property
Investment Co., Limited for a total consideration of US$19.1 million.
Increases in the price of raw materials and labor costs
We outsource the design and construction of our property developments to third-party service providers. Our third-party contractors are responsible for providing labor and procuring a majority of
the raw materials used in our project developments. Our construction contracts typically provide for flexible payments, subject to changes in certain cases, such as design changes during construction,
changes in government-suggested steel prices, cement prices, as well as labor costs. Any increase in labor costs or other costs which may result in adjustments in payments under our construction
contracts could result in an increase in our construction costs. In addition, the increase in the price of raw materials, such as cement, concrete blocks and bricks, in the long run could be passed on to us
by our contractors, which could increase our construction costs. Any input cost increase could reduce our earnings to the extent we are unable to pass these increased costs to our customers.
Our execution capability to support business expansion
Since 2006, we have been expanding our residential property development operations from Zhengzhou in Henan Province into other high growth cities, we plan to expand into additional high
growth cities as suitable opportunities arise. The development of real estate projects across additional high growth cities will impose significant demand on our management and other operational
resources. Moreover, we will face increased competition and will need to establish brand recognition and market acceptance for our developments in these new markets. Each of our targeted high
growth cities has its own market conditions, customer requirements and local regulations related to the real estate industry. In addition, while our primary focus continues to be residential real estate
markets in the high growth cities in China, we have expanded into the U.S. market. Our expansion in the U.S. market, which is significantly different from China in terms of market conditions,
regulatory compliance requirement and customers, imposes significant demands on our management and other operational resources. In 2014, we acquired 100% of the shares of a Malaysian company,
which owns offshore land fill development rights for a total area of 170 acres (approximately 687,966 square meters). On March 21, 2018, we acquired from ED Group, a 50% equity stake in MDL, the
developer of the Madison Project, via our wholly-owned subsidiary Xinyuan International (HK) Property Investment Co., Limited for a total consideration of US$19.1 million. We have no development
experience in Malaysia and England, nor have we ever engaged in landfill reclamation projects. Such expansion also imposes significant demands on our capital and management resources to develop
and generate future revenues from projects. The success of our business expansion depends on our ability to develop, market and deliver quality development projects on time. In addition, the progress
and costs of a development project can be adversely affected by many factors, such as delays in obtaining necessary licenses, permits or approvals from relevant government authorities, failure by local
contractors to comply with our designs, specifications or standards, and disputes with our third-party contractors. As we are not permitted to commence pre-sales in China until we have reached certain
milestones in the construction progress for a project, any significant delay in construction could restrict our ability to pre-sell our properties, which could extend the recovery period for our investments.
This, in turn, could have an adverse effect on our cash flow, investment returns, results of operations and financial position.
79
Operating Results
Revenues
We derive our revenues mainly from the development and sale of real estate. In addition, we generate a small percentage of revenue from leasing ancillary facilities and residential units in certain of
our residential developments, as well as from the provision of related services, including property management and real estate related services that we provide to residents and purchasers of our
residential units.
Real estate sales
Real estate leasing
Real estate management services income
Other revenue
Total revenue
2018
2019
US$
%
US$
%
(in thousands, except for percentages)
2,139,371
9,585
63,447
5,148
2,217,551
96.5
0.4
2.9
0.2
100.0
2,387,032
16,129
67,488
11,984
2,482,633
96.1
0.7
2.7
0.5
100.0
The impact of foreign exchange rate variances on reported revenues in U.S. dollars was an adverse 4.3 % for the year ended December 31, 2019, compared to a favorable 2.1% for the year ended
December 31, 2018. These variances were due to the fact that the appreciation of the RMB versus the U.S. dollar during 2019 was heightened as compared to 2018.
Real estate sales
Real estate sales represent revenues from the sales of residential properties we develop and acquire. Throughout this annual report, real estate sales are stated net of sales tax levied on the relevant
contracted sales value. Sales tax is a one-time tariff which consists of a business tax at the rate of 5%, an urban construction tax at the rate of 0.35% and an education surcharge at the rate of 0.15%.
Total sales tax amounted to US$21.4 million, and US$2.8 million for 2018 and 2019, respectively. Beginning May 1, 2016, a value added tax instead of the business tax was levied on the relevant
contracted sales value at the rate of 5 % or 11%. Beginning May 1, 2018, the rates of value added tax was levied on the relevant contracted sales value at the rate of 5% or 10%. Beginning May 1, 2019,
the rates of value added tax was levied on the relevant contracted sales value at the rate of 5% or 9%.
On January 1, 2018, the Company adopted ASC 606: Revenue from Contracts with Customers (“ASC 606”) issued by the Financial Accounting Standards Board. The Company adopted the
guidance using the modified retrospective approach for the year ended December 31, 2019. Under the new revenue recognition standards, revenue from domestic real estate sales under the previous
contract terms, which used to be recognized over time under the percentage of completion method (“POC”), was not recognized until title is transferred when the Company does not have the enforceable
right to payment, therefore, the revenue, cost and retained earnings decreased; on the other hand, the balance of real estate properties under development and customer deposits increased. For the year
ended December 31, 2018 and 2019, all the revenues related to projects in the U.S. were recognized until title is transferred.
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Real estate leasing
Real estate leasing revenues represent the income from the rental of ancillary facilities, including a retail property, parking facilities, kindergartens, elementary schools, and clubhouses in a number
of our developments.
Real estate management service
Real estate management services income is recognized ratably as services are provided over the term of the property management agreements.
Other revenue
Other revenue consists primarily of fees received for our property management services, landscaping and computer network engineering and other real estate-related services that we provide to
residents and purchasers of our residential units.
Costs of revenues
The following table sets forth a breakdown of our costs of revenues for the period indicated:
Cost of real estate sales
Land use rights costs
Construction costs
Total cost of real estate sales
Cost of real estate leasing
Cost of real estate management services
Other costs
Total Costs of revenues
Cost of real estate sales
2018
2019
US$
%
US$
%
(in thousands, except for percentages)
676,284
860,689
1,543,973
9,349
44,620
4,131
1,602,073
42.2
54.1
96.3
0.6
2.8
0.3
100.0
877,582
974,237
1,851,819
12,757
40,889
16,858
1,922,323
45.7
50.7
96.4
0.7
2.1
0.8
100.0
Cost of real estate sales consist primarily of land use rights costs and construction costs. Impairment charges, if any, are also recorded under cost of real estate sales. Cost of real estate sales are
capitalized and allocated to development projects using the specific identification method. When the full accrual method of revenue recognition is applied, cost of sales is recognized by determining the
ratio of the area of the relevant units completed and sold to the estimated total project area, and applying that ratio to the estimated total project costs. When the over time basis of revenue recognition is
applied, capitalized costs are released to our statement of comprehensive income based on the completion progress of a project.
Land use rights cost. Land use rights costs include the amount we pay to acquire land use rights for our property development sites in China, plus taxes, and the amount we pay to acquire land for
our property development in the United States, plus taxes. We acquire our development sites in the PRC mainly by auctions of government land, direct negotiation and acquisition of land-owning
entities. We acquired our development sites or land held for sale in the United States generally through off-market transactions, including resale and distressed sales. Our land use rights costs for
different projects vary according to the size and location of the site and the minimum reserve price for the site, all of which are influenced by government policies, as well as prevailing market
conditions. Our land use rights costs have increased in the past few years due to several factors including geographic expansion into certain higher priced markets, generally rising prices in each of our
served markets, and increased competition from a growing number of bidders at government land auctions.
Construction costs. We outsource the construction of all of our projects to third party contractors, whom we select through a competitive tender process. Our construction contracts provide for
flexible payments which cover substantially most of all labor, materials, fittings and equipment costs, subject to adjustments for certain prescribed contingencies, such as design changes during the
construction process or changes in government-suggested steel prices or cement prices. Our construction costs consist primarily of the payments to our third-party contractors, which are paid over the
construction period based on specified milestones. In addition, we directly purchase and supply a limited range of fittings and equipment, including elevators, window frames and door frames. Our
construction costs also include capitalized interest costs in the amount of US$135.3 million, and US$125.3 million for 2018 and 2019, respectively.
81
Future losses and impairment charges. When the profitability of a current project deteriorates due to a slowdown in the sales pace, reduction of pricing or some other factor, this indicates that there
may be a possible future loss on delivery and possible impairment in the recoverability of the assets. Accordingly, the assets of such project are subsequently reviewed for future losses and impairment
by comparing the estimated future undiscounted cash flows for the project to the carrying value of such project. If the estimated future undiscounted cash flows are less than the asset’s carrying value,
such deficit will be charged as a future loss and the asset will then be written down to its estimated fair value.
We determine estimated fair value primarily by discounting the estimated future cash flows relating to the asset. In estimating the cash flows for a project, we use various factors including (a) the
expected pace at which the planned number of units will be sold, based on competitive market conditions, historical trends in sales pace and actual average selling prices of similar product offerings and
any other long or short-term economic conditions which may impact the market in which the project is located; (b) the estimated net sales prices expected to be attained based on the current market
conditions and historical price trends, as well as any estimated increases in future sales prices based upon the projected rate of unit sales, the estimated time gap between presale and expected delivery,
the impact of government policies, the local and regional competitive environment, and certain external factors such as the opening of a subway line, school or factory; and (c) the expected costs to be
incurred in the future by us, including, but not limited to, construction cost, construction overhead, sales and marketing, sales taxes and interest costs.
Our determination of fair value requires discounting the estimated cash flows at a rate commensurate with the inherent risk associated with the assets and related estimated cash flows. The discount
rate used in determining each project’s fair value depends on the stage of development, location and other specific factors that increase or decrease the risk associated with the estimated cash flows. In
accordance with our accounting policies, we consider on a quarterly basis whether indicators of impairment of long-lived assets are present. See also “Item 5. Operating and Financial Review and
Prospects — A. Operating Results — Critical Accounting Policies — Real estate properties development completed and under development” for our policy on impairment of long-lived assets.
For the years ended December 31, 2018 and 2019 we did not recognize any impairment for our active projects, consisting of projects under construction or planning or completed or held for lease.
Cost of real estate leasing
Our cost of real estate leasing consists primarily of depreciation expenses and maintenance expenses associated with the leased properties. Depreciation is computed using the straight-line method
over the estimated useful lives of the assets. Estimated useful lives of our properties held for lease are 20-60 years.
Cost of real estate management services
Our cost of real estate management services consists of employee salaries, maintenance water and electricity charges.
Other costs
Other costs represent costs incurred in connection with the property management and real estate services that we provide to residents and purchasers of our residential units.
Selling and Distribution Expenses
Our selling and distribution expenses include:
•
•
•
•
advertising and promotion expenses, such as print advertisement costs, billboard and other display advertising costs, and costs associated with our showrooms and illustrative units;
sales and marketing staff costs, which consist primarily of salaries, welfares and sales commissions;
agency commissions of approximately 1% of contracted sales on outsourced project sales; and
other related expenses.
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As of December 31, 2019, we employed 108 full-time sales and marketing personnel. We expect our selling and marketing expenses to increase in the near future as we increase our sales efforts,
launch more projects and target new markets to expand our operations.
General and Administrative Expenses
General and administrative expenses principally include:
•
•
•
•
staff salaries and benefits, quarterly and annual bonuses, and stock-based compensation;
traveling and office expenses;
professional fees, such as audit and legal fees; and
other expenses.
Interest Income
Interest income represents interest earned on mainly on our bank balances.
Interest Expenses
Interest expense includes (i) interest on US$300 million principal amount of our 14.20% notes due 2021 (the “October 2021 Senior Secured Notes” which were partially redeemed early in 2019),
US$300 million principal amount of our 7.75% notes due 2021 (the “February 2021 Senior Secured Notes" which were partially redeemed early in 2019), US$300 million principal amount of our
8.875% notes due 2020 (the “November 2020 Senior Secured Notes” which were partially redeemed early in 2019), US$200 million principal amount of our 9.875% notes due 2020 (the “March 2020
Senior Secured Notes" which were partially redeemed early in 2019), US$628 million principal amount of our public onshore bonds (which was partially redeemed early in 2019), US$377 million
principal amount of our non-public onshore bonds (which was partially redeemed early in 2019), (ii) amortization of debt issuance cost, and (iii) interest expense on capital leases.
Except for U.S. dollar-denominated borrowings from the following: US$123.5 million from The Bank of East Asia, US$59.5 million from Kent EB-5. LLC, and US$50.2 million from The Bank of
Ozarks and US$0.8 million from The Bank Direct Capital Finance, all of our borrowings are granted by PRC commercial banks or financing institutions and denominated in RMB. Our senior secured
notes (see below) are also denominated in U.S. dollars. Interest rates on our long-term PRC bank borrowings are typically variable and linked to benchmark rates published by the PBOC. Our weighted
average interest rate on short-term bank loans and other debt as of December 31, 2019 was 8.33%. As of December 31, 2019, the PBOC benchmark rate for a one-year loan was 4.35% per annum and
those for loans of more than one year ranged from 4.75% to 4.9% per annum. The above-mentioned borrowings from oversea branches of PRC banks are secured by RMB deposits in PRC banks’ local
branches and bear interest rates LIBOR plus 1.1%.
The October 2021 Senior Secured Notes in the principal amount of US$300 million bear interest at the fixed rate of 14.20% per annum. The February 2021 Senior Secured Notes in the principal
amount of US$300 million bear interest at a fixed rate of 7.75% per annum. The November 2020 Senior Secured Notes in the principal amount of US$300 million bear interest at a fixed rate of 8.875%
per annum. The March 2020 Senior Secured Notes in the principal amount of US$200 million bear interest at a fixed rate of 9.875% per annum.
For the year ended December 31, 2019, out of total interest costs incurred, US$113.8 million did not qualify for interest capitalization treatment under U.S. GAAP and was charged to the 2019
Statement of Comprehensive Income. Total gross interest costs incurred amounted to US$317.9 million for the year of 2019, including US$308.7 million of interest on loans and notes, US$8.1 million
of amortization of debt issuance costs and US$1.0 million of amortization of aircraft finance lease related interest.
For the year ended December 31, 2018, out of total interest costs incurred, US$99.2 million did not qualify for interest capitalization treatment under U.S. GAAP and was charged to the 2018
Statement of Comprehensive Income. Total gross interest costs incurred amounted to US$281.8 million for the year of 2018, including US$271.8 million of interest on loans and notes, US$8.6 million
of amortization of debt issuance costs and US$1.4 million of amortization of aircraft finance lease related interest.
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Share of Loss of Equity Investee
As of December 31, 2018 and 2019, the Group has a 1.85% investment in Zhengzhou Lianhe Real Estate Co., Ltd. The Group does not exercise significant influence over Zhengzhou Lianhe Real
Estate Co., Ltd. and therefore, the Group accounts for the investment as nonmarketable equity security. Investment income is recognized by the Group when the investee declares a dividend and the
Group believes it is collectible. The Company adopted ASU 2016-01 and elected to record equity investments without readily determinable fair values at cost minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company. There were no material adjustments for observable price change or
impairment related to these investments for the year ended December 31, 2019.
On January 11, 2016, the Group together with two other entities established a joint venture called Shenzhen Zhong An Financial Lease Co., Ltd. (“Shenzhen Zhong An”), in which the Group holds
a 25% equity interest. The purpose of the joint venture is to undertake financial lease businesses. For the year ended December 31, 2019, dividend received amounted to US$183,427 (2018: nil).
On November 3, 2016, the Company together with two third parties established Zhengzhou Xinci Health Service Co., Ltd. (“Zhengzhou Xinci”) to provide health services in Zhengzhou, in which
the Company holds a 60% equity interest and injected capital amounted US$1,290,135 in 2017. Based on the articles of association, Company cannot exercise control over relevant activities of the
investee, but it has the ability to exercise significant influence over Zhengzhou Xinci’s operation and financial decisions and accounted for it as an equity method investment.
On January 9, 2017, the Company set up a limited partnership, Shenzhen Qianhai Jingjie City Renewal Investment Partnership (“Shenzhen Qianhai”), with third parties and made a capital injection
of US$8,118,800. Shenzhen Qianhai will focus on investment in real estate renewal projects in Shenzhen city. The Company has significant influence over Shenzhen Qianhai operating and financial
decisions and accounted for it as an equity method investment.
On January 18, 2017, the Group acquired 51% equity interest in Zhengzhou Hangmei. Zhengzhou Hangmei, a consolidated subsidiary, holds a 3.75% equity interest of Zhengzhou Taike Real Estate
Co., Ltd. amounting to US$738,073. The Group does not exercise significant influence over Zhengzhou Taike Real Estate Co., Ltd. and therefore, the Group accounted for the investment as
nonmarketable equity security. Investment income is recognized by the Group when the investee declares a dividend and the Group believes it is collectible. The Company adopted ASU 2016-01 and
elected to record equity investments without readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for
the identical or a similar investment of the Company. There were no material adjustments for observable price change or impairment related to these investments for the year ended December 31, 2019.
On April 19, 2017, the Company signed an agreement to acquire up to 70% equity interest of Qingdao Huiji Zhihui City Industrial Development Co., Ltd. (“Qingdao Huiju”), which is developing a
real estate project in Qingdao city from Beijing Huiju Technology Industry Development Co., Ltd., a non-affiliated company for a consideration of US$505.2 million. As of December 31, 2019,
US$505.2 million had been paid in exchange for 49% equity interest that has been transferred to the Company. Based on the articles of association, the Company cannot exercise control of Qingdao
Huiju until it acquires the entire 70% equity interest, but has the ability to exercise significant influence over Qingdao Huiju’s operating and financial decisions and accounted for it as an equity method
investment.
The Group initiated various legal actions against Beijing Huiju for, inter alia, (i) the transfer of the remaining 21% equity interest in Qingdao Huiju to the Group and appointment of directors into
the board of Qingdao Huiju, (ii) refund of unauthorized transfer of cash of US$98.7 million from Qingdao Huiju to Beijing Huiju, and (iii) return of business license and official seals of Qingdao Huiju
to Qingdao Huiju. In March 2019, the PRC local court held that Beijing Huiju shall refund the unauthorized cash transferred to Beijing Huiju to Qingdao Huiju and has frozen the cash of US$98.7
million in Beijing Huiju’s bank account. In January 2020, local PRC court held that Beijing Huiju shall return the business license and official seals of Qingdao Huiju to Qingdao Huiju. However,
Beijing Huiju appealed to PRC Courts against the refund of cash and return of business and official seals to Qingdao Huiju. Currently the above lawsuits are in progress. Based on independent legal
advice and after due and careful enquiry, the directors of the Company are of the view that Group is entitled to the receipt of the 21% equity interest in Qingdao Huiju and the appointment of directors
into the board of Qingdao Huiju, and Qingdao Huiju is entitled to get back the cash, business license and seals from Beijing Huiju. Hence the above events shall have not any material adverse effect on
the Group’s investment in and receivable from Qingdao Huiju.
84
On September 4, 2017, the Company with two non-affiliated companies, established a limited partnership, Wuhu Penghong Investment Center (Limited Partnership) (“Wuhu Penghong”), in which
the Company and the other two partners each invested US$30.6 million, US$91.8 million and US$3.1 million in cash, respectively. The other two partners hold substantive participating rights whereas
the Company only exercises significant influence, and therefore, accounted for its investment in Wuhu Penghong under the equity method. On September 8, 2017, Wuhu Penghong acquired 90.57%
equity interest of Guangzhou Huanglong Information Technology Co., Ltd. (“Guangzhou Huanglong”) for a total cash consideration of US$19.7 million.
On December 27, 2017, the Company with a non-affiliated company, established a limited partnership, called Wuhu Penghua Tenth Investment Center (Limited Partnership) (“Wuhu Penghua”),
where the Company and the other partner invested US$367.3 million and US$153.0 million in cash, respectively. The other partner holds substantive participating rights whereas the Company only
exercises significant influence, and therefore, accounted for its investment in Wuhu Penghua under the equity method. In December 2017, Wuhu Penghua and the Company made capital contributions
amounting to US$6.9 million and US$0.8 million, representing a 90% and 10% equity interest in Chengdu Xinyuan Renju Enterprise Management Co., Ltd. (“Chengdu Renju”), respectively. The
Company exercises significant influence and accounted for its investment in Chengdu Renju using equity method. On September 6, 2018, Wuhu Penghua returned to the non-affiliated partner its related
investment contribution resulting in the Company becoming the sole owner of the Wuhu Penghua and Chengdu Renju. Therefore, management assessed that the acquisition constitutes an acquisition of
business according to ASC805, Business combinations.
On March 20, 2018, the Company acquired 16.66% equity interest in Suzhou Hengwan Real Estate Co., Ltd (“Suzhou Hengwan”), which is developing a real estate project in Suzhou city from
Suzhou Hengwan Enterprise Management Consulting Co., Ltd., a non-affiliated company for a consideration of US$18.6 million. As of December 31, 2019, Suzhou Hengwan returned US$5.4 million
(2018: US$7.3 million) of capital to the Company. Based on the articles of association, the Company cannot exercise control of Suzhou Hengwan, but has the ability to exercise significant influence
over Suzhou Hengwan’s operating and financial decisions and accounted for it as an equity method investment.
On March 21, 2018, the Company acquired 50% equity interest in Madison Developments Limited (“MDL”), which is developing a real estate project in London, England from ED Jersey Limited,
a non-affiliated company for a consideration of US$19.1 million. Based on the articles of association, the Company cannot exercise control of MDL, but has the ability to exercise significant influence
over MDL’s operating and financial decisions and accounts for it as an equity method investment.
On April 26, 2018, the Company acquired 51% equity interest in Henan Qingning Apartment Management Co., Ltd. (“Henan Qingning”), which is operating rental apartments in Henan Province,
from one natural person and Henan Yangjian Industry Co., Ltd., a non-affiliated company, for a consideration of US$3.8 million. Based on the articles of association, the Company cannot exercise
control of Henan Qingning, but has the ability to exercise significant influence over Henan Qingning’s operating and financial decisions and accounted for it as an equity method investment.
On May 31, 2018, the Company acquired 19.99% equity interest in Suzhou Litai Real Estate Co., Ltd (“Suzhou Litai”), which is developing a real estate project in Suzhou city from Yongwei Real
Estate (Suzhou) Co., Ltd., a non-affiliated company, for a consideration of US$9.3 million. As of December 31, 2019, Suzhou Litai returned US$5.7 million of capital to the Company. Based on the
articles of association, the Company cannot exercise control of Suzhou Litai, but has the ability to exercise significant influence over Suzhou Litai’s operating and financial decisions and accounted for
it as an equity method investment.
85
On June 22, 2018, the Company together with a non-affiliated company, Huzhou Tianhong Real Estate Development Co., Ltd, established a joint venture, Huzhou Xinhong Town Construction and
Development Co., Ltd. ("Huzhou Xinhong"), in which the Company holds a 78.46% equity interest. Based on the articles of association, the Company cannot exercise control of Huzhou Xinhong, but
has the ability to exercise significant influence over Huzhou Xinhong’s operating and financial decisions and accounted for it as an equity method investment.
On May 27, 2015, the Company together with a non-affiliated company, Nanjing Starry Sky Studios Management Co., Ltd. established a joint venture Beijing Starry Sky Cinema Co., Ltd. ("Starry
Sky"), in which the Company holds a 51% equity interest. The purpose of the joint venture is to operate movie theatres. On October 18, 2018, for the best interests of the Company, the Company and its
non-affiliated joint venture partner agreed that advances amounting to US$2.4 million for operational needs due from Nanjing Starry Sky should be converted to an additional 19.77% equity interest.
Therefore, as of October 18, 2018, the Company’s accumulated equity interest in Starry Sky is 70.77%. Based on the latest articles of association, the Company still cannot exercise control of Starry
Sky, but has the ability to exercise significant influence over Starry Sky’s operating and financial decisions and accounted for it as an equity method investment.
On September 25, 2019, the Company acquired 40% equity interest in Taizhou Yiju Real Estate Co., Ltd. ("Taizhou Yiju"), which is developing a real estate project in Taizhou city from Zhejiang
Zhongjian Real Estate Co., Ltd., a non-affiliated company, for a consideration of US$8.5 million. Based on the articles of association, the Company cannot exercise control of Taizhou Yiju, but has the
ability to exercise significant influence over Taizhou Yiju's operating and financial decisions and accounted for it as an equity method investment.
In July 2019, the Company acquired 24% equity interest in Suzhou Rongjingchen Real Estate Co., Ltd. ("Suzhou Rongjingchen"), which is developing a real estate project in Suzhou city from
Suzhou Kaijingsheng Real Estate Co., Ltd., a non-affiliated company, for a consideration of US$42.0 million. Based on the articles of association, the Company cannot exercise control of Suzhou
Rongjingchen, but has the ability to exercise significant influence over Suzhou Rongjingchen's operating and financial decisions and accounted for it as an equity method investment.
As of December 31, 2019, the Group’s investment in the investees in the aggregate exceeded its proportionate share of the net assets of the equity method investee by nil (December 31, 2018: nil).
This difference, if any, represents equity method goodwill and therefore, is not amortized. For the year ended December 31, 2019, the Group recognized investment loss amounting to US$5.4 million
(2018: US$9.4 million), mainly consisting of Wuhu Penghong amounting to US$2.9 million, Qingdao Huiju amounting to US$0.9 million and Starry Sky amounting to US$0.8 million, respectively. As
of December 31, 2018 and 2019, there was no material impairment related to these investments.
Net Loss on Debt Extinguishment
On July 10, 2017, the Company redeemed the 13% senior notes due 2019 (the “June 2019 Senior Secured Notes”) for a total redemption amount of US$215,456,000 consisting of the entire
outstanding principal balance, interest to the redemption date and debt redemption price amounting to US$200,000,000, US$2,456,000 and US$13,000,000 (equal to the 6.5% of the outstanding
principal amount), respectively. The Company recognized loss on extinguishment of debt amounting to US$15,879,702, consisting of both the debt redemption price amounting to US$13,000,000 and
unamortized deferred debt issuance costs amounting to US$2,879,702. The Company funded the redemption using the proceeds from the issuance of the February 2021 Senior Secured Notes.
From August 14, 2019 to November 12, 2019, the Company redeemed the 8.2% onshore corporate bonds due 2020 (the “First Tranche Bonds”) for a total principal amount of RMB 0.4 billion
(US$57 million). The Company recognized loss on extinguishment of debt amounting to US$1,484, consisting of both the debt redemption price amounting to US$175 and unamortized deferred debt
issuance costs amounting to US$1,659.
From June 21, 2019 to August 12, 2019, the Company redeemed the 8.2% onshore corporate bonds due 2021(the “Second Tranche Bonds”) for a total principal amount of RMB 90 million (US$13
million). The Company recognized gain on extinguishment of debt amounting to US$127,864, consisting of both the debt redemption price amounting to US$128,426 and unamortized deferred debt
issuance costs amounting to US$562.
86
From March 14, 2019 to August 14, 2019, the Company redeemed the 8.2% onshore corporate bonds due 2021 (the “Third Tranche Bonds”) for a total principal amount of RMB0.5 billion (US$71
million). The Company recognized loss on extinguishment of debt amounting to US$743,034, consisting of both the debt redemption price amounting to US$740,934 and unamortized deferred debt
issuance costs amounting to US$2,100.
On April 7, 2019, the Company redeemed the 8.2% onshore corporate bonds due 2020 (the “2017 Tranche”) remaining amount of RMB 0.63 billion (US$90 million), recognizing loss on
extinguishment of debt amounting to US$1,535,132 in 2019, consisting of the debt redemption price amounting to US$1,535,132.
From August 26, 2019 to September 23, 2019, the Company redeemed the 8.5% onshore corporate bonds due 2020 (the “2018 Tranche”) for a total principal amount of RMB76 million (US$11
million). The Company recognized loss on extinguishment of debt amounting to US$20,958, consisting of unamortized deferred debt issuance costs amounting to US$20,958.
From January 4, 2019 to June 21, 2019, the Company redeemed 8.5% onshore corporate bonds due 2022 (the “2019 Tranche”) for a total principal amount of RMB591 million (US$85 million).
The Company recognized loss on extinguishment of debt amounting to US$1,894,262 in 2019, consisting of both the debt redemption price amounting to US$1,428,945 and unamortized deferred debt
issuance costs amounting to US$465,317.
From April 1, 2019 to June 21, 2019, the Company redeemed the 8.4% onshore corporate bonds due 2022 (the “2019 First Tranche Bonds”) for a total principal amount of RMB637 million (US$91
million). The Company recognized loss on extinguishment of debt amounting to US$3,977,493 in 2019, consisting of both the debt redemption price amounting to US$3,494,668 and unamortized
deferred debt issuance costs amounting to US$482,825.
From January 1, 2019 to December 31, 2019, the Company redeemed 8.125% senior notes due 2011 ("August 2019 Senior Secured Notes") for a total principal amount of US$288.1 million. The
Company recognized loss on extinguishment of debt amounting to US$1,111,583 in 2019, consisting of the loss from the difference between repurchase price and principal amount of the debt
amounting to US$125,165 and the loss from unamortized deferred debt issuance costs amounting to US$986,418.
From January 1, 2019 to December 31, 2019, the Company redeemed the February 2021 Senior Secured Notes for a total principal amount of US$10.6 million. The Company recognized gain on
extinguishment of debt amounting to US$1,126,617, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$1,246,256 and the loss from
unamortized deferred debt issuance costs amounting to US$119,639.
From January 1, 2019 to December 31, 2019, the Company redeemed the November 2020 Senior Secured Notes for a total principal amount of US$0. 9 million. The Company recognized gain on
extinguishment of debt amounting to US$38,136, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$47,200 and the loss from
unamortized deferred debt issuance costs amounting to US$9,064.
From January 1, 2019 to December 31, 2019, the Company redeemed the March 2020 Senior Secured Notes for a total principal amount of US$75.7 million. The Company recognized loss on
extinguishment of debt amounting to US$563,941, mainly consisting of the loss from unamortized deferred debt issuance costs amounting to US$563,941.
From January 1, 2019 to December 31, 2019, the Company redeemed the October 2021 Senior Secured Notes for a total principal amount of US$2.5 million. The Company recognized loss on
extinguishment of debt amounting to US$25,240, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$52,500 and the loss from
unamortized deferred debt issuance costs amounting to US$77,740.
87
Income Taxes
The following table sets forth the components of income taxes for the periods indicated:
Corporate income tax
Land appreciation tax
Deferred tax benefit
Income taxes
2018
2019
US$
%
US$
%
(in thousands, except for percentages)
141,400
62,996
(59,949)
144,447
97.9
43.6
(41.5)
100.0
133,862
68,631
(52,015)
150,478
89.0
45.6
(34.6)
100.0
For an explanation of deferred tax benefit, see Notes 2(v) and 15 of the consolidated financial statements included elsewhere in this annual report on Form 20-F. For a discussion of corporate
income tax and land appreciation tax, see below.
Corporate Income Tax and Unrecognized Tax Benefit
Cayman Islands
We are incorporated in the Cayman Islands. The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in
the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on
instruments executed in, or after execution, brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments.
People’s Republic of China
In general, enterprises in the PRC are subject to income tax at a statutory rate of 25%. For our subsidiaries located in various cities, income tax is levied at the statutory rate of 25% on income as
reported in the statutory financial statements after appropriate tax adjustments. Further, under the same tax laws and regulations, dividends paid by PRC enterprises out of profits earned post-2007 to
non-PRC tax resident investors are subject to PRC dividend withholding tax of 10%. A lower withholding tax rate may be applied based on applicable tax treaty with certain jurisdictions.
We have made provision for the corporate income tax, or CIT, payable by our PRC subsidiaries based on the statutory income tax rate of 25%, after appropriate adjustments to our taxable income
used in the calculation. The difference between tax payable on our actual taxable income and tax levied on the deemed taxable income basis had been treated as an unrecognized tax benefit under ASC
740-10 “Income Tax,” or ASC 740-10, which has a balance of US$73.6 million as of December 31, 2019. The increase in the current year liability for unrecognized tax benefits is attributable to deemed
interest income from subsidiaries of us during the year amounting to US$12.7 million, reclassification from prior year tax payable amounting to US$12.8 million and related late payment interests
amounting to US$2.2 million.
Hong Kong
Our HK subsidiaries are subject to income tax at the statutory rate of 16.5% in accordance to the HK profits tax laws and regulations. We did not make any provisions for Hong Kong Profits Tax as
there were no assessable profits arising in or derived from Hong Kong for any of the periods presented. Under the Hong Kong tax law, our HK subsidiaries are exempted from income tax on its foreign-
derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
88
The United States
Our US subsidiaries are subject to income tax at the effective rate of approximately 33% in accordance with US corporate income tax laws and regulations, dividends and interests paid by US
enterprises to non-US tax resident enterprises are subject to US withholding tax of 30%.
Land Appreciation Tax
Under PRC laws and regulations, our PRC subsidiaries engaging in property development are subject to LAT, which is levied by the local tax authorities upon the “appreciation value” as defined in
the relevant tax laws. All taxable gains from the sale or transfer of land use rights, buildings and related facilities in China are subject to LAT at progressive rates that range from 30% to 60%. Certain
exemptions are allowed for sales of ordinary residential properties if the appreciation value does not exceed a threshold specified in the relevant tax laws. Gains from sales of commercial properties are
not eligible for this exemption. Whether a property qualifies for the ordinary residential property exemption is determined by the local government taking into consideration the property’s plot ratio,
aggregate GFA and sales price.
On May 30, 2014, the Modern City project developed by Henan Xinyuan Real Estate Co., Ltd., completed the LAT final settlement with the local tax bureau. We received a tax clearance certificate,
which confirmed that our accrual under the deemed profit method was adequate and there were no additional tax adjustments assessed by the local tax bureau as of May 30, 2014. Based on the above,
management performed a reassessment and concluded that the likelihood of the deemed profit method being overturned is only reasonably possible, and accordingly reversed the LAT liability accrued
for the project amounting to US$16.2 million as of December 31, 2014. Our estimate for the reasonably possible contingency for LAT related to the Modern City project amounted to US$16.2 million
and US$16.2 million, respectively, as of December 31, 2015 and December 31, 2016. The statute of limitation has lapsed as of May 30, 2017 and therefore, there is no related contingency as of
December 31, 2018 or December 31, 2019.
For the years ended December 31, 2019, we have made provision for LAT with respect to properties sold up to December 31, 2019 in accordance with the requirements set forth in the relevant PRC
tax laws and regulations.
Share-based Compensation Expense
We have five share-based compensation plans: (1) our 2007 long-term incentive plan (which expired in 2017 but for which options remain outstanding), (2) our 2014 Restricted Stock Unit Plan (the
"2014 RSU Plan"), (3) our 2015 incentive plan. Under our 2007 long-term incentive plan, as of December 31, 2019, 212,138 options remain outstanding and exercisable. Under our 2014 RSU Plan, we
have granted 12,453,194 restricted common shares to employees and directors that vest ratably over a three year service vesting period. Under our 2015 long-term incentive plan, we may grant options,
restricted shares, restricted stock units, stock appreciation rights and other stock-based awards for the purchase of up to 20,000,000 common shares. As of December 31, 2019, 2,796,734 options remain
outstanding and exercisable. As of December 31, 2019, 14,865,808 shares remained eligible for future grants under the plan, (4) on 31 January 2019, Cayman Property Management Service (Cayman)
Ltd., a subsidiary of us, operates a restricted share award scheme (the “Scheme”) and (5) on September 28, 2019, we approved the employee stock option plan of Xinchuang Technology Co. Ltd.
("Xinchuang Technology").
We charged compensation cost of US$3.4 million and US$5.6 million as of December 31, 2018 and December 31, 2019 in the general and administrative expenses. For a description of the grants
under each of the plans, see Note 16 of the consolidated financial statements included elsewhere in this annual report.
89
Results of Operations
The following table presents a summary of our consolidated statements of comprehensive income by amount and as a percentage of our total revenue during the periods indicated. Our historical
results presented below are not necessarily indicative of the results that may be expected for any other future period.
Revenue
Costs of revenue
Gross profit
Selling and distribution expenses
General and administrative expenses
Operating income
Interest income
Interest expense
Exchange loss
Other income
Share of loss of equity investees
Net loss on debt extinguishment
(Loss)/gain on short-term investments
Income from operations before income taxes
Income taxes
Net income
Net income attributable to non-controlling interest
Net income attributable to Xinyuan Real Estate Co., Ltd. shareholders
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Revenue
2018
2019
US$
%
US$
%
(in thousands, except for percentages)
2,217,551
(1,602,073)
615,478
(83,592)
(156,456)
375,430
31,226
(99,246)
(25,678)
1,742
(9,374)
(21,444)
(2,257)
250,399
(144,447)
105,952
(32,917)
73,035
100.0
(72.2)
27.8
(3.8)
(7.1)
16.9
1.4
(4.5)
(1.2)
0.1
(0.4)
(1.0)
(0.1)
11.2
(6.5)
4.7
(1.5)
3.2
2,482,633
(1,922,323)
560,310
(86,761)
(163,687)
309,862
51,494
(113,775)
(7,376)
5,849
(5,416)
(8,581)
1,451
233,508
(150,478)
83,030
(14,684)
68,346
100.0
(77.4)
22.6
(3.5)
(6.6)
12.5
2.1
(4.6)
(0.3)
0.2
(0.2)
(0.3)
0.1
9.4
(6.1)
3.3
(0.6)
2.7
Revenue increased by US$265.0 million, or 11.9%, to US$2,482.6 million for the year ended December 31, 2019 from US$2,217.6 million for the year ended December 31, 2018.
Real estate sales
Revenue from real estate sales increased by US$247.6 million, or 11.6%, to US$2,387.0 million for the year ended December 31, 2019 from US$2,139.4 million for the year ended December 31,
2018, principally due to the revenue from the sales of units in new projects, especially Zhengzhou International New City IV, Qingdao Royal Dragon Bay, and Zhengzhou International New City IV
B10, launched in the forth quarter of 2018 and 2019.
Revenues related to the projects in the United States are recognized at a point in time. For the year ended December 31, 2018, revenue was recognized in the amount of US$8.8 million for the sale
of 4 of 216 finished condominium units located in Brooklyn, New York. For the year ended December 31, 2019, revenue was recognized in the amount of US$0.75 million for the sale of 1 of 216
finished condominium units located in Brooklyn, New York.
90
The following table sets forth the percentage of completion, the percentage sold and related revenues for our pre-sold projects for each of the years ended December 31, 2018 and 2019. The
revenues for our new pre-sold projects since January 1, 2018 are recognized on an over time basis upon the adoption of ASC 606 and recognized at a point in time in the United States. For information
regarding revenue recognition on an over time basis and at a point in time, see “Critical Accounting Policies,” below.
Project
Chengdu region
Chengdu Xinyuan Splendid I
Chengdu Xinyuan Splendid II
Chengdu Thriving Family
Chengdu Xinyuan City (4)
Shanghai region
Shanghai Royal Palace
Suzhou International City Garden
Suzhou Xin City
Suzhou Lake Royal Palace
Kunshan International City Garden
Kunshan Royal Palace
Kunshan Xindo Park
Xuzhou Colorful City
Kunshan Xinyu Jiayuan (4)
Suzhou Galaxy Bay (4)
Suzhou Gusu Shade I (4)
Shandong region
Jinan International City Garden
Jinan Xinyuan Splendid
Shandong Royal Palace
Jinan Xin Central
Qingdao Royal Dragon Bay (4)
Jinan Royal Spring Bay (4)
Henan region
Zhengzhou Xinyuan Colorful Garden
Zhengzhou Finance Square
Zhengzhou Modern City
Zhengzhou Century East A
Zhengzhou Century East B
Zhengzhou Xin City
Henan Thriving Family
Henan Xin Central I
Xingyang Splendid I
Xingyang Splendid II
Xingyang Splendid III
Xingyang Splendid IV (4)
Zhengzhou Xindo Park
Zhengzhou Fancy City I
Zhengzhou Fancy City III (4)
Zhengzhou International New City I
Zhengzhou International New City II
Zhengzhou International New City III A
Zhengzhou Fancy City II (South)
Zhengzhou Fancy City II (North)
Henan Xin Central II
Zhengzhou International New City III B (4)
Zhengzhou International New City III C (4)
Zhengzhou International New City III D (4)
Zhengzhou International New City IV (4)
Zhengzhou Hangmei International Wisdom City I (4)
Xinyuan Golden Water View City (4)
Xingyang Splendid V (4)
Zhengzhou International New City IV B10 (4)
Zhengzhou International New City A04 (4)
Total GFA
Percentage
Complete as of
December 31, (1)
Percentage Sold (2)
Accumulated as of
December 31,
Revenues Recognized For The Year Ended
December 31,
m 2
231,032
217,009
203,379
741,874
57,770
204,872
127,291
169,674
497,948
280,591
89,002
130,840
107,935
76,546
11,957
264,357
572,170
449,613
194,410
156,531
116,818
191,781
67,225
231,905
76,588
166,470
210,724
131,510
261,492
115,431
118,530
121,113
151,835
134,064
166,709
80,603
356,587
176,037
96,018
84,274
108,724
109,522
118,780
82,290
46,074
199,651
143,181
331,369
80,486
92,294
104,949
2018
%
2019
%
2018
%
2019
%
2018
US$
% (3)
100.0
100.0
98.8
30.4
99.9
100.0
100.0
99.6
100.0
99.9
94.8
94.9
65.2
48.3
73.4
100.0
100.0
91.9
99.2
44.6
63.2
100.0
100.0
100.0
100.0
100.0
100.0
98.2
96.3
83.2
80.0
73.3
39.1
91.9
95.0
66.8
84.4
62.5
54.2
91.5
50.9
90.4
52.5
58.9
66.0
54.1
49.8
61.9
–
–
–
100.0
100.0
98.8
39.2
99.9
100.0
100.0
99.9
100.0
99.9
99.3
98.7
71.6
78.3
91.5
100.0
100.0
95.7
99.0
54.0
78.4
100.0
100.0
100.0
100.0
100.0
100.0
98.8
97.8
89.2
80.2
95.2
38.2
95.2
98.2
79.2
89.9
76.3
68.6
90.4
73.9
88.6
63.8
73.2
71.5
67.6
70.6
71.6
40.5
58.3
56.9
91
99.0
99.9
70.0
6.4
64.3
99.5
100.0
99.0
99.9
98.3
90.3
91.9
22.6
31.7
1.1
99.6
99.3
92.8
84.0
12.0
10.7
100.0
100.0
100.0
96.8
99.9
92.2
86.9
85.8
78.0
51.4
93.4
94.2
86.1
86.6
18.1
90.6
92.4
95.4
95.1
55.3
89.1
96.7
29.7
84.9
4.3
48.5
10.7
–
–
–
99.0
100.0
78.7
17.0
64.9
99.5
100.0
100.0
100.0
99.1
97.5
95.4
48.3
76.9
75.4
99.8
99.4
98.0
88.0
52.1
25.5
100.0
100.0
100.0
99.8
100.0
98.5
89.4
92.5
78.2
74.7
97.7
37.1
88.3
88.6
82.9
95.8
97.0
99.4
96.8
88.0
92.1
98.8
76.3
88.8
86.7
60.5
24.2
66.1
57.3
21.2
939,171
(628)
49,529,230
30,248,316
(90,187)
–
–
12,796,455
448,833
27,417,062
209,372,107
3,188,457
54,645,671
22,063,505
425,016
(90,151)
(134,252)
170,647,448
80,882,965
26,146,767
14,327,827
(138,075)
(164,285)
–
(1,763)
277,099
1,137,703
540,145
36,045,553
1,709,126
2,071,589
29,186,670
8,289,847
33,200,492
25,988,903
18,518,481
280,219,753
–
–
127,681,618
-
149,649,698
115,976,163
24,008,930
55,864,324
9,585,470
31,569,589
51,824,928
–
–
–
–
–
2.3
1.4
–
–
–
0.6
–
1.3
9.8
0.1
2.6
1.0
–
–
–
8.0
3.8
1.2
0.7
–
–
–
–
-
0.1
0.0
1.7
0.1
0.1
1.4
0.4
1.6
1.2
0.9
13.2
–
–
6.0
-
7.0
5.4
1.1
2.6
0.4
1.5
2.4
–
–
–
2019
US$
28,871
–
12,108,905
73,052,145
413,385
–
(100,116)
945,133
33,466
3,284,198
35,066,962
63,073,916
73,412,318
65,459,271
38,144,452
616,449
362,592
127,737,479
11,680,481
107,136,726
27,591,363
361,119
–
(341,364)
41,350
175,955
1,189,804
7,237,244
18,549,383
(435,808)
5,793,602
84,937,721
16,148,676
6,086,531
9,406,840
80,148,278
292,248,993
290,908,227
–
8,341,028
32,778,802
9,173,528
27,370,402
55,497,173
7,844,282
225,080,429
27,893,446
87,703,634
22,310,294
43,132,963
23,001,979
% (3)
–
–
0.5
3.1
–
–
–
–
–
0.1
1.5
2.6
3.1
2.7
1.6
–
–
5.4
0.5
4.5
1.2
–
–
–
–
–
–
0.3
0.8
–
0.2
3.6
0.7
0.3
0.4
3.4
12.2
12.2
–
0.3
1.4
0.4
1.1
2.4
0.3
9.4
1.2
3.7
0.9
1.8
1.0
Project
Total GFA
Percentage
Complete as of
December 31, (1)
Percentage Sold (2)
Accumulated as of
December 31,
Revenues Recognized For The Year Ended
December 31,
Anhui region
Hefei Wangjiang Garden
Beijing region
Beijing Xindo Park
Tianjin Spring Royal Palace I
Tianjin Spring Royal Palace II (4)
Changsha region
Changsha Xinyuan Splendid
Changsha Mulian Royal Palace
Changsha Furong Thriving Family (4)
Sanya region
Sanya Yazhou Bay No.1
Xi’an region
Xi’an Metropolitan
Dalian region
Dalian International Health Technology Town I (4)
Guangdong region
Foshan Xinchuang AI International Science and Technology
Innovation Valley (4)
US
Northern Nevada Land Portfolio
Lennox Project
New York Oosten
Total
m 2
145,455
133,095
139,691
144,581
251,652
90,992
72,257
117,585
285,997
103,845
194,404
N/A
N/A
30,855
10,968,244
2018
%
100.0
2019
%
100.0
2018
%
100.0
99.9
80.8
56.7
97.0
89.4
54.6
90.3
97.5
25.0
–
N/A
N/A
N/A
99.9
91.3
73.8
98.1
99.1
69.3
98.1
98.0
45.2
53.9
N/A
N/A
N/A
86.1
83.1
36.0
94.6
99.4
99.4
80.1
82.9
1.2
–
N/A
N/A
N/A
2019
%
100.0
86.5
83.9
53.1
95.6
100.0
99.7
96.4
87.4
32.4
5.7
N/A
N/A
N/A
US$
2018
(21)
12,612,057
31,615,644
54,549,636
45,186,779
–
52,060,438
169,606,832
58,687,113
430,818
–
–
–
8,815,926
2,139,370,792
% (3)
US$
% (3)
2019
–
0.6
1.5
2.5
2.1
–
2.4
7.9
2.7
–
–
–
–
0.4
100.0
3,804
76,051
76,965,744
49,528,788
2,045,776
140,722,641
15,174,132
43,820,015
6,919,122
18,625,567
9,767,421
–
–
750,000
2,387,031,568
–
–
3.2
2.1
0.1
5.9
0.6
1.8
0.3
0.8
0.4
–
–
–
100.0
(1) Percentage of completion is calculated by dividing total costs incurred by total estimated costs for the relevant project, estimated as of the time of preparation of our financial statements as of and
for the year indicated.
(2) Percentage sold is calculated by dividing contracted sales value from property sales by total estimated sales value of the relevant project, estimated as of the time of preparation of our financial
statements as of and for the year indicated.
(3) Percentage of all real estate sales revenues for the financial period, including revenues recognized on an “over time” basis and until title was transferred.
(4) The revenues for these projects are recognized on an over time basis.
92
The following table sets forth the square meters sold and average selling price per square meter for each pre-sold project, each reportable segment and on a consolidated basis for each of the years
ended December 31, 2018 and 2019:
Project
Chengdu region
Chengdu Xinyuan Splendid I
Chengdu Xinyuan Splendid II
Chengdu Thriving Family
Chengdu Xinyuan City
Total
Shanghai region
Shanghai Royal Palace
Suzhou Lake Royal Palace
Suzhou Galaxy Bay
Suzhou Gusu Shade I
Suzhou Suhe Bay *
Suzhou Gusu Shade II **
Huzhou Silk Town ***
Kunshan International City Garden
Kunshan Royal Palace
KunshanXindo Park
Kunshan Xinyu Jiayuan
Xuzhou Colorful City
Total
Shandong region
Jinan International City Garden
Jinan Xinyuan Splendid
Shandong Royal Palace
Jinan Xin Central
Qingdao Royal Dragon Bay
Jinan Royal Spring Bay
Total
Contract
Sales
US$
2018
Square
Meters
Sold
m 2
Year Ended December 31,
Average
Selling
Price
US$/m 2
Contract
Sales
US$
2019
Square
Meters
Sold
m 2
Average
Selling
Price
US$/m 2
612,844
–
18,462,199
111,650,607
130,725,650
492,560
1,193,367
51,072,067
685,139
78,933,983
–
–
800,057
936
47,405,570
93,231,283
15,229,543
289,044,505
19,553
26,841
187,338,918
56,530,792
65,455,833
25,237,505
334,609,442
–
–
6,870
74,093
80,963
88
357
24,350
123
24,000
–
–
–
–
14,053
23,669
6,879
93,519
–
795
77,185
26,293
20,512
18,217
143,002
93
–
–
2,687
1,507
1,615
5,597
3,343
2,097
5,570
3,289
–
–
–
–
3,373
3,939
2,214
3,091
–
34
2,427
2,150
3,191
1,385
2,340
–
140,502
(2,792,165)
176,767,268
174,115,605
39,149
–
100,719,796
45,325,562
120,862,573
38,297,807
52,713,399
–
–
(4,366,292)
104,943,652
(809,093)
457,726,553
811,327
669,617
28,512,389
5,703,601
211,377,608
35,772,711
282,847,253
–
64
(2,837)
121,908
119,135
–
–
48,415
8,409
38,557
6,909
21,883
–
–
(1,739)
30,469
940
153,843
896
1,414
8,691
3,549
72,466
28,459
115,475
–
2,195
984
1,450
1,461
–
–
2,080
5,390
3,135
5,543
2,409
–
–
2,511
3,444
(861)
2,975
905
474
3,281
1,607
2,917
1,257
2,449
Project
Year Ended December 31,
Henan region
Zhengzhou Royal Palace
Zhengzhou Modern City
Zhengzhou Yipin Xiangshan Phase II
Zhengzhou Century East A
Zhengzhou Century East B
Zhengzhou Xin City
Zhengzhou Thriving Family
Henan Xin Central I
Zhengzhou Xindo Park
Xingyang Splendid I
Xingyang Splendid II
Xingyang Splendid III
Zhengzhou Fancy City I
Zhengzhou Fancy City II (South)
Zhengzhou International New City I
Henan Xin Central II
Zhengzhou Fancy City II (North)
Zhengzhou International New City II
Zhengzhou International New City III A
Zhengzhou International New City III B
Zhengzhou International New City III D
Zhengzhou Hangmei International Wisdom City I
Xingyang Splendid IV
Xinyuan Golden Water View City
Zhengzhou Fancy City III
Zhengzhou International New City III C
Zhengzhou International New City IV
Zhengzhou International New City IV B10
Zhengzhou International New City A04
Xingyang Splendid V
Total
Beijing region
Beijing Xindo Park
Tianjin Spring Royal Palace I
Tianjin Spring Royal Palace II
Total
Hunan region
Changsha Xinyuan Splendid
Changsha Mulian Royal Palace
Changsha Furong Thriving Family
Total
Hainan region
Sanya Yazhou Bay No.1
Xi’an region
Xi’an Metropolitan
Dalian region
Dalian International Health Technology Town I
Guangdong region
Foshan Xinchuang AI International Science and
Technology Innovation Valley
U.S.
New York Oosten Project
Grand Total
2019
Square
Meters
Sold
m 2
Average
Selling
Price
US$/m 2
Contract
Sales
US$
(5,771)
107,384
6,712
3,710,144
679,445
11,641,648
9,725,156
7,357,550
5,560,095
19,743,246
3,890,821
38,553,679
6,185,567
10,027,260
65,919,724
25,996,237
68,689,834
59,792,620
45,081,658
246,489,399
94,315,724
71,036,589
23,662,693
93,930,378
32,599,264
47,768,032
19,773,543
–
–
–
1,012,238,631
11,948,438
3,529,790
107,184,203
122,662,431
24,789,311
62,988,918
106,233,985
194,012,214
153,933,564
16,547,579
1,934,496
2018
Square
Meters
Sold
m 2
Average
Selling
Price
US$/m 2
–
(183)
–
–
–
1,555
13,484
1,626
4,579
17,701
2,099
33,254
1,836
2,400
10,922
14,182
45,002
17,524
21,613
116,223
43,693
65,129
20,749
32,643
16,774
28,551
9,266
–
–
–
520,622
1,413
1,491
53,076
55,980
10,139
36,669
71,824
118,632
42,304
9,536
900
Contract
Sales
US$
328
93,470
7,324
6,516
2,259
2,909,721
95,552
3,705,213
1,654,974
7,284,479
15,905,450
5,619,346
(1,727,292)
30,931,489
1,901,146
2,139,322
23,943,077
17,152,144
1,911,484
3,562,470
4,214,784
30,795,601
44,924,042
122,873,568
104,640,984
72,881,352
360,369,948
80,702,344
45,067,930
60,104,343
1,043,673,368
(278,714)
502,391
54,594,531
54,818,208
(5,201,934)
(277,083)
1,725,396
(3,753,621)
31,111,507
5,270,757
44,175,421
–
(587)
–
–
–
7,487
721
4,525
1,214
1,115
1,854
1,159
3,369
4,178
6,035
1,833
1,526
3,412
2,086
2,121
2,159
1,091
1,140
2,878
1,943
1,673
2,134
–
–
–
1,944
8,456
2,367
2,019
2,191
2,445
1,718
1,479
1,635
3,639
1,735
2,149
–
125
–
–
–
1,677
255
1,246
1,459
6,722
14,469
3,022
(962)
12,176
667
160
17,237
6,793
617
1,743
1,485
29,086
40,056
42,220
57,108
40,871
169,948
51,211
22,117
54,266
575,774
(52)
302
28,547
28,797
(2,719)
(159)
321
(2,557)
13,882
2,848
32,151
–
748
–
–
–
1,735
375
2,974
1,134
1,084
1,099
1,859
1,796
2,540
2,850
13,371
1,389
2,525
3,098
2,044
2,838
1,059
1,122
2,910
1,832
1,783
2,120
1,576
2,038
1,108
1,813
5,360
1,664
1,912
1,904
1,913
1,743
5,375
1,468
2,241
1,851
1,374
1,565
6,944
2,006
–
–
–
19,834,112
12,671
8,815,926
2,264,524,438
735
1,066,192
11,994
2,124
750,000
2,110,569,163
108
1,052,127
* The Company owns 16.66% equity interest in a joint venture, Suzhou Hengwan Real Estate Co., Ltd. which develops Suzhou Suhe Bay. The Company accounts for its investment under the
equity method.
** The Company owns a 19.99% equity interest in Suzhou Litai Real Estate Co., Ltd., which develops Suzhou Gusu Shade II. The Company accounts for its investment under the equity method.
*** The Company owns 78.46% equity interest in a joint venture, Huzhou Xinhong Town Construction and Development Co., Ltd. which develops Huzhou Silk Town. The Company accounts for
its investment under the equity method.
Total square meters sold decreased to 1,052,127 square meters for the year ended December 31, 2019 from 1,066,192 square meters for the year ended December 31, 2018. The decrease was mainly
due to decreased sales of newly launched projects in 2019.
The overall aggregate average selling price per square meter for the year ended December 31, 2019 decreased to US$2,006 from US$2,124 for the year ended December 31, 2018, primarily due to
decreased pr-sales of higher margin saleable units that occurred in 2019.
94
Chengdu region. Total square meters in this region sold for the year ended December 31, 2019 increased to 119,135 square meters from 80,963 square meters for the year ended December 31,
2018, primarily due to increased sales of Chengdu Xinyuan City. The average selling price per square meter for the year ended December 31, 2019 decreased to US$1,461 from US$1,615 for the year
ended December 31, 2018.
Shanghai region. Total square meters sold for the year ended December 31, 2019 increased to 153,843 square meters from 93,519 square meters for the year ended December 31, 2018, mainly due
to increased sales of Suzhou Galaxy Bay, Suzhou Suhe Bay, Suzhou Gusu Shade II and Huzhou Silk Town, partially offset by reductions of saleable units of KunshanXindo Park. The average selling
price per square meter for the year ended December 31, 2019 slightly decreased to US$2,975 from US$3,091 for the year ended December 31, 2018.
Shandong region. Total square meters sold for the year ended December 31, 2019 decreased to 115,475 square meters from 143,002 square meters for the year ended December 31, 2018, mainly
due to decreased sales of Shandong Royal Palace and Jinan Xin Central, partially offset by increased sales of Qingdao Royal Dragon Bay. The average selling price per square meter for the year ended
December 31, 2019 increased to US$2,449 from US$2,340 for the year ended December 31, 2018.
Henan region. Total square meters sold for the year ended December 31, 2019 increased to 575,774 square meters from 520,622 square meters for the year ended December 31, 2018, mainly due
to newly launched pre-sales of Zhengzhou International New City IV B10, Zhengzhou International New City A04, and Xingyang Splendid V, increased sales of Xingyang Splendid IV, Zhengzhou
Fancy City III, and Zhengzhou International New City IV, partially offset by reductions of saleable units of Xingyang Splendid III, Zhengzhou Fancy City II (North), Zhengzhou International New City
III A, Zhengzhou International New City III B, Zhengzhou International New City III D, and Zhengzhou Hangmei International Wisdom City I. The average selling price per square meter for the year
ended December 31, 2019 decreased to US$1,813 from US$1,944 for the year ended December 31, 2018.
Beijing region. Total square meters sold for the year ended December 31, 2019 decreased to 28,797 square meters from 55,980 square meters for the year ended December 31, 2018, mainly due to
reductions of saleable units of Tianjin Spring Royal Palace II. The average selling price per square meter for the year ended December 31, 2019 decreased to US$1,904 from US$2,191 for the year
ended December 31, 2018.
Hunan region. Total square meters sold for the year ended December 31, 2019 decreased to (2,557) square meters from 118,632 square meters for the year ended December 31, 2018, mainly due to
reductions of saleable units of Changsha Furong Thriving Family, Changsha Mulian Royal Palace and Changsha Xinyuan Splendid, and sales returns from previous trasactions outpacing new sales.
Hainan region. Total square meters sold for the year ended December 31, 2019 decreased to 13,882 square meters from 42,304 square meters for the year ended December 31, 2018, mainly due to
reductions of saleable units of Sanya Yazhou Bay No.1. The average selling price per square meter for the year ended December 31, 2019 decreased to US$2,241 from US$3,639 for the year ended
December 31, 2018, resulting from the decrease in high margin units available for sale.
Xi’an region. Total square meters sold for the year ended December 31, 2019 decreased to 2,848 square meters from 9,536 square meters for the year ended December 31, 2018, mainly due to
deductions of saleable units of Xi’an Metropolitan. The average selling price per square meter for the year ended December 31, 2019 increased to US$1,851 from US$1,735 for the year ended
December 31, 2018, resulting from the increment in high margin units available for sale.
Dalian region. Total square meters sold for the year ended December 31, 2019 increased to 32,151 square meters from 900 square meters for the year ended December 31, 2018, mainly due to the
increase of saleable units of Dalian International Health Technology Town I. The average selling price per square meter for the year ended December 31, 2019 decreased to US$1,374 from US$2,149
for the year ended December 31, 2018, resulting from the decrease in high margin units available for sale.
Guangdong region. Total square meters sold for the year ended December 31, 2019 was 12,671 square meters, mainly due to the increase of saleable units of Foshan Xinchuang AI International
Science and Technology Innovation Valley. The average selling price per square meter for the year ended December 31, 2019 was US$1,565.
95
United States region. Total square meters sold for the year ended December 31, 2019 decreased to 108 square meters from 735 square meters for the year ended December 31, 2018, mainly due to
deductions of saleable units of New York Oosten Project. The average selling price per square meter for the year ended December 31, 2019 decreased to US$6,944 million from US$11,994 million for
the year ended December 31, 2018, resulting from the decrease in high margin units available for sale.
Real estate leasing
Real estate leasing income increased by US$6.5 million, or 67.7% to US$16.1 million for the year ended December 31, 2019 from US$9.6 million for the year ended December 31, 2018.
Real estate management services income
Real estate management services income increased by US$4.1 million, or 6.5%, to US$67.5 million for the year ended December 31, 2019 from US$63.4 million for the year ended December 31,
2018. The increase primarily resulted from expanded property management service operations.
Other revenue
Other revenue increased by US$6.9 million, or 135.3%, to US$12.0 million for the year ended December 31, 2019 from US$5.1 million for the year ended December 31, 2018.
Costs of Revenue
Costs of revenue increased by US$320.3 million, or 20.0%, to US$1,922.3 million for the year ended December 31, 2019 from US$1,602.1 million for the year ended December 31, 2018, generally
in line with our revenue increases.
Cost of real estate sales
Cost of real estate sales increased by US$307.8 million, or 19.9%, to US$1,851.8 million for the year ended December 31, 2019 from US$1,544.0 million for the year ended December 31, 2018.
Total land use rights cost increased by US$201.3 million, or 29.8%, from US$676.3 million (42.2% of cost of real estate sales) for the year ended December 31, 2018 to US$877.6 million (45.7% of
cost of real estate sales) for the year ended December 31, 2019, the increase was consistent with the revenue. Construction cost, including capitalized interest, increased by US$106.5 million, or 12.3%,
to US$974.2 million for the year ended December 31, 2019 from US$867.7 million for the year ended December 31, 2018, primarily due to increased project construction activity.
Cost of real estate leasing
Cost of real estate leasing increased by US$3.4 million, or 36.5%, to US$12.8 million for the year ended December 31, 2019 from US$9.3 million for the year ended December 31, 2018. The
increase was primarily attributable to the increase of depreciation.
Cost of real estate management services
Cost of real estate management services decreased by US$3.7 million, or 8.4%, to US$40.9 million for the year ended December 31, 2019 from US$44.6 million for year ended December 31, 2018.
The decrease was primarly attributable to the new projects delivered which could share labor resources within the existing projects.
Other costs
Other costs increased by US$12.7 million, or 308.1%, to US$16.9 million for the year ended December 31, 2018 from US$4.1 million for year ended December 31, 2018. The increase as primarily
attributable to the rise in deputy property management costs and the increasing of software consulting service cost.
96
Gross Profit
Gross profit decreased by US$55.2 million, or 9.0%, to US$560.3 million for the year ended December 31, 2019 from US$615.5 million for the year ended December 31, 2018. Gross profit margin
was 22.6% for the year ended December 31, 2019 compared to 27.8% for the year ended December 31, 2018.
Selling and Distribution Expenses
Selling and distribution expenses increased by US$3.2 million, or 3.8%, to US$86.8 million for the year ended December 31, 2019 from US$83.6 million for the year ended December 31, 2018. As
a percentage of revenue, selling and distribution expenses was 3.5% for the year ended December 31, 2019 compared to 3.8% for the year ended December 31, 2018. The increase was primarily due to a
US$4.5 million increase in advertising and promotion expenses for new projects launched in 2019 as well as existing projects, partially offset by a US$1.8 million decrease in salary and welfare
expenses. As revenue grows in the future, we expect selling and distribution expenses as a percentage of revenue to be flat or slightly increase.
General and Administrative Expenses
General and administrative expenses increased by US$7.2 million, or 4.6% to US$163.7 million for the year ended December 31, 2019 from US$156.5 million for the year ended December 31,
2018. The increase was primarily due to an increase in consulting fees of US$4.6 million, and an increase in research and development expenses of US$2.0 million.
As a percentage of revenue, general and administrative expenses were 6.6% for the year ended December 31, 2019, compared to 7.1% for the year ended December 31, 2018.
Interest Income
Interest income was US$51.5 million for the year ended December 31, 2019, compared to US$31.2 million for the year ended December 31, 2018.
Interest Expenses
For the year ended December 31, 2019, out of total interest costs incurred, US$113.8 million did not qualify for interest capitalization treatment under U.S. GAAP and was charged to the 2019
Statement of Comprehensive Income. Total gross interest costs incurred amounted to US$317.9 million for the year of 2019, including US$308.7 million of interest on loans and notes, US$8.1 million
of amortization of debt issuance costs and US$1.0 million of amortization of aircraft finance lease related interest.
For the year ended December 31, 2018, out of total interest costs incurred, US$99.2 million did not qualify for interest capitalization treatment under U.S. GAAP and was charged to the 2018
Statement of Comprehensive Income. Total gross interest costs incurred amounted to US$281.8 million for the year of 2018, including US$271.8 million of interest on loans and notes, US$8.6 million
of amortization of debt issuance costs and US$1.4 million of amortization of aircraft finance lease related interest.
Income Taxes
Income taxes increased by US$6.1 million, or 4.2%, to US$150.5 million for the year ended December 31, 2019 from US$144.4 million for the year ended December 31, 2018 mainly due to the
increase in taxable income in the PRC.
Our effective tax rate increased to 64.4% for the year ended December 31, 2019, from 57.7% for the year ended December 31, 2018.
Net Income Attributable to our Shareholders
Net income decreased by US$4.7 million to US$68.3 million for the year ended December 31, 2019, from US$73.0 million for the year ended December 31, 2018.
97
Discussion of Segment Operations
We consider each of our individual property developments as a discrete operating segment. As a presentation of segment information for each property development would not be meaningful, we
have aggregated our segments on a provincial basis as property development projects undertaken within a province have similar expected economic characteristics, type of properties offered, customers
and market and regulatory environment. Our reporting segments are: (i) property developments in Zhengzhou, Henan Province, (ii) property developments in Jinan and Qingdao, Shandong Province,
(iii) property developments in Suzhou, Xuzhou and Kunshan, Jiangsu Province and Shanghai, (iv) property developments in Chengdu, Sichuan Province (v) property developments in Beijing and
Tianjin, (vi) property developments in Sanya, Hainan Province, (vii) property developments in Changsha, Hunan Province, (viii) property developments in Xi’an, Shaanxi Province, (ix) property
developments in Zhuhai and Foshan Guangdong Province, (x) property developments in Wuhan, Hubei Province, (xi) property developments in Dalian, Liaoning Province, (xii) property developments
in the United States, (xiii) property management and (xiv) “other.” Each geographic operating segment is principally engaged in the construction and development of residential real estate units. The
“property management” category relates to property management services. The “other” category relates to investment holdings, installation of intercom systems, landscaping, engineering and
management, real estate sale, purchase and lease activities. The accounting policies of the various segments are the same as those described in Note 2, “Summary of Significant Accounting Policies” of
the Notes to Consolidated Financial Statements included in this report.
2018
2019
(US$ in thousands, except for percentages)
Zhengzhou, Henan
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income
Jinan and Qingdao, Shandong
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income
Suzhou, Kunshan and Xuzhou, Jiangsu, and Shanghai
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income
Chengdu, Sichuan
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income/(loss)
Beijing and Tianjin
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
Sanya, Hainan
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income
98
1,010,783
(706,606)
304,177
30.1%
241,365
292,266
(230,042)
62,224
21.3%
49,613
332,385
(217,349)
115,036
34.6%
99,588
81,107
(76,833)
4,274
5.3%
(2)
77,813
(73,875)
3,938
5.1%
(66,329)
170,083
(87,715)
82,368
48.4%
70,279
1,396,895
(1,091,987)
304,908
21.8%
234,068
276,143
(222,755)
53,388
19.3%
38,618
283,475
(204,270)
79,205
27.9%
61,125
86,981
(82,568)
4,413
5.1%
(3,599)
130,468
(98,126)
32,342
24.8%
(40,991)
43,820
(31,767)
12,053
27.5%
9,539
Changsha, Hunan
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income/(loss)
Xi’an, Shaanxi
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income
Zhuhai and Foshan, Guangdong
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
Wuhan, Hubei
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
Dalian, Liaoning
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
US
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating income/(loss)
Property Management
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
Others
Total revenue
Total cost of revenue
Gross profit
Gross margin
Operating loss
2018
2019
(US$ in thousands, except for percentages)
97,756
(102,979)
(5,223)
-5.3%
(16,232)
86,165
(56,487)
29,678
34.4%
23,774
–
–
–
–
(1,185)
–
–
–
–
(1,950)
427
(298)
129
30.2%
(1,357)
9,387
(9,358)
29
0.3%
(4,626)
51,751
(32,122)
19,629
37.9%
13,946
7,628
(8,411)
(783)
-10.3
(31,456)
158,658
(112,402)
46,256
29.2%
42,265
13,002
(9,985)
3,017
23.2%
(2,792)
9,738
(6,822)
2,917
30.0%
950
–
(23)
(23)
0.0%
(3,453)
18,622
(13,441)
5,181
27.8%
2,380
1,940
(2,793)
(853)
-44.0%
(10,267)
58,798
(36,736)
22,062
37.5%
14,985
4,093
(8,649)
(4,556)
-111.3%
(32,966)
Year Ended December 31, 2019 Compared to Year Ended December 31, 2018
Zhengzhou, Henan. Total revenue increased by US$386.1 million, or 38.2%, from US$1,396.9 million for the year ended December 31, 2018 to US$1,010.8 million for the year ended December
31, 2019. Gross profit for this region was US$304.9 million, or 21.8% of revenue, in the year ended December 31, 2019, as compared to US$304.2 million, or 30.1%, in the year ended December 31,
2018. The operating income was US$234.1 million for the year ended December 31, 2019, representing a decrease of US$7.3 million, or 3.0%, from US$241.4 million for the year ended December 31,
2018.
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Jinan and Qingdao, Shandong. Total revenue decreased by US$16.2 million, from US$292.3 million for the year ended December 31, 2018 to US$276.1 million for the year ended December 31,
2019. The gross profit decreased to US$53.4 million, or 19.3% of revenue, for the year ended December 31, 2019 from US$62.2 million, or 21.3% of revenue, for the year ended December 31, 2018.
The operating income was US$38.6 million for the year ended December 31, 2019, representing a decrease of US$11.0 million from US$49.6 million for the year ended December 31, 2018.
Suzhou, Kunshan and Xuzhou, Jiangsu and Shanghai. Total revenue decreased by US$48.9 million, or 14.7%, from US$332.4 million for the year ended December 31, 2018 to US$283.5
million for the year ended December 31, 2019. Gross profit for the Jiangsu and Shanghai segment was US$79.2 million for the year ended December 31, 2019, decreasing by US$35.8 million from
US$115.0 million for the year ended December 31, 2018. Operating income was US$61.1 million for the year ended December 31, 2019, representing a decrease of US$38.5 million, or 38.7%, from
US$99.6 million for the year ended December 31, 2018.
Chengdu, Sichuan. Total revenue increased by US$5.9 million from US$81.1 million for the year ended December 31, 2018 to US$87.0 million for the year ended December 31, 2019. Gross
profit for the Sichuan segment was US$4.4 million for the year ended December 31, 2019, as compared to US$4.3 million for the year ended December 31, 2018. Operating loss was US$3.6 million for
the year ended December 31, 2019, representing a decrease of US$3.6 million from the operating loss of US$32 thousand for the year ended December 31, 2018.
Beijing and Tianjin. Total revenue increased by US$52.7 million, or 67.7%, from US$77.8 million for the year ended December 31, 2018 to US$130.5 million for the year ended December 31,
2019. Gross profit for the Beijing and Tianjin segment was US$32.3 million for the year ended December 31, 2019, increasing by US$28.4 million from US$3.9 million for the year ended December
31, 2018. Operating loss was US$41.0 million for the year ended December 31, 2019, representing a decrease of US$25.3 million, or 38.2%, from the operating loss of US$66.3 million for the year
ended December 31, 2018.
Sanya, Hainan. Total revenue decreased by US$126.3 million, or 74.3%, from US$170.1 million for the year ended December 31, 2018 to US$43.8 million for the year ended December 31, 2019.
Gross profit for the Hainan segment was US$12.1 million for the year ended December 31, 2019, decreasing by US$70.3 million from US$82.4 million for the year ended December 31, 2018.
Operating income was US$9.5 million for the year ended December 31, 2019, representing a decrease of US$60.8 million, or 86.5%, from income of US$70.3 million for the year ended December 31,
2018.
Changsha, Hunan. Total revenue increased by US$60.9 million, or 62.3%, from US$97.8 million for the year ended December 31, 2018 to US$158.7 million for the year ended December 31,
2019. Gross profit for the Hunan segment was US$46.3 million for the year ended December 31, 2019, increasing by US$51.5 million from gross loss of US$5.2 million for the year ended December
31, 2018. Operating income was US$42.3 million for the year ended December 31, 2019, representing an increase of US$58.5 million from operating loss of US$16.2 million for the year ended
December 31, 2018.
Xi’an, Shaanxi. Total revenue decreased by US$73.2 million, or 84.9%, from US$86.2 million for the year ended December 31, 2018 to US$13.0 million for the year ended December 31, 2019.
Gross profit for the Shaanxi segment was US$3.0 million for the year ended December 31, 2019, decreasing by US$26.7 million from US$29.7 million for the year ended December 31, 2018. Operating
loss was US$2.8 million for the year ended December 31, 2019, representing a decrease of US$26.6 million from US$23.8 million from operating inome for the year ended December 31, 2018.
Zhuhai and Foshan, Guangdong. Total revenue increased by US$9.7 million, or 100.0%, from zero for the year ended December 31, 2018 to US$9.7 million for the year ended December 31,
2019. Gross profit for the Guangdong segment was US$2.9 million for the year ended December 31, 2019, increasing by US$2.9 million from zero for the year ended December 31, 2018. Operating
income was US$1.0 million for the year ended December 31, 2019, representing an increase of US$2.2 million from operating loss of US$1.2 million for the year ended December 31, 2018.
Wuhan, Hubei. Total revenue for the year ended December 31, 2018 and 2019 was zero. The gross loss decreased to US$23 thouand for the year ended December 31, 2019 from zero for the year
ended December 31, 2018. Operating loss was US$3.5 million for the year ended December 31, 2019, representing an increase of US$1.5 million from operating loss of US$2.0 million for the year
ended December 31, 2018.
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Dalian, Liaoning. Total revenue increased by US$18.2 million from US$0.4 million for the year ended December 31, 2018 to US$18.6 million for the year ended December 31, 2019. Gross profit
for the Liaoning segment was US$5.2 million for the year ended December 31, 2019, increasing by US$5.1 million from US$0.1 million for the year ended December 31, 2018. Operating income was
US$2.4 million for the year ended December 31, 2019, representing an increase of US$3.8 million from operating loss of US$1.4 million for the year ended December 31, 2018.
The United States. Total revenue decreased by US$7.5 million, or 79.8%, to US$1.9 million for the year ended December 31, 2019 from US$9.4 million for the year ended December 31, 2018.
This region had a gross loss of US$0.9 million, compared to zero for the year ended December 31, 2018. This region has an operating loss of US$10.3 million for the year ended December 31, 2019,
increasing by US$5.7 million from operating loss of US$4.6 million in the year ended December 31, 2018.
Property Management. Property management revenue increased by US$7.0 million, or 13.5%, to US$58.8 million for the year ended December 31, 2019 from US$51.8 million for the year ended
December 31, 2018. Gross profit was US$22.1 million for the year ended December 31, 2019, increasing by US$2.5 million from US$19.6 million for the year ended December 31, 2018. Operating
income was US$15.0 million for the year ended December 31, 2019, representing an increase of US$1.1 million from US$13.9 million for the year ended December 31, 2018.
Others. Other revenue of US$4.1 million for the year ended December 31, 2019 consisted of real estate-related services, including, among others, property management services, broadband
network installation, landscaping services and consulting services. These services generated a gross loss of US$4.6 million in the year ended December 31, 2019, compared to a gross loss of US$0.8
million in the year ended December 31, 2018.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect (i) the reported amounts of our assets
and liabilities, (ii) the disclosure of our contingent assets and liabilities at the end of each reporting period and (iii) the reported amounts of revenues and expenses during each reporting period. We
continually evaluate these estimates based on our own experience, knowledge and assessment of current business and other conditions, and our expectations regarding the future based on available
information and reasonable assumptions, which together form our basis for making judgments about matters that are inherently uncertain. Since the use of estimates is an integral component of the
financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of judgment than others in their application.
When reading our financial statements, you should consider (i) our selection of critical accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies and
(iii) the sensitivity of reported results to changes in conditions and assumptions. We believe the following accounting policies involve the most significant judgments and estimates used in the
preparation of our financial statements.
Revenue recognition
Revenue is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which we expect to be entitled in exchange for those
goods or services. We also elected to exclude sales taxes and other similar taxes from the measurement of the transaction price. Therefore, revenues are recognized net of business tax, value added taxes
(“VAT”).
A significant portion of our revenue is derived from real estate sales of development properties in the PRC, with revenue recognized using the percentage-of-completion (“POC”) method in
previous years. Under ASC 606, to recognize revenue over time similar to the POC method, contractual provisions need to provide us with an enforceable right to payment. Historically, our contracts
did not include a specific term on enforceable right to payment. For all contracts executed starting from January 1, 2018, we modified certain terms to establish an enforceable right to payment for
performance completed to date, including a reasonable profit. Under ASC 606, we recognize revenue on an “over time” basis prospectively for these new contracts by using cost inputs to measure
progress towards the completion of the performance obligation. The progress towards complete satisfaction of the performance obligation is measured based on our efforts or inputs to the satisfaction of
the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total estimated costs for each contract. For those contracts that did not include
enforceable right to payment terms, revenue is recognized at a point in time when title to the property is transferred to the customer. For the periods presented, all the revenues related to projects in the
U.S. were recognized until title is transferred.
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Generally, we receive short-term advances from its customers for real estate sales. Using the practical expedient, we do not adjust the promised amount of consideration for the effects of a
significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or
service will be one year or less. We also receive long-term advances from customers for real estate sales. The transaction price for such contracts is adjusted for the effects of a financing component, if
long-term advances from customers is assessed as significant at the individual contract level.
Contract assets
We pay sales commission to its real estate sales agencies for each real estate sales contract. We have elected to apply the optional practical expedient for costs to obtain a contract which allows us to
immediately expense sales commissions (included under selling and distribution expenses) when the amortization period of the asset that we otherwise would have used is one year or less. For
incremental costs of obtaining real estate sales contracts that extend beyond a one-year period, these incremental costs of obtaining real estate sales contracts are recognized as assets if the real estate
sales are collectible and amortized as we transfer the control of the assets to customers.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which we have received consideration (or an amount of consideration is due) from the customer. If a customer
pays consideration before we transfer goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Our contract liabilities
are comprised of customer deposits, which are recognized as revenue when we perform under the contract.
Income taxes
We account for income tax using the balance sheet method. Deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, as well as unutilized net operating losses. A valuation allowance is provided for deferred tax assets if it is more likely than
not these items will either expire before we are able to realize our benefits, or that future utilization is uncertain. We assess the need for valuation allowances by tax reporting unit by jurisdiction.
Generally, each of our reportable operating segments is organized in a separate tax reporting unit in a single tax jurisdiction.
Late payment interests and penalties arising from underpayment of income taxes is recognized according to the relevant tax law. The amount of interest expense to be recognized is computed by
applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interest recognized in
accordance with ASC 740-10, “Income Tax” (“ASC 740-10”) is classified in the consolidated financial statements as interest expense, while penalties recognized in accordance with this interpretation
are classified in the consolidated financial statements as other expenses.
In accordance with the provisions of ASC 740-10, we recognize in our consolidated financial statements the impact of a tax position if a tax return’s position or future tax position is “more likely
than not” to prevail (defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position). Tax positions that meet the “more likely than not”
threshold are measured (using a probability weighted approach) at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. Our estimated
liability for unrecognized tax benefits is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, certain changes and/or developments with
respect to audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or
litigation process. The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are appropriately recorded in our consolidated financial
statements. Additionally, in future periods, changes in facts, circumstances, and new information may require us to adjust the recognition and measurement estimates with regards to individual tax
positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.
Please see the more detailed discussion in Note 15 to our consolidated financial statements included elsewhere in this annual report.
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Land Appreciation Tax (“LAT”)
In accordance with the relevant taxation laws for real estate companies of the provinces in which the subsidiaries operate in the PRC, the local tax authorities levy LAT based on progressive rates
ranging from 30% to 60% on the appreciation of land value, being the proceeds of sales of properties less deductible expenditures, including borrowing costs and all property development expenditures.
LAT is generally prepaid based on a fixed percentage (varying by local tax jurisdiction) of customer deposits and is expensed when the related revenue is recognized. Please see the more detailed
discussion in Note 15 to our consolidated financial statements included elsewhere in this annual report.
Share-based compensation
Under ASC 718, “Compensation -Stock Compensation,” we are required to recognize share-based compensation as compensation expense based on the fair value of stock options and other equity
awards on the date of the grant. We have elected to recognize compensation expense using the straight-line method for all restricted shares and stock options granted with service conditions that have a
graded vesting schedule. We have a policy of using authorized shares in the existing pool to satisfy any future exercise of share options and shares repurchased held by a third party trustee to satisfy the
restricted shares granted under our 2014 RSU Plan.
For options granted with performance conditions, share-based compensation expense is recognized based on the probable outcome of the performance condition using the accelerated method over
the requisite service period. A performance condition is not taken into consideration in determining fair value of the non-vested shares granted.
Real estate properties development completed and under development
Real estate properties completed and under development consist of residential unit sites and commercial offices. We lease the land for the residential unit sites under land use right leases with
various terms from the PRC. Real estate properties development completed, under development stated at the lower of carrying amounts or fair value less selling costs.
Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific
identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by us, costs
in excess of the related fair value of the amenities are also treated as common costs. Results of operations of amenities retained by us are included in current operating results.
In accordance with ASC 360, “Property, Plant and Equipment” (“ASC 360”), real estate property development completed and under development are subject to valuation adjustments when the
carrying amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it
exceeds the sum of the undiscounted cash flows expected to be generated by the assets.
When the profitability of a current project deteriorates due to a slowdown in the sales pace, reduction of pricing or some other factor, this indicates that there may be a possible future loss on
delivery and possible impairment in the recoverability of the assets. Accordingly, the assets of such project are subsequently reviewed for future losses and impairment by comparing the estimated future
undiscounted cash flows for the project to the carrying value of such project. If the estimated future undiscounted cash flows are less than the asset’s carrying value, such deficit will be charged as a
future loss and the asset will then be written down to its estimated fair value.
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We determine estimated fair value primarily by discounting the estimated future cash flows relating to the asset. In estimating the cash flows for a project, we use various factors including (a) the
expected pace at which the planned number of units will be sold, based on competitive market conditions, historical trends in sales pace and actual average selling prices of similar product offerings and
any other long or short-term economic conditions which may impact the market in which the project is located; (b) the estimated net sales prices expected to be attained based on the current market
conditions and historical price trends, as well as any estimated increases in future sales prices based upon the projected rate of unit sales, the estimated time gap between presale and expected delivery,
the impact of government policies, the local and regional competitive environment, and certain external factors such as the opening of a subway line, school or factory; and (c) the expected costs to be
incurred in the future by us, including, but not limited to, construction cost, construction overhead, sales and marketing, sales taxes and interest costs.
Our determination of fair value requires discounting the estimated cash flows at a rate commensurate with the inherent risk associated with the assets and related estimated cash flows. The discount
rate used in determining each project’s fair value depends on the stage of development, location and other specific factors that increase or decrease the risk associated with the estimated cash flows.
For the years ended December 31, 2018 and 2019, we did not recognize any impairment for real estate properties completed and under development.
Real estate properties held for lease, net
Real estate properties held for lease are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
Estimated useful lives of the real estate properties held for lease are 20-60 years.
Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Major additions and improvements to the real estate properties held for lease are capitalized.
In accordance with ASC 360, Property, Plant and Equipment, real estate properties held for lease is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment
loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows
expected to be generated by the assets.
For the years ended December 31, 2018 and 2019, we did not recognize any impairment for real estate properties held for lease.
Leases
We adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) from January 1, 2019 by using the modified retrospective method and did not restate the comparable periods. We have elected the
package of practical expedients, which allows us to carry forward our original assessment of whether contracts contained lease, lease classification, and the initial direct cost. Lastly, we elected the
short-term lease exemption for all contracts with lease terms of 12 months or less.
We determines if an arrangement is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset
for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset
and (b) the right to direct the use of the asset.
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Lessee
We categorize leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that transfer ownership to us or allow us to purchase assets
at a nominal amount by the end of the lease term. Assets acquired under finance leases are recorded in property and equipment, net and real estate properties held for lease, net. All other leases are
recorded as operating lease right-of-use (“ROU”) assets.
Lease liability is recorded based the present value of the lease payments over the lease term using a discount rate at commencement date. As the implicit rate in our leases is not typically readily
available, we use an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental borrowing rate
reflects the fixed rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Leased assets are
recognized based on the initial present value of the lease payments, reduced by lease incentives.
Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. The expected lease terms are based on the non-cancelable term of the lease and may contain options
to extend or terminate the lease when it is reasonably certain that we will exercise that option. Finance lease assets are amortized in a manner consistent with our normal depreciation policy for owned
assets. Variable lease payments not dependent on an index or rate are excluded from the ROU assets and lease liability calculations and are recognized in expense in the period which the obligation for
those payments is incurred.
Lessor
As a lessor, our leases are classified as operating leases under ASC 842, and thus the pattern of recognition of real estate lease income remains unchanged from previous lease accounting guidance.
Leases, in which we are the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately.
Effect of change in estimate
Revisions in estimated gross profit margins related to estimated costs and revenues are made in the period in which circumstances requiring the revisions become known. During the year ended
December 31, 2019, real estate development projects (Zhengzhou International New City IV, Zhengzhou Hangmei International Wisdom City I, Henan Xin Central I, Jinan Royal Palace, Chengdu
Xinyuan City and Sanya Yazhou Bay No.1), which recognized gross profit in 2018, had changes in their estimated gross profit margins. As these projects moved closer to completion during 2019, we
adjusted our prior estimates related to selling prices and development costs. As a result of the changes in estimate above, gross profit, net income and basic and diluted earnings per share decreased by
US$59.1 million (2017: decreased US$11.1 million, 2018: increased US$34.5 million), US$44.3 million (2017: decreased US$8.3 million, 2018: increased US$25.9 million), US$0.39 per share (2017:
decreased US$0.06 per share, 2018: increased US$0.20 per share), and US$0.39 per share (2017: decreased US$0.06 per share, 2018: increased US$0.20 per share), respectively, for the year ended
December 31, 2019.
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Recently Issued Accounting Pronouncements
Please see the more detailed discussion in Note 2 to our consolidated financial statements included elsewhere in this annual report.
B. Liquidity and Capital Resources
As previously discussed, a principal factor affecting our results of operations and our growth is the acquisition of land and land use rights in target markets. Under current regulations and market
practice, land use rights for residential development purposes in the PRC may be acquired from local governments through a competitive auction or other bidding process. These competitive auctions
and bidding processes are typically announced 20 days before they are about to take place. To participate in these auctions, we are required to make a minimum deposit of 20-50% of the opening auction
price in cash. If we are successful on our bids, we are also generally required to remit the remaining purchase price within one to six months of the auction. Further, under current regulations we are not
permitted to borrow money from local banks to fund land purchases. As a result we have to fund land purchases either from cash flows from project sales or from financing transactions in foreign
markets which have been and continue to be relatively expensive and not easily accessible. (See “Item 3. Key Information D. Risk Factors — Our business requires access to substantial financing. Our
failure to obtain adequate financing in a timely manner could severely adversely (1) restrict our ability to complete existing projects, expand our business, or repay our debts and (2) affect our financial
performance and condition.”) As a result of entering into other markets, we will also require adequate U.S. dollar and other currency financing for our offshore operations, one of the sources of which is
back-to-back loan arrangements with our subsidiaries, which is subject to foreign exchange rate fluctuation and regulatory risk. See “Item 3. Key Information — D. Risk Factors — We face risks related
to our back-to back loans.”
In addition to our land acquisitions, we expect to incur material project development costs on the acquired land. Our cash needs can only be partially satisfied by construction loans and future cash
flows from real estate projects under development in the upcoming fiscal year. To ensure that we have sufficient funds to secure attractive land parcels and cover material project development costs,
which are vital to our growth strategy, we have chosen to maintain a certain level of cash reserves on hand. In addition, we are required to maintain restricted cash deposits by banks that provide loans to
us and our customers. The amount of the restricted cash deposits will vary based on the amount of the related loans. As of December 31, 2019, approximately US$440.0 million, or 39.9% of our total
cash balance reserve, were restricted cash.
We have and will continue to closely monitor our cash flow position to support our operations. We believe we manage land acquisition activities in a rational manner to control land expenditure and
achieve reasonable profit of each project investment. We also closely monitor collection of accounts receivable, and obtain funds through a variety of both domestic and overseas financing activities to
provide a solid cash flow position for sustainable development.
Cash Flows
Net cash (used in)/provided by operating activities
Net cash provided by/(used in) investing activities
Net cash used in by financing activities
Net decrease in cash, cash equivalents and restricted cash
Effect of exchange rate changes on cash and cash equivalents
Cash, cash equivalents and restricted cash, at beginning of year
Cash, cash equivalents and restricted cash, at end of year
Operating Activities
2018
2019
(US$ in thousands)
(22,902)
34,563
(189,581)
(177,920)
(97,291)
1,461,227
1,186,016
272,257
(43,030)
(278,473)
(49,246)
(34,185)
1,186,016
1,102,585
Net cash provided by operating activities was US$272.3 million for the year ended December 31, 2019, primarily attributable to a decrease in real estate properties under development of US$914.9
million, an increase in accounts payable of US$392.3 million, partially offset by a decrease in customer deposits of US$747.9 million, an increase in real estate properties held for lease of US$151.5
million, and an increase in amounts due from related party of US$118.9 million.
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Net cash used in operating activities was US$22.9 million for the year ended December 31, 2018, primarily attributable to an increase in deposits for land use rights of US$452.1 million, an
increase in other receivable of US$118.4 million, an increase in other asset of US$95.0 million, a decrease in other payables and accrued liabilities of US$73.3 million, and an increase in amounts due
from related party of US$104.5 million, partially offset by proceeds from disposal of trading securities of US$77.8 million, an increase in customer deposits of US$264.2 million, a decrease in real
estate properties development completed of US$232.5 million, an increase in accounts payable of US$127.2 million and an increase in income tax payable of US$88.8 million.
Proceeds from pre-sales of our properties under development are an important source of cash flow for our operations. PRC law allows us to pre-sell properties before their completion upon
satisfaction of certain requirements and requires us to use the pre-sales proceeds to develop the particular project pre-sold. The amount and timing of cash flows from pre-sales are affected by a number
of factors, including restrictions on pre-sales imposed by PRC law, market demand for our properties subject to pre-sales, prices at which we can pre-sell and the number of properties we have available
for pre-sale. Any pre-sales payments we receive before we recognize revenue are recorded as current liabilities under customer deposits. At December 31, 2018 and 2019, we recorded current liabilities
consisting of customer deposits of US$1,921.9 million, and US$1,106.1 million respectively. We actively market pre-sales of our properties in accordance with regulations to accelerate cash in flow to
the extent possible.
Investing Activities
Net cash used in investing activities was US$43.0 million in the year ended December 31, 2019, and was mainly attributable to the acquisition of long-term investment, and proceeds from return of
capital.
Net cash provided by investing activities was US$34.6 million in the year ended December 31, 2018, and was mainly attributable to the acquisition of long-term investment, and proceeds from
return of capital.
Financing Activities
Net cash used in financing activities was US$278.5 million in the year ended December 31, 2019, and was primarily attributable to repayments of short-term, long-term bank loans and other debt in
the aggregate of US$1,847.9 million, dividend to shareholders of US$19.6 million, partially offset by proceeds from short-term, long-term bank loans and other debt in the aggregate of US$1,635.8
million.
Net cash used in by financing activities was US$189.6 million in the year ended December 31, 2018, and was primarily attributable to repayments of short-term, long-term bank loans and other
debt in the aggregate of US$1,429.0 million, distribution to non-controlling interests and dividend to shareholders of US$61.3 million, partially offset by proceeds from short-term, long-term bank loans
and other debt in the aggregate of US$1,387.8 million.
Bank Borrowings and Other Debt
Bank borrowings and other debt are an important source of funding for our property developments. Our borrowings as of December 31, 2018 and 2019, respectively, were as follows.
Short-term bank loans and other debt
Long-term bank loans
Other long-term debt
Current portion of long-term bank loans and other debt
Total
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2018
US$
43,711,388
720,038,940
1,040,455,200
1,647,918,456
3,452,123,984
2019
US$
73,419,108
686,064,696
1,036,690,627
1,418,955,459
3,215,129,890
As of December 31, 2018 and 2019 the weighted average interest rate on our short-term bank loans and other debt was 10.68%, and 8.33% respectively. As of December 31, 2018, US$43.7 million
of the short-term borrowings were denominated in RMB. As of December 31, 2019, US$53.52 million of the short-term bank loans were denominated in Renminbi and are secured by real estate
properties completed and the Group's real estate properties held for lease. The remaining US$19.9 million were denominated in U.S. dollars and are secured by an equivalent amount of RMB bank
deposits.
As of December 31, 2018 and 2019, the weighted average interest rate on our long-term bank loans, including their current portion, was 7.16% and 6.94% respectively. As of December 31, 2018,
US$1,136.5 million of the long-term bank loans were denominated in Renminbi and were secured by associated land use rights, real estate under development and real estate properties held for lease.
The remaining US$113.5 million of the long-term bank loans were denominated in U.S. dollars and were secured by the equivalent amount of RMB bank deposits. As of December 31, 2019,
US$582.44 million of the long-term bank loans were denominated in Renminbi and were secured by associated land use rights, real estate under development, real estate properties held for lease, and
real estate properties completed. The remaining US$103.62 million of the long-term bank loans were denominated in U.S. dollars and were secured by the equivalent amount of RMB bank deposits.
Since June 2003, commercial banks have been prohibited under the PBOC guidelines from advancing loans to fund the payment of land use rights. In addition, the PRC government also encourages
property developers to use internal funds to develop their property projects. Under guidelines jointly issued by the MOHURD and other PRC government authorities in August 2004, commercial banks
in China are not permitted to lend funds to property developers with an internal capital ratio, calculated by dividing the internal funds available by the total capital required for the project, of less than
35%. These internal capital ratio requirements have limited the amount of bank financing that property developers, including us, are able to obtain.
Debt Securities
In addition to bank loans, the group from time to time raises funds through the issuance of debt securities. On December 6, 2013, we issued US$200 million aggregate principal amount of June
2019 Senior Secured Notes, which notes we subsequently redeemed in 2017. On August 30, 2016, we issued US$300 million aggregate principal amount of the August 2019 Senior Secured Notes. On
February 28, 2017, we issued US$300 million aggregate principal amount of the February 2021 Senior Secured Notes. On November 22, and December 1, 2017 we issued collectively US$300 million
aggregate principal amount of November 2020 Senior Secured Notes. On March 19, 2018, we issued US$200 million aggregate principal amount of March 2020 Senior Secured Notes. On April 15,
2019 and April 26, 2019, the Company issued a collective aggregate principal amount of US$300 million of October 2021 Senior Secured Notes. The October 2021 Notes bear interest at 14.2% per
annum, payable semi-annually. Interest will be payable on April 15 and October 15 of each year, commencing October 15, 2019. The October 2021 Notes have a two and a half year (thirty month) term
maturing on October 15, 2021.
The May 2018 Senior Secured Notes, the June 2019 Senior Secured Notes, the August 2019 Senior Secured Notes, the February 2021 Senior Secured Notes, the November 2020 Senior Secured
Notes, the March 2020 Senior Secured Notes and the October 2021 Senior Secured Notes were issued without registration under the Securities Act in offerings conducted outside the United States
pursuant to Regulation S under the Securities Act.
Senior Secured Notes
Our obligations under the August 2019 Senior Secured Notes, the February 2021 Senior Secured Notes, the November 2020 Senior Secured Notes and the March 2020 Senior Secured Notes, the
indenture governing the August 2019 Senior Secured Notes (the “August 2019 Indenture”), the indenture governing the February 2021 Senior Secured Notes (the “February 2021 Indenture”), the
indenture governing the November 2020 Senior Secured Notes (the “November 2020 Indenture”), the indenture governing the March 2020 Senior Secured Notes (the “March 2020 Indenture”) and the
indenture governing the October 2021 Senior Secured Notes (the "October 2021 Indenture") have been guaranteed initially by certain of our wholly-owned subsidiaries, Xinyuan Real Estate, Ltd.,
Xinyuan International Property Investment Co., Ltd., Victory Good Development Limited, South Glory International Limited, Elite Quest Holdings Limited and Xinyuan International (HK) Property
Investment Co., Limited (the “Subsidiary Guarantors”) and will be guaranteed by such other of our future subsidiaries in accordance with the terms of the applicable Indenture. Our obligations under the
August 2019 Senior Secured Notes, the February 2021 Senior Secured Notes, the November 2020 Senior Secured Notes, the March 2020 Senior Secured Notes, the August 2019 Indenture, the February
2021 Indenture, the November 2020 Indenture, the March 2020 Indenture and the Octobetr 2021 Indenture are secured by a pledge of the capital stock of our wholly-owned subsidiaries, Xinyuan Real
Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Ltd., South Glory International Ltd. and Elite Quest Holdings Ltd.
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The August 2019 Indenture, the February 2021 Indenture, the November 2020 Indenture, the March 2020 Indenture and the October 2021 Indenture contain certain covenants that, among others,
restrict our ability and the ability of our restricted subsidiaries (as defined in the applicable Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay
dividends or purchase or redeem capital stock, to sell assets (including limitations on the use of proceeds of asset sales), to grant liens on the collateral securing the August 2019 Senior Secured Notes,
the February 2021 Senior Secured Notes, the November 2020 Senior Secured Notes, the March 2020 Senior Secured Notes, or the October 2021 Senior Secured Notes as applicable, or other assets, to
make certain other payments and to engage in transactions with affiliates and holders of more than 10% of our common shares, subject to certain qualifications and exceptions and the satisfaction, in
certain circumstances of specified conditions, such as a Fixed Charge Coverage Ratio (as defined in the applicable Indenture) of 2.50 to 1.0, 2.0 to 1.0, 2.0 to 1.0, 2.0 to 1.0, and 2.0 to 1.0, respectively.
Certain of these limitations, including restrictions on the incurrence of certain indebtedness or issuances of preferred stock, the making of certain payment or investments, payments of dividends, and
sales of assets will be suspended if the August 2019 Senior Secured Notes, the February 2021 Senior Secured Notes, the November 2020 Senior Secured Notes, the March 2020 Senior Secured Notes or
the October 2021 Senior Secured Notes as applicable, obtain and retain an investment grade rating.
At any time prior to the maturity date of a series of Senior Secured Notes, we may at our option redeem the outstanding notes of the series in whole but not in part, at a redemption price equal to
100.0% of the principal amount of that series of Senior Secured Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. “Applicable
Premium” means with respect to a Series Secured Note of any series at any redemption date, the greater of (i) 1.00% of the principal amount of such the Senior Secured Note and (ii) the excess of (A)
the present value at such redemption date of the principal amount of such Senior Secured Note plus all required remaining scheduled interest payments due on such Senior Secured Note through its
maturity date (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate (as defined in the applicable Indenture) plus 100
basis points, over (B) the principal amount of such Senior Secured Note on such redemption date.
At any time prior to maturity date of a series of Senior Secured Notes, we may redeem up to 35% of the aggregate principal amount of that series of Senior Secured Notes with the net cash proceeds
of one or more sales of our common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of (a) in the case of the August 2019 Senior Secured
Notes, 108.125% of the principal amount, (b) in the case of the February 2021 Senior Secured Notes, 107.75% of the principal amount, (c) in the case of the November 2020 Senior Secured Notes,
108.875% of the principal amount, (d) in the case of the March 2020 Senior Secured Notes, 109.875% of the principal amoun and (e) in the case of the October 2021 Senior Secured Notes, 114.2%,
plus, in each case, accrued and unpaid interest, if any, to (but not including) the redemption date. At least 65% of the aggregate principal amount of a series being so redeemed must remain outstanding
after such redemption.
Following any Change of Control Triggering Event applicable to a series of Senior Secured Notes, we must make an offer to purchase all outstanding Senior Secured Notes of that series at a
purchase price equal to 101.0% of the principal amount thereof plus accrued and unpaid interest, if any, to (but not including) the offer to purchase payment date. A “Change of Control Triggering
Event” means the occurrence of both a Change of Control (as defined in the applicable Indenture Indenture) and specified decline in the ratings of the Senior Secured Notes within six months after the
date of public notice of the occurrence of a Change of Control or the intention by us or any other person to effect a Change of Control.
June 2019 Senior Secured Notes
The June 2019 Senior Secured Notes bore interest at 13% per annum payable semi-annually. Interest was payable on June 6 and December 6 of each year, commencing June 6, 2014. The final
maturity date of the June 2019 Senior Secured Notes was June 6, 2019.
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On July 10, 2017, we redeemed an aggregate principal amount of US$200,000,000 of all outstanding June 2019 Senior Secured Notes at the redemption price equal to 106.5% of the principal
amount thereof, being US$213,000,000, plus accrued and unpaid interest of US$2,456,000 to July 10, 2017. The total redemption price paid by the Company on July 10, 2017 was US$215,456,000. The
Company funded the redemption using the proceeds from the offering of its February 2021 Senior Secured Notes. As of December 31, 2019, we have a total principal amount of US$296.0 million of
October 2021 Senior Secured Notes outstanding.
August 2019 Senior Secured Notes
On August 30, 2016, we issued an aggregate principal amount of US$300,000,000 of the August 2019 Senior Secured Notes. The August 2019 Senior Secured Notes bear interest at 8.125% per
annum payable semi-annually. Interest will be payable on February 28 and August 30 of each year, commencing February 28, 2017. The August 2019 Senior Secured Notes have a three year term
maturing on August 30, 2019.
From August 31, 2018 to December 31, 2018, the Company redeemed August 2019 Senior Secured Notes for a total principal amount of US$11.9 million. The Company recognized gain on
extinguishment of debt amounting to US$511,919, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$577,449 and the loss from
unamortized deferred debt issuance costs amounting to US$65,530.
On April 15, 2019, the Company completed the repurchase of US$119,989,000 in principal amount of the August 2019 Senior Secured Notes pursuant to an Offer to Purchase for an aggregate
purchase price of US$121,861,755 including accrued interest. As of December 31, 2019, we have a total principal amount of nil of August 2019 Senior Secured Notes outstanding.
February 2021 Senior Secured Notes
On February 28, 2017, we issued an aggregate principal amount of US$300,000,000 of the February 2021 Senior Secured Notes. The February 2021 Senior Secured Notes bear interest at 7.75% per
annum payable semiannually. Interest will be payable on February 28 and August 28 of each year, commencing August 28, 2017. The February 2021 Senior Secured Notes have a four year term
maturing on February 28, 2021. From August 31, 2018 to December 31, 2018, the Company redeemed February 2021 Senior Secured Notes for a total principal amount of US$25.4 million. The
Company recognized gain on extinguishment of debt amounting to US$2,642,710, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to
US$3,043,135 and the loss from unamortized deferred debt issuance costs amounting to US$400,425. As of December 31, 2019, we have a total principal amount of US$262.2 million of February 2021
Senior Secured Notes outstanding.
November 2020 Senior Secured Notes
On November 22, 2017 and December 1, 2017, we issued an aggregate principal amount of US$200,000,000 and US$100,000,000 of the November 2020 Senior Secured Notes, respectively. The
November 2020 Senior Secured Notes bear interest at 8.875% per annum payable semi-annually. Interest will be payable on May 22 and November 22 of each year, commencing May 22, 2018. The
November 2020 Senior Secured Notes have a three year term maturing on November 22, 2020. As of December 31, 2019, we have a total principal amount of US$296.9 million of November 2020
Senior Secured Notes outstanding.
March 2020 Senior Secured Notes
On March 19, 2018, we issued an aggregate principal amount of US$200,000,000 of the March 2020 Senior Secured Notes. The March 2020 Senior Secured Notes bear interest at 9.875% per
annum payable semi-annually. Interest will be payable on March 19 and September 19 of each year, commencing September 19, 2018. The March 2020 Senior Secured Notes have a two year term
maturing on March 19, 2020.
On April 15, 2019, the Company completed the repurchase of US$75,700,000 in principal amount of the March 2020 Senior Secured Notes pursuant to a privately negotiated transaction for an
aggregate purchase price of US$76,239,888 including accrued interest. As of December 31, 2019, we have a total principal amount of US$123.1 million of March 2020 Senior Secured Notes
outstanding.
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October 2021 Senior Secured Notes
On April 15, 2019 and April 26, 2019, the Company issued a collective aggregate principal amount of US$300,000,000 of the October 2021 Senior Secured Notes. The October 2021 Senior
Secured Notes bear interest at 14.2% per annum, payable semi-annually. Interest will be payable on April 15 and October 15 of each year, commencing October 15, 2019. The October 2021 Notes have
a two and a half year (thirty month) term maturing on October 15, 2021.
Onshore Corporate Bonds
On December 28, 2015, Xinyuan China issued the first tranche of the onshore corporate bonds with an aggregate principal amount of US$154 million due on December 28, 2020 (the “First Tranche
Bonds”) at a coupon rate of 7.5% per annum payable annually. Interest is payable on December 28 of each year, commencing December 28, 2016. Given that First Tranche Bonds is debt in its legal
form and is not a derivative in its entirety, it has been classified as other long-term debt. The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from
the First Tranche Bonds under the requirements of ASC 815 “Derivatives and Hedging.” The First Tranche Bonds were issued at par. On January 27, 2016, Xinyuan China issued the second tranche of
the onshore corporate bonds with an aggregate principal amount of US$107 million due on January 27, 2021 (the “Second Tranche Bonds”) at a coupon rate of 7.47% per annum payable annually. On
March 14, 2016, Xinyuan China issued the third tranche of the onshore corporate bonds with an aggregate principal amount of US$77 million due on March 14, 2021 (the “Third Tranche Bonds”) at a
coupon rate of 7.09% per annum payable annually. As of December 31, 2019, we have a total principal amount of US$2.0 million(cid:0)US$8.2 million and US$7.6 million of First Tranche Bonds(cid:0)Second
Tranche Bonds and Third Tranche Bonds outstanding.
Upon the third anniversary of the issuance of each tranche of bonds, Xinyuan China may adjust the applicable coupon rate and the holders have the right within a specified time period to require the
Company to repurchase the bonds following the Company’s announcement of whether it intends to adjust the interest rate.
The bonds contain restrictions on certain business activities of Xinyuan (China) Real Estate Ltd. when in default on payment of interest or principal, including, among others, limitations on
distributions of net income, limitations on certain expenditures, or business combination transactions.
On August 15, 2016, Xinyuan China issued a new tranche of onshore corporate bonds with an aggregate principal amount of RMB1.5 billion (US$216 million) due on August 15, 2019 (the “New
Tranche”) at a coupon rate of 7.5% per annum payable annually. Interest was payable on August 15 of each year, commencing August 15, 2017. On April 7, 2017, Xinyuan China issued a new second
tranche of onshore corporate bonds with an aggregate principal amount of RMB1.13 billion (US$173 million) due on April 7, 2020 (the “2017 Tranche”) at a coupon rate of 8.2% per annum payable
annually. Interest was payable on April 7 of each year, commencing April 7, 2018. Upon the first anniversary of the issuance of the New Tranche and 2017 Tranche, respectively, Xinyuan China could
adjust the applicable coupon rate and the holders have the right within a specified time period to require the Company to repurchase the bonds following the Company’s announcement of whether it
intends to adjust the interest rate. On August 15, 2017, Xinyuan China adjusted the annual interest rate of the New Tranche Bonds to 8.2% from 7.5%. As of December 31, 2019, we have a total
principal amount of nil both of New Tranche and 2017 Tranche outstanding, seperately.
On September 20, 2018, Xinyuan China issued a new tranche of onshore corporate bonds with an aggregate principal amount of RMB 600 million (US$87 million) due on September 21, 2020 (the
“2018 Tranche”) at a coupon rate of 8.5% per annum payable annually. Interest is payable on September 21 of each year, commencing September 21, 2019. As of December 31, 2019, we have a total
principal amount of US$22.1 million of 2018 Tranche outstanding. The above three tranches of onshore corporate bonds were issued at par.
On January 4, 2019, Xinyuan (China) Real Estate, Ltd. issued a new tranche of the onshore corporate bonds with an aggregate principal amount of RMB 600 million due on January 4, 2022 (the
“2019 Tranche”) at a coupon rate of 8.5% per annum payable annually. Interest is payable on January 4 of each year, commencing January 4, 2020. As of December 31, 2019, we have a total principal
amount of US$650,673 of 2019 Tranche outstanding.
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On April 1, 2019, Xinyuan (China) Real Estate, Ltd. completed the issuance of a new tranche of the onshore corporate bonds with an aggregate principal amount of RMB 980 million due on April
1, 2024 (the “2019 First Tranche Bonds”) at a coupon rate of 8.4% per annum payable annually. Interest is payable on April 1 of each year, commencing April 1, 2020. As of December 31, 2019, we
have a total principal amount of US$59.1 million of 2019 First Tranche Bonds outstanding.
Capital Expenditures
Our capital expenditures were US$16.7 million, and US$11.6 million in 2018 and 2019, respectively. Our capital expenditures in 2018, and 2019 were mainly used for building improvements, and
purchase of aircraft, vehicles, fixtures and furniture and computer network equipment. The source of our capital expenditures is primarily the cash flow generated from operating activities.
As of December 31, 2019, we had outstanding commitments with respect to non-cancelable construction contracts for real estate development in the amount of US$1, 372.1 million.
C. Research and Development, Patent and Licenses, etc.
Not applicable.
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2019 to December 31, 2019
that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily
indicative of future operating results or financial conditions .
Since January 2020, the coronavirus pandemic (“the COVID-19”) has spread across China and other countries, governments have implemented a series of measures including travel restrictions and
quarantines to contain COVID-19, which adversely affected the real estate industry where the Group operates. We currently believe our first quarter results of operations will be negatively impacted by
these developments. The development and evolution of the COVID-19 in China and globally still has great uncertainty in the duration and severity, which may further amplify and delay the impact on
the recovery of the real estate industry. Given the uncertainty about the situation, the Group currently cannot estimate the impact to the 2020 financial performance and cash flows.
E. Off-Balance Sheet Arrangements
As is customary in the property industry in China, we provide guarantees to commercial banks in respect of the mortgage loans they extend to our customers prior to the issuance of their property
ownership certificates. These guarantees remain outstanding until the completion of the registration of the mortgage with the relevant mortgage registration authorities. In most cases, guarantees for
mortgages on residential properties are discharged when we submit the individual property ownership certificates and certificates of other interests in the property to the mortgagee bank. In our
experience, the application for and issuance of the individual property ownership certificates typically takes six to twelve months, so the guarantee periods typically last for up to six to twelve months
after we deliver the related property.
As of December 31, 2018 and 2019, we guaranteed mortgage loans in the aggregate outstanding amount of US$1,988.6 million and US$2,617.2 million, respectively.
We generally pre-sell properties prior to the completion of their construction. Sales contracts are executed during the pre-sales period and mortgages are generally executed within 30 days after the
buyer signs the sales contract.
The pre-sales period begins upon receipt of a government permit which is issued soon after groundbreaking on a given phase of the project. The period from groundbreaking to delivery consists of
building construction, landscaping, municipal government inspections and issuance of a certificate of occupancy. This “delivery period” will generally range from one to two years. The buyers only
request the government to record buyer ownership in their official records after the delivery period is completed. Typically, the government will provide certificates of ownership six to twelve months
after being requested to record. Therefore, the total elapsed time between our receipt of mortgage proceeds and the buyer’s receipt of an ownership certificate can range from one and a half years to
three years.
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Due to the time lag above, our mortgage guarantees will exceed the real estate balances at any given point in time.
We paid US$1.7 million and US$1.8 million to satisfy guarantee obligations related to customer defaults for the years ended December 31, 2018 and 2019, respectively. The fair value of the
guarantees is not significant and we consider that in case of default in payments, the net realizable value of the related properties can cover the repayment of the outstanding mortgage principal together
with the accrued interest and penalty and therefore, no provision has been made for the guarantees in our consolidated financial statements.
Except for the contingent liabilities set forth above, we have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not
entered into any transactions with unconsolidated entities, derivative contracts that are indexed to our shares and classified as shareholders’ equity, or that are not reflected in our consolidated financial
statements. Other than as described above, there are no off-balance sheet arrangements that have or are reasonably likely to have effect on our financial position.
We have no obligation arising out of a variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to us, or that engages in leasing, hedging, or
research and development arrangements with us.
At December 31, 2019, the Group provided financial guarantees for bank loans of two of its equity method investees. The Group could incur losses in the event of defaults under or foreclosure of
these loans and its maximum exposure to credit losses is approximately US$202 million. The fair value of the guarantees is not significant and the Group considers that in case of default in payments,
the net realizable value of the related properties can cover the repayment of the outstanding bank loans together with the accrued interest and penalty and therefore, no provision has been made for the
guarantees in the consolidated financial statements.
F. Tabular Disclosure of Contractual Obligations
As of December 31, 2019, our contractual obligations amounted to US$5,004.9 million, primarily arising from contracted construction costs or other capital commitments for future property
developments and debt obligations. The following table sets forth our contractual obligations for the periods indicated:
Long-term debt obligations:
Long-term bank loans
Interest on long-term bank loans (1)
Other long-term debt
Interest on other long-term debt (2)
Current portion of long-term bank loan and other debt
Interest on current portion of long-term bank loan and other debt (1)
Short-term debt obligations
Short-term bank loans
Interest on short-term debt obligations (3)
Operating lease obligations
Non-cancellable construction contract obligations
Capital lease obligations (4)
Total
Payments due by period
Total
less than
1 year
1-3
years
(US$ in thousands)
3-5
years
more
than
5 years
686,065
97,657
1,036,691
85,358
1,418,955
209,082
44,198
28,501
1,860
12,216
1,372,065
11,570
5,004,938
-
45,431
-
-
1,418,955
209,082
44,198
28,501
1,860
6,471
559,280
7,511
2,322,009
636,898
31,809
920,624
85,358
-
-
-
-
5,451
779,273
4,059
2,463,472
8,744
7,774
116,067
-
-
-
-
-
294
33,512
-
16,6391
40,423
12,643
-
-
-
-
-
-
-
-
-
53,066
(1) Our long-term bank loans, including current portion, bear variable interest at rates adjustable based on the PBOC benchmark rate. Interest on long-term loans, including current portion, is calculated
based on the current interest rate of each loan, ranging from 1.10% plus 1 month LIBOR to 9.80% per annum, using the PBOC benchmark rate of 4.75% as of December 31, 2019.
(2) Interest on other long-term debt is calculated based on the interest rates for relevant loans, ranging from 5.20% to 15.0% per annum.
(3) Interest on short-term loans is calculated based on the interest rates for relevant loans, ranging from 3.61% to 12.00% per annum.
(4) In 2012, Henan Xinyuan Real Estate Co., Ltd. (“Henan Xinyuan”), one of our subsidiaries, entered into a capital lease agreement with MinshengHongtai (Tianjin) Aviation Leasing Co., Ltd.
(“Minsheng”) to lease an aircraft. Under the terms of the agreement, Minsheng purchased a Gulf 450 from Gulfstream Aerospace Corporation and leased the aircraft to Henan Xinyuan for a term of
96 months starting from September 12, 2013. We measured a capital lease asset and capital lease obligation at an amount equal to the present value of the minimum lease payments during the lease
term, excluding the portion of the payments representing executory costs (such as insurance, maintenance, and taxes to be paid by the lessor) as well as any profit thereon. As of December 31, 2019,
we are contractually committed to pay the amount of US$11.6 million. See Note 13 to the consolidated financial statements contained elsewhere in this annual report on Form 20-F.
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In 2018, another one of our subsidiaries entered into a sale and leaseback agreement for shopping mall equipment.
We have projected cash flows for each of our existing projects, considering a number of factors, including the relative stage of each of our projects under construction and our projects under
planning and the demand for and the average selling prices of our projects. For any given project, we use cash early in the project life and generate cash later in the project life. Costs for land
acquisition, site preparation, foundation, and early above-ground framing are all incurred before we obtain licenses from local governing authorities to enter into pre-sales activity. The construction of
many of our projects is carried-out in phases, the timing of which is primarily determined by us based on the pace of the market demand for units in the project. Accordingly, after receiving the pre-sale
permits relating to a project, we are in a better position to manage some of our construction activities to coincide with the timing of expected pre-sales.
We believe our cash on hand, projected cash flow from operations, available construction loan borrowing capability, and potential access to capital markets, should be sufficient to meet our
expected cash requirements, including our non-cancellable construction contract obligations and capital lease obligations that are due on various dates through April 1, 2020, the outstanding principal
amount of our February 2021 Senior Secured Notes due in February 2021, the outstanding principal amount of our November 2020 Senior Secured Notes due in November 2020, the outstanding
principal amount of our March 2020 Senior Secured Notes due in March 2020 (which were repaid in full upon maturity), the outstanding principal amount of our October 2021 Senior Secured Notes
due in October 2021, and for Xinyuan China to satisfy its obligations under the First, Second, Third, 2018 Tranche Bonds, 2019 Tranche and 2019 First Tranche Bonds.
Our ability to secure sufficient financing for land use rights acquisition and property development depends on internal cash flows in addition to a number of other factors that are not completely
under our control, including lenders’ perceptions of our creditworthiness, market conditions in the capital markets, investors’ perception of our securities, the PRC economy and the PRC government
regulations that affect the availability and cost of financing for real estate companies or property purchasers and the U.S. economy and recovery of the U.S. real estate markets.
There can be no assurance that our internally generated cash flow and external financing will be sufficient for us to meet our contractual and financing obligations in a timely manner. We may
require additional cash due to changing business conditions or other future developments, including any decline in cash flow from operations or any investments or acquisitions we may decide to
pursue. In the event that proceeds from the sale of units for a project are insufficient to meet our contractual and financing obligations, we would need to raise the required funds through new
borrowings, refinancing of existing borrowings, public or private sales of equity securities, or a combination of one or more of the above. We cannot assure you that we will be able to obtain adequate
funding in a timely manner and on reasonable terms, or at all.
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G. Safe Harbor
See “Forward-Looking Statements” at the beginning of this annual report.
ITEM 6.
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our executive officers and directors as of April 1, 2020:
Name
Yong Zhang
Shangrong Li
Yu (Brian) Chen
Yuyan Yang
Yong Cui
Hao Gao
Thomas Gurnee
Wendy Hayes
Yifan (Frank) Li
Samuel Shen
Age
57
49
45
57
46
38
69
50
52
55
Position
Executive Director, Chairman of the Board, Chief Executive Officer
Executive Director and President of Xinyuan (China)
Chief Financial Officer
Director
Director
Director*
Director and Chairman of the Audit Committee*
Director*
Director*
Director*
*
Independent director per NYSE listing standards.
Unless otherwise indicated, the business address of each director and executive officer is 27/F, China Central Place, Tower II, 79 Jianguo Road, Chaoyang District, Beijing, 100025, the People’s
Republic of China.
A description of the business experience and present position of each director and executive officer is provided below:
Yong Zhang founded our company in 1997 and has been the Chairman of the board of directors since 2007 and has been the Chief Executive Officer since June 2019, previously holding the
position from 1997 to 2013. Mr. Zhang has more than 20 years of working experience in the real estate industry. Prior to founding our company, he worked at several construction and property
development companies, including Zhengzhou City Construction and Development Inc. and China Antai Real Estate Development Inc. Mr. Zhang is also vice chairman of Henan Real Estate
Association, a member of China Democratic National Construction Association and a deputy to the 11th and 12th People’s Congress of Henan Province in China. He serves as a director of Beijing
Ruizhuo Xihe Technology Development Co., Ltd., Beijing Ruizhuo Xitou Technology Development Co., Ltd., Beijing Ruizhuo Xichuang Technology Development Co., Ltd, Beijing XinyuanXin
Technology Development Co., Ltd., Beijing Ruizhuo Xirong Technology Development Co., Ltd., Beijing Ruizhuo Xihui Technology Development Co., Ltd., Beijing Ruizhuo Xijia Technology
Development Co., Ltd.,Huayi Xincheng (Beijing) Intelligent City Construction Co., Ltd., Beijing Xinyuan Future Investment Management Co., Ltd., Ningbo Zhongxin Xitou investment management
Co., Ltd., Beijing Aijieli Technology Development Co., Ltd., Xinyuan Holding Ltd. and Madison Developments Limited. Mr. Zhang received a Ph.D. in finance from Renmin University of China in
2014, an executive master’s degree in business administration from Tsinghua University in 2005 and a bachelor’s degree in architecture from Henan Zhongzhou University in 1985.
Shangrong Li is currently the president of Xinyuan (China) Real Estate Co., Ltd., in charge of the company's overall operation and management. He was the vice president of JD Digits, the digital
technology business unit under JD.com, one of the China's largest online retailer. Mr. Li previously held various senior positions at China Construction Bank (CCB), including president of Henan branch
and Gansu branch, general manager of production innovation department, and roles in management at CCB headquarters.
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Yu (Brian) Chen joined Xinyuan in February 2019 as an Assistant President and the General Manager of the Company's Capital Markets department. Before joining Xinyuan, Mr. Chen held senior
management positions in various publicly listed companies including Pacific Securities, RioCan REIT, Husky Injection Molding Systems, MDS, and ZTE. He has close to two decades of experience in
accounting, financial management, business turnarounds, and capital market operations. Mr. Chen received his Bachelor of Economics from Peking University in 1998 and his MBA from the Schulich
School of Business at York University in 2004. He also obtained CPA designations from Canada in 2007 and the U.S. in 2010.
Yuyan Yang co-founded our company in 1997 with Mr. Yong Zhang. Ms. Yang is a director and previously a Vice President of our company. Ms. Yang has more than 10 years’ working experience
in the real estate industry. Ms. Yang received a bachelor’s degree in education management from Henan University in 1985. Ms. Yang received her executive master’s degree in business administration
at the National University of Singapore in May 2008.
Yong Cui has been a director of our company since April 2007 and served as our President from September 2013 through January 2018. With a doctorate degree in finance from Renmin University
of China, Mr. Cui has extensive experience in corporate finance. For the past five years, Mr. Cui has worked at Beijing Runzheng Consulting Company as President.
Hao Gao was appointed as an independent director of the Company in May 2018. Mr. Gao is the director of the Global Family Business Research Center and the director of Strategic Partnership
and Development Office at Tsinghua University PBC School of Finance, as well as the chief editor of the Family Business Series and Family Wealth Series published by the People’s Publishing
House/Oriental Press. Mr. Gao is also an independent director of Modern Media Holdings Limited (HKEX: 00072) and Hope Education Group Co., Ltd. (HKEX: 01765). Mr. Gao obtained a Bachelor’s
Degree in Automation Engineering from Tsinghua University, a Bachelor’s Degree in Economics from Peking University, and a Ph.D. Degree in Management Science and Engineering from Tsinghua
University. Mr. Gao has completed the Corporate Boards Program, the Audit Committees Program, and the Compensation Committees Program at Harvard Business School, as well as the Mergers and
Acquisitions Program and the People, Culture, and Performance Program at the Graduate School of Business of Stanford University.
Thomas Gurnee was appointed as a director of our company in December 2007 and served as our Chief Financial Officer from February 2009 through September 2013. In 2015, Mr. Gurnee was
appointed as the Chairman of the Audit Committee. Mr. Gurnee is owner and manager of Chalet Development LLC, a U.S.-based real estate company. Prior to joining our company, Mr. Gurnee was the
Chief Financial Officer of GEM Services Inc., a semiconductor contract manufacturer based in China. Prior to that, Mr. Gurnee served as the president of Globitech Inc., a Texas-based epitaxial
semiconductor wafer manufacturer, the Chief Financial Officer of Artest Inc., a California-based semiconductor test subcontractor, and the Chief Financial Officer of Sohu.com (NASDAQ: SOHU), a
Beijing-based internet portal. Mr. Gurnee is a director of Planar Semiconductor AG. Mr. Gurnee obtained his bachelor’s degree from Stanford University and master’s degree in business administration
from the University of Santa Clara. His business address is 5920 Sky Terrace Court, Reno, NV 89511.
Wendy Hayes was appointed to be our independent director in January 2020. Ms. Hayes is also an independent director of Tuanche Limited and an advisor to several other companies. Between May
2013 and September 2018, Ms. Hayes served as the inspections leader at the Public Company Accounting Oversight Board (PCAOB) in the United States. Prior to that, Ms. Hayes was an audit partner
at Deloitte (Beijing). Ms. Hayes received her bachelor’s degree in international finance from University of International Business and Economics in 1991, and her executive MBA from Cheung Kong
Graduate School of Business in 2012. Ms. Hayes is a certified public accountant in the United States (California) and China.
Yifan (Frank) Li was appointed as a director of our company in February 2017. Mr. Li has been a director and Vice President of Geely Holding Group since October 2014. Prior to joining Geely, he
was Vice President and international Chief Financial Officer of Sanpower Group from April in 2014. Prior to joining Sanpower Group, he served as Chief Financial Officer of China Zenix Auto
International (NYSE:ZX) from December 2010 - 2014. Prior to joining China Zenix Auto International, Mr. Li was the Chief Financial Officer of Standard Water and Time Share Media from December
2007. Mr. Li is also an independent director of Shanghai International Port (Group) Co. Ltd. (600018-CN), Heilongjiang Interchina Water Treatment Co., Ltd. (600187-CN), Zhongan Online Insurance
Co., Ltd. (HKEX: 06060) and Qudian Inc.(NYSE:QD). Mr. Li received his MBA from the University of Chicago Booth School of Business in 2000, MSc in Accounting from University of Texas at
Dallas in 1994, and Bachelor of Economics in World Economy from Fudan University in 1989. He is a Certified Public Accountant in the United States and a Chartered Global Management
Accountant. His business address is Room 815, 1760 Jiangling Road, Binjiang District, Hangzhou, Zhejiang, PRC, 310051.
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Samuel Shen was appointed as an independent director of the Company in May 2018. Mr. Shen is president of JD Cloud, the cloud business unit under JD.com, China’s largest online retailer.
Reporting directly to Richard Liu, JD.com CEO and chairman, Mr. Shen leads the efforts of JD Cloud to extend its offerings of tailored service solutions to a wide range of vertical industries. Mr. Shen
previously held various senior positions at Microsoft, including chairman of the Microsoft Asia-Pacific Technology Company, COO of the Microsoft Asia-Pacific R&D Group, and general manager of
Microsoft Cloud and Enterprise China. Before Microsoft, Mr. Shen worked at IDT in California. Mr. Shen is also an non-executive director of Kingdee International Software Group Limited (HKEX:
00268) and an independent director of Insigma Technology Co., Ltd. (600797-CN). Mr. Shen holds a Master’s Degree in Computer Science from the University of California, Santa Barbara.
As of the date of this annual report on Form 20-F, there are no familial relationships between any directors and members of senior management.
B. Compensation
For the fiscal year ended December 31, 2019, the aggregate compensation to our executive officers, including all directors was US$7.7 million (which includes amounts paid to persons who are no
longer serving as executive officers),which the aggregate compensation to our non-executive directors was US$0.7 million (which includes amounts paid to persons who are no longer serving as
directors). As discussed below under “Item 6. Directors, Senior Management and Employees — D. Employees” we made contributions of US$20.4 million to employee benefit plans for the fiscal year
ended December 31, 2019.
2007 Long Term Incentive Plan
In November 2007, we adopted our 2007 long term incentive plan (the “2007 Plan”) which provided for the grant of options, restricted shares, restricted stock units, stock appreciation rights and
other stock-based awards to purchase our common shares. The maximum aggregate number of common shares which could be issued pursuant to all awards, including options, was 10 million common
shares, subject to adjustment to account for changes in the capitalization of our company. The 2007 Plan by its terms expired in 2017.
As of December 31, 2019, 212,138 of options granted prior to the expiration of the 2007 Plan remain exercisable.
The following table summarizes the options granted to our current directors, executive officers, and other individuals as a group under our 2007 Plan outstanding as of April 1, 2020:
Name
Yong Zhang
Our employees as a group (1)
Common Shares
Underlying Options
Granted
Exercise Price of
Options Granted
(US$ per share)
39,400
60,000
100,000
12,738
Grant Date
Date of Expiration
1.21
1.085
1.64
1.21
June 30, 2014
May 24, 2011
November 12, 2012
December 13, 2010
June 29, 2024
May 25, 2021
November 11, 2022
December 12, 2020
(1) None of these employees is a director or executive officer of our company.
2014 Restricted Stock Unit Plan
Our board of directors adopted the Xinyuan Real Estate Co., Ltd. 2014 Restricted Stock Unit Plan (the “RSU Plan”), effective May 23, 2014. The RSU Plan provides for discretionary grants of
restricted stock units, or RSUs, to or for the benefit of participating employees. The purpose of the RSU Plan is to provide to us and our shareholders the benefits of the additional incentive inherent in
the ownership of our common shares by selected employees, including selected employees of our subsidiaries who are important to the success and growth of our business, and to help us and our
subsidiaries secure the services of those persons. The maximum number of shares that may be delivered to RSU Plan participants in connection with RSUs granted under the RSU Plan is 10,000,000,
subject to adjustment if our outstanding common shares are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of our company through a
reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction. All of our and our subsidiaries’ employees and officers who are capable of
contributing significantly to our successful performance, in the determination of the Compensation Committee of our board of directors, are eligible to be participants in the RSU Plan. Each eligible
employee selected to participate may be granted an award of RSUs at such times and subject to such conditions as determined by the Compensation Committee.
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Incentive Pool; Funding. Under the RSU Plan, we will establish a long-term incentive pool for participants for each fiscal year, a “Grant Year,” based on our net income (or other performance
goals) for the most recently completed prior fiscal year, a “Base Year.” The long-term incentive pool is funded for any Grant Year and RSUs are granted only if 70% or more of the target net income for
applicable Base Year has been achieved in the Grant Year or if 70% or more of the total target net income for the three fiscal years ending with the Base Year has been achieved. If neither of such targets
is achieved for a Grant Year, no amount is credited to the long-term incentive pool for that Grant Year and no RSUs will be awarded for the Grant Year. We have established a trust and we will deposit
or cause to be deposited in the trust amounts of cash not exceeding the amount of the long-term incentive pool for a Grant Year. The trustee will use the funds to acquire in the open market or in private
transactions that number of ADSs representing common shares as we direct over a period of time as we and the trustee determine.
Administration. The RSU Plan provides that it will be administered by one or more committees of our board of directors, which has designated the Compensation Committee to administer the RSU
Plan. Subject to the provisions of the RSU Plan, the Compensation Committee has the discretionary authority and power to determine and designate those individuals selected to receive awards;
determine the terms of awards, including the time at which each award will be granted and the number of common shares subject to each award; establish the terms and conditions upon which awards
may be exercised, unlocked or paid (including any requirements that we or the participant satisfy performance criteria or performance objectives); prescribe, amend, or rescind any rules and regulations
necessary or appropriate for the administration of the RSU Plan; correct any defect, supply any deficiency, and reconcile any inconsistency in the RSU Plan or in any related award or agreement; and
make other determinations and take such other action in connection with the administration of the RSU Plan as it deems necessary or advisable.
Grant, Allocation and Unlocking of RSUs. During the Grant Year, the Compensation Committee will allocate to each participant a percentage of the long-term incentive pool, if any, for that Grant
Year based on such factors as the Compensation Committee may determine from time to time in its discretion. A participant will be allocated RSUs based on the aggregate of common shares
represented by ADSs purchased by the trustee for a Grant Year multiplied by the percentage of the long-term incentive pool allocated by the Compensation Committee to that participant for the Grant
Year. Each RSU represents a right to receive one common share to be delivered or made available at the time or times specified in the award agreement, subject to a risk of cancellation and to the other
terms and conditions set forth in the RSU Plan, the award agreement and any additional terms and conditions set by the Compensation Committee. At our election, RSUs may be settled by delivery of
common shares or ADSs representing the number of common shares subject to the RSU.
Common shares (either in the form of common shares or ADSs) in respect of RSUs allocated to a participant will not be eligible to be withdrawn by a participant from the trust established pursuant
to the RSU Plan for the period of time (the “lock-up period”) set forth in the RSU Plan. Common shares or ADSs become “unlocked” and may be withdrawn or transferred from the trust at the election
of a participant as follows: one-third after the first anniversary of the grant date, one-third after the second anniversary of the grant date, and one-third after the third anniversary of the Grant Date. In the
event of (i) death, (ii) disability as the result of a work injury, (iii) retirement on or after age 60, in each case prior to termination of service, or (iv) subject to exceptions specified in the RSU Plan, the
termination of employment or resignation by a participant, the locked portion of a participant’s RSUs will continue to become unlocked on each subsequent anniversary of the Grant Date after such
event. In the event of death, a participant’s awards will be paid to his personal representative or estate as provided by applicable law. The locked portion of a participant’s RSU award may be cancelled
for no value for certain events specified in the RSU Plan. The Compensation Committee, in its sole discretion, may (but will not be required to) reallocate all or a portion of RSUs forfeited by a
participant to a different participant or participants continuing in employment on such unlocking schedule as the Compensation Committee may determine. If we are party to a “Change of Control,” as
defined in the RSU Plan, the board of directors may determine to cancel each outstanding award after payment to participants of the fair market value of the common shares subject to the award at the
time of the transaction constituting the Change of Control, provide for assumption of the awards or substitution of comparable awards by the surviving or acquiring company in the transaction, or
accelerate the unlocking, in whole or in part, of the awards, subject to effectiveness of the transaction.
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Amendments. Our board of directors may amend, suspend or terminate the RSU Plan or the Compensation Committee’s authority to grant awards under the RSU Plan without the consent of
participants; provided, however, that, without the consent of an affected participant, no such board action may materially and adversely affect the rights of the participant under any outstanding award.
The Compensation Committee may amend any outstanding award without the consent of the affected participant; provided, however, that, without such consent, no such action may materially and
adversely affect the rights of the participant under any outstanding award. Unless earlier terminated by action of the board of directors, the RSU Plan will remain in effect until such time as no common
shares remain available for delivery under the RSU Plan and we have no further rights or obligations with respect to outstanding awards under the RSU Plan.
On May 23, 2014, our company established a trust that is governed by a third party trustee and deposited US$7,042,725 into the trust. The trustee used the funds to acquire 4,234,884 common
shares in the open market through the purchase of ADSs. The awards vested ratably over a three year service vesting period.
On April 10, 2015, under the 2014 RSU Plan, our company deposited US$3,259,998 into the trust. The trustee used the funds to acquire 2,076,964 common shares in the open market through the
purchase of ADSs. 2015 RSU awards vested ratably over a three year service vesting period.
On April 18, 2016, under the 2014 RSU Plan, our company deposited US$4,003,999 into the trust. The trustee used the funds to acquire 1,614,220 common shares in the open market through the
purchase of ADSs. 2016 RSU awards vest ratably over a three year service vesting period.
On July 27, 2017, under the 2014 RSU Plan, the Company deposited US$3,485,952 into the trust. The trustee has used the funds to acquire 1,356,584 common shares from the open market as of
December 31, 2018. The awards vest ratably over a three year service vesting period.
On July 30, 2018, under the 2014 RSU Plan, the Company deposited US$3,976,660 into the trust. The trustee has used the funds to acquire 1,732,466 common shares in the open market through the
purchase of ADSs as of December 31, 2018. The awards vest ratably over a three year service vesting period.
On August 30, 2019, under the 2014 RSU Plan, the Company deposited US$2,912,539 into the trust. The trustee has used the funds to acquire 1,438,076 common shares from the open market as of
December 31, 2019. The awards vest ratably over a three year service vesting period.
2015 Stock Option Plan
Our board of directors adopted the Xinyuan Real Estate Co., Ltd. 2015 Stock Option Plan, or the Option Plan, effective June 24, 2015. The Option Plan provides for discretionary grants of stock
options (“Options”) to purchase shares of our company stock to participating employees and directors. The purpose of the Option Plan is to promote the interests of our company by enabling it to attract,
retain and motivate key employees and directors responsible for the success and growth of our company and its subsidiaries by providing them with appropriate incentives and rewards and enabling
them to participate in the growth of our company. All employees and directors of our company or any subsidiary who are capable of contributing significantly to the successful performance of our
company, in the determination of the board of directors, are eligible to be participants in the Option Plan. Each eligible employee selected to participate may be granted an award of Options at such
times and subject to such conditions as determined by the board of directors.
Stock Subject to Plan. The aggregate number of shares that may be issued under the Option Plan or covered by awards must not exceed 20,000,000 common shares. Shares offered under the Option
Plan may be authorized but unissued shares or treasury shares. The number of shares that are subject to awards outstanding at any time under the Option Plan should not exceed the number of shares
that then remain available for issuance under the Option Plan. In the event that any outstanding award for any reason expires, is terminated unexercised, or is forfeited or settled or in a manner that
results in fewer shares outstanding than were initially awarded, the shares subject to the award, to the extent of such expiration, termination, or forfeiture, again will be available for purposes of the
Option Plan. If shares issued under the Option Plan are reacquired by our company, those shares again will be available for purposes of the Option Plan. If the outstanding shares of our company are
increased, decreased, changed into or exchanged for a different number or kind of shares or securities of our company through a reorganization, recapitalization, reclassification, stock dividend, stock
split, reverse stock split or other similar transaction, the board of directors will make appropriate and proportionate adjustments as it deems necessary or appropriate in one or more of (i) the number and
class of shares subject to the Option Plan, and (ii) the number of shares or class of shares covered by each outstanding award and (iii) the exercise price or grant price under each outstanding Option.
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Administration. The Option Plan provides that it will be administered by the Compensation Committee. Subject to the provisions of the Option Plan, the board of directors has the discretionary
authority and power to determine and designate those individuals selected to receive awards; determine the terms of awards, including the time at which each award will be granted and the number of
shares subject to each award; establish the terms and conditions upon which awards may be exercised, vested or paid (including any requirements that we or the participant satisfy performance criteria
or performance objectives); prescribe, amend, or rescind any rules and regulations necessary or appropriate for the administration of the Option Plan; grant awards in substitution for options or other
equity interests held by individuals who become employees of our company or one of its subsidiaries as a result of our company’s acquiring or merging with the individual’s employer (if necessary to
conform the awards to the interests for which they are substitutes, the board of directors may grant substitute awards under terms and conditions that vary from those the Option Plan otherwise requires);
correct any defect, supply any deficiency, and reconcile any inconsistency in the Option Plan or in any related award or agreement; and make other determinations and take such other action in
connection with the administration of the Option Plan as it deems necessary or advisable.
Grant, Exercise and Payment of Options. Each grant of an Option will be evidenced by an award agreement between the participant and our company. Each award agreement will specify (i) the
formula for determining the number of shares that are subject to the Option, (ii) the exercise price, (iii) the term of the Option, and (iv) when all or any installment of the Option becomes exercisable.
Options will be exercised by delivering a signed written notice of exercise to our company which must be received as of a date set by our company prior to the effective date of the proposed exercise.
The exercise price upon exercise of any Option will be payable in the following manner:
•
•
•
•
•
•
in cash or cash equivalents when the shares are purchased;
subject to prior approval by the board of directors, by surrendering or attesting to the ownership of shares that are already owned by the participant. These shares will be surrendered to our
company in good form for transfer and will be valued at their Fair Market Value (as defined in the Stock Option Plan) on the date when the Option is exercised;
subject to prior approval by the board of directors, with a full recourse promissory note. These shares will be pledged as a security for payment of the principal amount of the promissory note
and interest on it. The interest rate payable under the terms of the promissory note will not be less than the minimum rate (if any) required to avoid the imputation of additional interest under
the Code (as defined below). The board of directors will specify the term, interest rate, amortization requirements (if any) and other provisions of the note;
subject to prior approval by the board of directors, if our company’s stock is publicly traded, by the delivery of an irrevocable direction to a securities broker approved by our company to sell
the shares and to deliver all or part of the sales proceeds to our company in payment of all or part of the exercise price and any withholding taxes;
subject to prior approval by the board of directors, if our company’s stock is publicly traded, by the delivery of an irrevocable direction to pledge the shares to a securities broker or lender
approved by our company, as security for a loan, and to deliver all or part of the loan proceeds to our company in payment of all or part of the exercise price and any withholding taxes; or
any combination of the above methods of payment.
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Termination of Options. Upon termination of a participant’s service for any reason other than for death or disability, all unvested portions of any outstanding awards will be immediately forfeited
without consideration, and the participant will have a period of three months (twelve months in the case of termination of service due to death or disability (as defined in the Option Plan), commencing
with the date the participant’s service has terminated, to exercise the vested portion of any outstanding Options, subject to the term of the Option. The participant may exercise all or part of his or her
Options at any time before their expiration due to termination of the participant’s service, but only to the extent that the Options had become exercisable before the date the participant’s service
terminated. Those Options that are not exercisable immediately before the date of termination of Service (as defined in the Option Plan) will expire on the date of termination of Service.
Notwithstanding the forgoing, if the participant’s Service is terminated due to any Cause (as defined in the Option Plan), then such participant’s Options shall be terminated, whether or not such Options
are vested or unvested, and/or whether or not such Options are exercised or unexercised. If we are party to a Change in Control (as defined in the Option Plan), the board of directors may determine to
cancel each outstanding award after payment to participants of the Fair Market Value of the shares subject to the award at the time of the transaction constituting the Change in Control minus, in the case
of an Option, the exercise price and grant price of the shares subject to the Option; provide for assumption of the awards or substitution of comparable awards by the surviving or acquiring company in
the transaction; accelerate the exercisability or vesting, in whole or in part, of the awards subject to effectiveness of the transaction; or terminate awards if not exercised by the effective time of the
Change in Control, and lapse any reacquisition or repurchase rights held by our company with respect to such awards subject to effectiveness of the transaction.
Performance Awards. The board of directors will have the authority to establish and administer performance-based grant and/or vesting conditions and performance objectives with respect to such
awards as it considers appropriate, which performance objectives must be satisfied before the participant receives or retains an award or before the award becomes nonforfeitable.
Performance objectives will be based on one or more of the following performance-based measures determined based on our company and its subsidiaries on a group-wide basis or on the basis of
subsidiary, business platform, or operating unit results: (i) earnings per share (on a fully diluted or other basis), (ii) pretax or after tax net income, (iii) operating income, (iv) gross revenue, (v) profit
margin, (vi) stock price targets or stock price maintenance, (vii) working capital, (viii) free cash flow, (ix) cash flow, (x) return on equity, (xi) return on capital or return on invested capital, (xii) earnings
before interest, taxes, depreciation, and amortization (EBITDA), (xiii) strategic business criteria, consisting of one or more objectives based on meeting specified revenue, market penetration,
geographic business expansion goals, cost targets, or objective goals relating to acquisitions or divestitures, or (xiv) any combination of these measures.
Amendments. Our board of directors may amend the terms of any award; provided, however, that the rights under any award not be impaired without the consent of the participant. The Option Plan
will terminate automatically on June 24, 2025. No shares will be issued or sold under the Option Plan after its termination, except on exercise of an Option granted prior to the termination. No
amendment, suspension, or termination of the Option Plan will, without the consent of the participant, alter or impair any rights or obligations under any award previously granted under the Option Plan.
On July 1, 2015, under the 2015 Plan, our company granted options with service conditions to purchase up to 6,574,600 common shares to twenty-two employees, at an exercise price of US$1.71
per share. These options have a weighted average grant date fair value of US$0.48 per option and a total expected compensation cost, net of expected forfeitures, of US$3,165,867. These options have
vesting periods based on length of service of 34 months and will expire no later than July 1, 2025.
On July 29, 2015, under the 2015 Plan, our company granted options with service conditions to purchase up to 81,600 common shares to one employee, at an exercise price of US$1.71 per share.
These options have a weighted average grant date fair value of US$0.42 per option and a total expected compensation cost, net of expected forfeitures, of US$34,294. These options have vesting periods
based on length of service of 33 months and will expire no later than July 29, 2025.
Our company did not grant any options under the 2015 Plan in 2017, 2018 and 2019.
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As of December 31, 2019, 2,796,734 options were issued and outstanding under the 2015 plan and 14,865,808 shares remained eligible for future grants under the plan. The following table
summarizes the options granted to our current directors, executive officers, and other individuals as a group under our 2015 Plan outstanding as of April 1, 2020:
Name
Yong Zhang
Yong Cui
Other employees as a group (1)
Common Shares
Underlying Options
Granted
Exercise Price of
Options Granted
(US$ per share)
2,497,600
-
27,200
54,334
54,400
81,600
81,600
1.71
1.71
1.71
1.71
1.71
1.71
1.71
Grant Date
Date of Expiration
July 1, 2015
July 1, 2015
July 1, 2015
July 1, 2015
July 1, 2015
July 1, 2015
July 1, 2015
June 30, 2025
June 30, 2025
June 30, 2025
June 30, 2025
June 30, 2025
June 30, 2025
June 30, 2025
(1) None of these employees is a director or executive officer of our Company.
Other awards
On September 28, 2019, our Board of Directors approved the employee stock option plan of Xinchuang Technology, a subsidiary of us. Under the plan, we reserved 150 million shares, representing
30% of Xinchuang Technology’s issued capital for purpose of providing share option awards to our senior management and employees. In November 2019, we granted a total 100 million share options
to certain employees of us with an exercise price of US$0.14 (RMB 1). The options become vested in 5 tranches subject to achievement of certain performance conditions as follows: (i) 5% on the grant
date with no performance condition; (ii) 5% for each of the first, second, third anniversary of the grant date, respectively; and (iii) the remaining 80% shall vest upon the completion of the initial public
offering of Xinchuang. The total fair value of the share options granted in October 2019 is US$3.5 million, which shall be recognized as compensation expense using the accelerated method. The fair
value is determined by an external valuer using the discounted cash flow method to determine the underlying equity fair value of Xinchuang Technology. Key assumptions, such as the discount rate,
cash flow projections and the discount for lack of marketability, are determined by the Group with best estimates.
Xinyuan Property Management Service (Cayman) Ltd., a subsidiary of us, operates a restricted share award scheme (the “Scheme”) for the purpose of providing incentives and rewards to eligible
participants (the “Participants”) who contribute to the success of its operations. The Participants of the Scheme include its directors and senior executives. The Scheme was adopted by our board on 31
January 2019 (the “Adoption Date”). Pursuant to the Scheme, an award of 56,250 restricted shares (subdivided into 56,250,000 restricted shares in August 2019), representing 15% of its share capital,
was granted to the Participants with a total exercise price at an aggregate consideration of US$1,204,094 (RMB8,400,000). The considerations were fully settled in cash upon the issuance of restricted
shares. And the restricted shares vest in three tranches of 2%, 18% and 80% on 1 January 2020, 1 January 2021 and 1 January 2022, respectively, in accordance with certain vesting conditions, that is,
performance condition based on the completion of IPO which requires recognition on an accelerated basis.
As of December 31, 2019, there were no shares expired and the Group recognized expense relating to the options is immaterial (2018: nil, 2017: nil) in profit or loss during the period.
On June 14, 2019, Mr. Zhang Lizhou (one of the participants) resigned as an executive director. Upon the resignation of Mr. Zhang Lizhou, we repurchased the 18,750 shares granted to him at a
consideration of US$401,365 (RMB2,800,000) which was equal to the amount paid by Mr. Zhang Lizhou to us at the issuance date. The remaining settled aggregate consideration of US$802,729
(RMB5,600,000) according to the Scheme was recognized as liability because the restricted shares will be repurchased by us at the original amount by participants upon the termination of employment.
The aggregate fair value of the restricted shares granted at the grant date amounting to US$4,931,051 (RMB34,400,000) are recognized as compensation expense using the accelerated method. The
fair value is determined by an external valuer using the discounted cash flow method to determine the underlying equity fair value of Xinyuan Property Management Service (Cayman) Ltd. Key
assumptions, such as the discount rate, cash flow projections and the discount for lack of marketability, are determined by us with best estimates.
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As of December 31, 2019, there were no shares vested, expired and we recognized expense relating to the Scheme of US$1,762,927 (RMB12,298,534) (2018: nil, 2017: nil) in profit or loss during
the period.
C. Board Practices
Our board of directors currently has ten directors.
Committees of the Board of Directors
We have established four committees under the board of directors: the audit committee, the compensation committee, the corporate governance and nominating committee and the investment
committee. We have adopted a charter for each of the four committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Mr. Thomas Gurnee (Chairman), Mr. Yifan (Frank) Li, Mr. Hao Gao and Ms. Wendy Hayes. Under Section 303A of the NYSE Listed Company
Manual, as a foreign private issuer, we are required to have an audit committee composed solely of independent directors. However, unlike U.S. listed companies, we are not required to have a
minimum number of committee members and our audit committee members may be “independent” only as required by SEC Rule 10A-3 but need not meet the other independence test of NYSE Rule
303A. Our audit committee charter provides that the committee will consist of at least three directors, each of whom must meet applicable independence and financial literacy requirements of the NYSE
and Rule 10A-3 under the Exchange Act. Our board of directors has determined that Mr. Gurnee qualifies as an “audit committee financial expert” under applicable SEC rules. The audit committee
oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
•
•
•
•
•
selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting
firm;
reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response;
reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Exchange Act, regardless of the dollar amount involved in such
transactions;
discussing the annual audited financial statements with management and the independent registered public accounting firm;
reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; and
• meeting separately and periodically with management and the independent registered public accounting firm.
Compensation Committee. Our compensation committee consists of Mr. Yong Zhang (Chairman), Mr. Samuel Shen and Mr. Yifan (Frank) Li. Our compensation committee charter provides that the
committee will be composed of at least three directors, at least half of whom will be independent as defined by the NYSE and any other applicable laws and regulations. All decisions are subject to
simple majority approval. However, the committee may delete all or any portion of its duties and responsibilities to a subcommittee consisting of one or more members.
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The compensation committee assists the board in reviewing and approving the design of and administering executive compensation programs. The compensation committee is responsible for,
among other things:
•
•
•
reviewing our overall compensation philosophy at least annually;
reviewing and approving the corporate goals and objectives relative to our Chief Executive Officer’s compensation on an annual basis and determine the level of the Chief Executive Officer’s
compensation;
determine, or recommend for the board’s determination, the annual base and incentive compensation for our Chief Financial Officer, Chief Operating Officer, Chief Administrative Officer and
any other person who performs similar functions for our company;
• make recommendations to the board with respect to equity-based compensation plans;
•
•
determine compensation policies and practices and approval compensation to non-employee directors; and
review, approve or make recommendations on executive employments agreements or any severance or similar termination payments proposed to be made to any current or former executive
officer of the company.
No member of senior management may be present when his or her compensation is being discussed.
Corporate Governance and Nominating Committee. Our corporate governance and nominating committee consists of Mr. Yong Zhang (Chairman), Mr. Hao Gao and Mr. Yifan (Frank) Li.
The corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its
committees. The corporate governance and nominating committee is responsible for, among other things:
•
•
•
identifying and recommending qualified candidates to the board for selection of directors, nominees for board of directors, or for appointment to fill any vacancy;
reviewing annually with the board of directors the current composition of the board of directors with regards to characteristics such as independence, age, skills, experience and availability of
service to us;
advising the board of directors periodically with regards to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and
regulations, and making recommendations to the board of directors on all matters of corporate governance and on any remedial action to be taken; and
• monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.
Investment Committee. Our investment committee consists of Mr. Yong Zhang (Chairman), Mr. Yong Cui, Mr. Shangrong Li and Mr. Samuel Shen.
The investment committee assists the board of directors in overseeing our company’s real property acquisitions and developments and management of other strategic assets. The investment
committee is responsible for, among other things:
•
•
•
•
reviewing and approving individual real property acquisitions;
approving, without further board action, land acquisitions where the consideration is cash, seller financing and/or conventional bank debt;
land acquisitions involving use of the company’s shares, options or warrants; and
approving acquisitions of assets, other than land, including shares in a third party or non-bank financial assets.
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Duties of Directors
Under Cayman Islands law, our directors have a fiduciary duty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess
with the care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our
memorandum and articles of association, as amended and restated from time to time. Our company has the right to seek damages if a duty owed by our directors is breached. A shareholder may in
certain circumstances have rights to damages if a duty owed by the directors is breached.
The functions and powers of our board of directors include, among others:
•
•
•
•
•
convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;
declaring dividends and distributions;
appointing officers and determining the term of office of officers;
exercising the borrowing powers of our company and mortgaging the property of our company; and
approving the transfer of shares of our company, including the registering of such shares in our register of members.
Terms of Directors and Officers
Under our memorandum and articles of association, a director holds office until he resigns or otherwise vacates his office or is removed by our shareholders or directors. Accordingly, annual
elections of directors by our shareholders are not required and we do not put to shareholder vote on an annual or periodic basis election of directors to our company. A director may be removed by
special resolution passed by our shareholders before the expiration of such director’s term. Officers are appointed by and serve at the discretion of the board of directors.
D. Employees
As of December 31, 2019 we had 1,947 full time employees. The following table sets forth the number of our full time employees categorized by function as of the period indicated:
Management
Finance
Planning and development
Project construction management
Sales and marketing
Property management
Administrative and human resources
Legal and audit
Total
2017
As of December 31,
2018
2019
34
145
389
217
101
234
236
20
1,376
48
185
590
305
107
418
359
26
2,038
60
188
472
265
108
484
348
22
1,947
As of December 31, 2019, our subsidiary, Xinyuan Property Service Co., Ltd, also hired approximately 4,599 contract employees and temporary employees, most of whom provided security and
housekeeping services relating to property management.
As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including housing funds, pension, medical and
unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our
employees, up to a maximum amount specified by the respective local government authorities where we operate our businesses from time to time. Members of the retirement plan are entitled to a
pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The total amount of contributions we made to employee benefit plans for the years ended December 31,
2017, 2018 and 2019 was US$17,101,606, US$18,422,330 and US$20,420,474 respectively.
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We have entered into non-competition agreements with our management and key personnel, which prohibit them from engaging in any activities that compete with our business during, and for one
or two years after, the period of their employment with our company. We have also entered into confidentiality agreements with all of our employees.
We offer training programs for our employees, third-party contractors and outsourced employees. We sponsor senior managers for executive MBA programs and other senior employees for part-
time non-degree MBA courses at top universities in China. We also invite industry experts to give lectures to our employees and provide training to our third-party contractors.
We have not been subjected to any strikes or other labor disturbances that have interfered with our operations, and we believe that we have a good relationship with our employees. Our employees
are not covered by any collective bargaining agreement.
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership of our common shares as of April 1, 2020 (or such earlier date as indicated below), by:
•
•
•
each of our directors and executive officers;
each person known to us to own beneficially more than 5% of our common shares; and
all of our directors and executive officers as a group.
Directors, Executive Officers and Principal Shareholders
Yong Cui
Yu Chen
Hao Gao
Thomas Gurnee
Wendy Hayes
Shangrong Li
Yifan (Frank) Li
Samuel Shen
Yuyan Yang (2)
Yong Zhang (3)
All directors and executive officers as a group (4)
* Beneficially owns less than 1% of our outstanding common shares.
Shares
Beneficially
Owned (1)
%
-
*
-
-
-
-
-
-
26.45
29.14
54.97
Number
-
4,000
-
-
-
-
-
-
28,400,000
32,027,724
60,431,724
(1) Beneficial ownership includes voting or investment power with respect to the securities and, (except as indicated below, each person named has sole voting and investment power with respect to the
shares shown opposite his or her name. Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act, pursuant to which a
person or group of persons is deemed to have “beneficial ownership” of any shares of common stock that such person has the right to acquire within 60 days of the date of determination. The
percentage of beneficial ownership is based on 107,389,450 common shares outstanding as of April 1, 2020. In addition, for purposes of computing the percentage of outstanding shares of common
stock held by each person or group of persons named above, any shares which such person or persons had the right to acquire on or within 60 days of April 1, 2020 are deemed to be outstanding but
are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
(2) Ms. Yang is the settlor of The Spectacular Stage Trust established pursuant to the Trust Deed dated November 24, 2015 between Ms. Yang, as Settlor, and HSBC International Trustee Limited, as
Trustee (the “Spectacular Trust”). Pursuant to the Trust Deed, the Trustee is required to obtain the prior written consent of Ms. Yang, as Protector, before making any direct or indirect dispositions
of any common shares that constitute assets of the Spectacular Trust and to vote common shares held by the Spectacular Trust and cause any entity owned by the Spectacular Trust directly or
indirectly that holds common shares to vote such shares in accordance with instructions from Ms. Yang. Accordingly, pursuant to Section 13(d) of the Exchange Act, Ms. Yang may be deemed to
beneficially own all of the common shares held directly or indirectly by the Spectacular Trust. Spectacular Stage Limited, a British Virgin Islands company indirectly wholly owned by the
Spectacular Trust, owns 28,400,000 common shares.
(3) Mr. Zhang is the settlor of The Juicy Seasons Trust established pursuant to the Trust Deed dated June 21, 2019 between Mr.Zhang, as Settlor, and HSBC International Trustee Limited, as Trustee
(the “Juicy Trust”). Pursuant to the Trust Deed, the Trustee is required to obtain the prior written consent of Mr. Zhang, as Protector, before making any direct or indirect dispositions of any
common shares that constitute assets of the Juicy Trust and to vote common shares held by the Juicy Trust and cause any entity owned by the Juicu Trust directly or indirectly that holds common
shares to vote such shares in accordance with instructions from Mr. Zhang. Accordingly, pursuant to Section 13(d) of the Exchange Act, Mr. Zhang may be deemed to beneficially own all of the
common shares held directly or indirectly by the Juicy Trust. Juicy Seasons Limited, a British Virgin Islands company indirectly wholly owned by the Juicy Trust, owns 28,400,000 common shares.
The amount of common shares also includes 2,537,000 common shares issuable upon exercise of vested options and 1,090,724 common shares held by Universal World Development Co. Ltd., a
British Virgin Islands company, of which Mr. Zhang is the sole owner.
(4) Includes 2,537,000 common shares issuable upon exercise of options exercisable within 60 days.
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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to “Item 6. Directors, Senior Management and Employees — E. Share Ownership” for our major shareholders.
Our major shareholders do not have voting rights that are different from other shareholders.
There are three record holders in the United States, including the depositary for our ADSs, holding, collectively, 50.4% our outstanding common shares, as of April 1, 2020.
B. Related Party Transactions
On March 2, 2018, the Group signed a partnership agreement with Yong Zhang, a senior management member and employee of the Company to form Beijing Yuzhouyun Technology Development
Center ("Yuzhouyun"). According to the partnership agreement, the design and purpose of Yuzhouyun's activities are to provide technical services to the Group. The Group acts as a limited partner and
the senior management members are general partners. Substantially all significant activities require the approval from the senior management members. The Group and senior management members
agreed to share profits at the proportion of 51% and 49%, respectively. The Group, as the limited partner, is the only party with the equity at risk to absorb losses of Yuzhouyun. Yuzhouyun's principal
activities are also to provide technical service to the Group, which indicates that Yuzhouyun's activities are conducted on behalf of the Group.
In 2018, the Company sold a small percentage of the equity interests (ranging from 0.50% to 5.54%) in eight real estate project companies to senior management and employees for a total
consideration of US$8,720,772. In 2019, the Company sold additional percentage of the equity interests in the eight real estate project companies to senior management and employees for a total
consideration of US$604,914 and the total sold equity interests ranges from 0.57% to 5.59% as of December 31, 2019. According to the equity transfer agreement, as this arrangement is a form of an
incentive plan, the Company is obligated to repurchase the equity interest back from senior management and employees.
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In 2019, the Company sold 6.03% of the equity interests in one real estate project company to senior management and employees for a total consideration of US$1,300,135. According to the equity
transfer agreement, as this arrangement is a form of an incentive plan, the Company is obligated to repurchase the equity interest back from senior management and employees.
On June 15, 2017, Xinyuan China, the Group's related parties, and a third party signed a partnership agreement to form a limited partnership, Beijing Future Xinruifeng Science and Technology
Development Center (Limited Partnership) ("Xinruifeng"). The related parties that are partners of Xinruifeng comprise of (i) Yong Zhang and other senior management members; and (ii) Beijing
Xinyuan Future Investment Management Co., Ltd. ("Xinyuan Future"), which is also owned by Yong Zhang, a senior management member of the Company. The third party and the related parties are
general partners of Xinruifeng whereas Xinyuan China is a limited partner.
Pursuant to the framework agreement signed in June 2017 by Xinruifeng and Xinyuan China, both parties agreed to invest a total of RMB 30 million in Xitou. After the completion of the
arrangement, Xinruifeng and Xinyuan China will own 66.67% and 33.33% equity interest of Xitou, respectively. The arrangement will be completed with two steps that form a single transaction
designed to achieve an overall commercial effect, 1) Xinyuan China will acquire 100% equity interest of Xitou for nil consideration ("Step one"); and 2) Xinruifeng will inject a capital of RMB 20
million and acquire 66.67% equity interest of Xitou, and Xinyuan China will invest RMB 10 million and obtain 33.33% of equity interest of Xitou ("Step two"). In November 2019, Step two was
completed.
Pursuant to the framework agreement signed in June 2017 by Beijing Future Xinhujin Science and Technology Development Center (Limited Partnership) ("Xinhujin"), owned in part by Yong
Zhang, a senior management member of the Company, and Xinyuan China, both parties agreed to invest a total of RMB30 million in Xichuang. After the completion of the arrangement, Xinhujin and
Xinyuan China will own 66.67% and 33.33% equity interest of Xichuang, respectively. The arrangement will be completed with two steps that form a single transaction designed to achieve an overall
commercial effect, 1) Xinyuan China will acquire 100% equity interest of Xichuang for nil consideration ("Step one"); and 2) Xinhujin will inject capital of RMB20 million to Xichuang and acquire
66.67% equity interest of Xichuang, and Xinyuan China will invest RMB 10 million and obtain 33.33% of equity interest of Xichuang ("Step two"). These two steps are inseparable and the acquisition
of Xichuang will be completed only after both of these two steps are completed. In November 2019, Step two was completed.
Pursuant to the framework agreement signed in June 2017 by Beijing Future Xinzhihui Science and Technology Development Center (Limited Partnership) ("Xinzhihui"), owned in part by Yong
Zhang, Yong Cui, senior management members of the Company, and Xinyuan China, both parties agreed to invest a total of RMB 40 million in Beijing I-Journey Science and Technology Development
Co., Ltd. ("I-Journey"). After the completion of the arrangement, Xinzhihui and Xinyuan China will own 75% and 25% equity interest of I-journey, respectively. The acquisition will be completed with
two steps that form a single transaction designed to achieve an overall commercial effect, 1) Xinyuan China will acquire 100% equity interest of I-journey for nil consideration ("Step one"); and 2)
Xinzhihui will inject a capital of RMB30 million and acquire 75% equity interest of I-journey, and Xinyuan China will invest RMB10 million and obtain 25% of equity interest of I-journey ("Step
two"). These two steps are inseparable and the acquisition of I-journey will be completed only after both of these two steps are completed. In November 2019, Step two was completed.
Please refer to Note 18 of our audited consolidated financial statements for additional information.
Review and Approval of Related Party Transactions
Pursuant to our audit committee charter, all transactions or arrangements with related parties, as such term is defined under Item 404 of Regulation S-K, including directors, executive officers,
beneficial owners of 5% or more of our voting securities and their respective affiliates, associates and related parties, will require the prior review and approval of our audit committee, regardless of the
dollar amount involved in such transactions or arrangements.
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C.
Interests of Experts and Counsel
Not applicable.
ITEM 8.
FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report.
Dividend Policy
Payment of dividends is subject to our board of directors’ discretion and the form, frequency and amount of any dividend will depend upon our future operations and earnings, capital requirements
and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
If we pay any dividends, we will pay our ADS holders to the same extent as holders of our common shares, subject to the terms of the deposit agreement, including the fees and expenses payable
thereunder. Cash dividends on our common shares, if any, will be paid in U.S. dollars. In previous years, the Company has paid quarterly dividends.
Legal Proceeding
In May 2015, XIN Development Management East, LLC (“XDME”) filed an arbitration claim for not less than US$10 million which was subsequently reduced for the purpose of a prior mediation
to US$8 million against Wanks Adams Slavin Associates LLP (“WASA”), the design company for the Group’s Oosten project. WASA has asserted a total of approximately US$2 million in
counterclaims. XDME believes WASA’s counterclaims are without merit and intends to contest vigorously such claims. On November 26, 2018, XDME reconciled with the design company WASA and
settled the claim.
In December 2016, 421 Kent Development LLC ("421 Kent"), the property company for the Group's Oosten project, terminated its contract with its general contractor. The general contractor and
various subcontractors have filed lawsuits against 421 Kent and the Company for approximately US$22.0 million, in aggregate, plus punitive damages. In addition, the general contractor filed
mechanic's liens against 421 Kent and the Company for approximately US$8.0 million. 421 Kent has answered the claims and believes the contractors' claims and liens are without merit and intends to
contest vigorously such claims.
In May 2019, an authorized entity of local government (the “Government Entity”) sued Beijing Huiju, the original controlling and existing shareholder of one of the Group’s equity method investee,
Qingdao Huiju, for disputes in construction contract entered into between the Government Entity and Beijing Huiju. The Government Entity also claimed that Qingdao Huiju is jointly liable for the
aforementioned construction contract and a commitment letter issued by Beijing Huiju, and sued both Beijing Huiju and Qingdao Huiju to be jointly and severally liable to a liquidated damage of
US$230.9 million stipulated in the commitment letter. Qingdao Huiju received the local court verdict of the first instance in April 2020 which held that Qingdao Huiju shall be jointly and severally
liable to the liquidated damages of US$230.9 million, and court cost of US$1,167,369. Qingdao Huiju appealed to the verdict in April 2020. Management believes that the Government Entity’s claims
against Qingdao Huiju are without merit and intends to contest vigorously against such claims because the commitment letter was unilaterally issued by Beijing Huiju without any signature or
confirmation by Qingdao Huiju.
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
ITEM 9.
THE OFFER AND LISTING
A. Offer and Listing Details
See “Item 9. The Offer and Listing — C. Markets” for price history data.
B. Plan of Distribution
Not applicable
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C. Markets
Our ADSs, each representing two of our common shares, have been listed on the NYSE since December 12, 2007. Our ADSs trade under the symbol “XIN.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
The Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the
Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.
Mergers and similar arrangements. The Companies Law (2020 Revision) permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-
Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such
companies as the surviving company, and (b) “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and
liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or
consolidation, which must then be authorized by (a) a special resolution of each constituent company and (b) such other authorization, if any, as may be specified in such constituent company’s articles
of association. The written plan of merger or consolidation must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list
of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent
company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if
not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or
consolidation which is effected in compliance with these statutory procedures.
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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies by way of scheme of arrangement, provided that the arrangement is approved by a
majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or
creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the
arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the
court can be expected to approve the arrangement if it determines that:
•
•
•
•
the company is not proposing to act illegally or beyond the scope of its authority and the statutory provisions as to the required majority vote have been met;
the shareholders have been fairly represented at the meeting in question and the majority shareholders are acting in good faith without coercion of the minority to promote interests adverse to
those of the relevant class;
the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and
the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law or that would amount to a “fraud on the minority.”
If the arrangement and reconstruction by way of scheme of arrangement is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise
ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.
When a tender offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two month period commencing on the expiration of such four month period,
require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless
there is evidence of fraud, bad faith or collusion.
Shareholders’ suits. In principle, we will normally be the proper plaintiff and as a general rule, a derivative action may not be brought by a minority shareholder. However, based on English
authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected (and have had occasion) to follow and apply the common law
principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against, or derivative actions in the name of, our company to
challenge:
•
•
•
an act which is ultra vires or illegal and is therefore incapable of ratification by the shareholders;
an act which constitutes a fraud against the minority where the wrongdoer are themselves in control of the company; and
an act which requires a resolution with a qualified (or special) majority (i.e. more than a simple majority) which has not been obtained.
Anti-takeover provisions. Some provisions of our amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or
management that shareholders may consider favorable, including provisions that authorize our board of directors to redesignate authorized and unissued common shares as other shares or series of
shares, to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares without any further vote or action by our
shareholders. However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our amended and restated memorandum and articles of association, as
amended and restated from time to time, for what they believe in good faith to be in the best interests of our company.
Directors’ fiduciary duties and powers. As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company, and therefore it is
considered that he or she owes the following duties to the company-a duty to act bona fide in the best interests of the company, a duty not to make a profit out of his or her position as director (unless the
company permits him or her to do so) and a duty not to put himself or herself in a position where the interests of the company conflict with his or her personal interests or his or her duty to a third party.
A director of a Cayman Island company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a
greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, there are indications that the courts are moving towards an objective standard
with regard to the required skill and care.
131
Under our memorandum and articles of association, directors who are in any way, whether directly or indirectly, interested in a contract or proposed contract with our company shall declare the
nature of their interest at a meeting of the board of directors. Following such declaration, a director may vote in respect of any contract or proposed contract notwithstanding his interest. Directors are
not required to hold shares; however, a minimum share requirement for directors may be established at a general meeting. Directors may exercise all powers of our company to borrow money, under our
memorandum and articles of association, in a variety of ways, including issuing bonds and other securities either outright or as security for any debt liability or obligation of our company or of any third
party.
Shareholder action by written resolution. Under Cayman Islands law and our amended and restated articles of association, our shareholders may approve corporate matters by way of a unanimous
written resolution signed by or on behalf of each shareholder who would have been entitled to vote on such matter at a general meeting without a meeting being held.
Removal of Directors. Under our memorandum and articles of association, directors may be removed by a special resolution. In addition, a director’s office shall be vacated if the director (i) gives
notice in writing to our company that he resigns the office of director; (ii) without special leave of absence from our board of directors, is absent from three consecutive meetings of the board and the
board resolves that his office be vacated; (iii) if he dies, becomes bankrupt or makes any arrangement or composition with his creditors; (iv) is found to be or becomes of unsound mind or dies; (iii)
resigns his office by notice in writing to the company; (v) if all other directors (being not less than two in number) resolve that he should be removed as a director or; (v) is removed from office pursuant
to any other provisions of our amended and restated memorandum and articles of association.
Dissolution; winding up. Under our memorandum and articles of association, if our company is wound up, the liquidator of our company may distribute the assets only by the vote of holders of a
two-thirds majority of our outstanding shares being entitled to vote in person or by proxy at a shareholder meeting or by unanimous written resolution.
Amendment of governing documents. Under Cayman Islands law and our memorandum and articles of association, our governing documents may only be amended with the vote of holders of two-
thirds of our shares entitled to vote in person or by proxy at a shareholder meeting or, as permitted by our articles of association, by unanimous written consent.
Rights of Non-Resident or Foreign Shareholders. There are no limitations imposed by foreign law or by our memorandum and articles of association on the rights of non-resident or foreign
shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our memorandum and articles of association governing the ownership threshold above which
shareholder ownership must be disclosed.
C. Material Contracts
During the two fiscal years immediately preceding this annual report, we have entered into the following material contracts, excluding contracts entered into in the ordinary course of business.
Bond Offerings
For a description of the August 2019 Senior Secured Notes and the August 2019 Indenture, the February 2021 Senior Secured Notes and the February 2021 Indenture, the November 2020 Senior
Secured Notes and the November 2020 Indenture and the March 2020 Senior Secured Notes, the March 2020 Indenture and the October 2021 Senior Secured and the October 2021 Indenture, see “Item
5. Operating and Financial Review And Prospects — B. Liquidity and Capital Resources — Debt Securities—Senior Secured Notes,” included elsewhere in this annual report on Form 20-F.
For a description of the onshore corporate bonds, see “Item 5. Operating and Financial Review and Prospects —B. Liquidity and Capital Resources — Onshore Corporate Bonds” included
elsewhere in this annual report on Form 20-F.
132
D. Exchange Controls
Under current PRC foreign exchange rules, after complying with certain procedural requirements and producing commercial documents evidencing relevant transactions, RMB is convertible into
other currencies without prior approval from the SAFE only for current account items, such as trade related payments, interest and dividends, etc., and certain capital account items, such as direct equity
investments, loans and repatriation of investment in non-sensitive industries. The conversion of RMB into other currencies and remittance of the converted foreign currency outside the PRC under
sensitive industries direct equity investments, loans and repatriation of investment, requires prior approval from the SAFE or its local office. Foreign-invested enterprises may retain foreign exchange in
accounts with designated foreign exchange banks subject to a cap set by the SAFE or its local office. Under the SAFE regulations, PRC companies and individuals may repatriate foreign currency
revenues received from abroad back to China or they may retain the foreign currency revenues abroad. The term and conditions for both alternatives are subject to provisions further provided by the
SAFE in accordance with international receipts and payments and the needs of foreign exchange administration. These restrictions could affect our ability to obtain foreign currency through debt or
equity financing, or for capital expenditures.
E. Taxation
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty.
There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the
jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties which are applicable to payments made to and by our company. There are no exchange control regulations
or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
The PRC Corporate Income Tax Law, or theEIT Law, became effective as of January 1, 2008 and was amended on February 24, 2017 and December 29, 2018, and the Implementation for theEIT
Law issued by the PRC State Council, became effective as of January 1, 2008. The EIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in
China are considered “resident enterprises” and are generally subject to the uniform 25% corporate income tax rate as to their worldwide income (including dividend income received from subsidiaries).
Under the Implementation for theEIT Law, a “de facto management body” is defined as a body that has material and overall management and control of the manufacturing and business operations,
personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. On April 22, 2009, the SAT issued the Circular 82, which was
retroactively effective as of January 1, 2008. Under this notice, an overseas incorporated domestically controlled enterprise will be recognized as a PRC resident enterprise if it satisfies all of the
following conditions: (i) the senior management responsible for daily production/ business operations are primarily located in the PRC, and the location(s) where such senior management execute their
responsibilities are primarily in the PRC; (ii) strategic financial and personnel decisions are made or approved by organizations or personnel located in the PRC; (iii) major properties, accounting
ledgers, company seals and minutes of board meetings and shareholder meetings, etc., are maintained in the PRC; and (iv) 50% or more of the board members with voting rights or senior management
habitually reside in the PRC. Further, the SAT issued Bulletin 45, which became effective on September 1, 2011 and was amended on April 17, 2015 and June 28, 2016, to provide further guidance on
the implementation of Circular 82. Bulletin 45 clarified certain issues relating to the determination of PRC tax resident enterprise status, post-determination administration and the authorities responsible
for determining offshore-incorporated PRC tax resident enterprise status. Bulletin 45 specifies that when provided with a copy of a Chinese tax resident determination certificate issued by the in-charge
tax authorities from an offshore-incorporated PRC tax resident enterprise, the payer should not withhold 10% income tax when paying Chinese-sourced dividends, interest and royalties to the offshore
incorporated PRC tax resident enterprise. However, as Circular 82 and Bulletin 45 only apply to enterprises incorporated under laws of foreign jurisdictions that are controlled by PRC enterprises or
groups of PRC enterprises, it remains unclear how the tax authorities will determine the location of “de facto management bodies” for overseas incorporated enterprises that are controlled by individual
PRC residents or non-PRC enterprises such as our company. It is not clear whether PRC tax authorities would require (or permit) us to be treated as a PRC resident enterprise.
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Under the EIT Law and the Implementation for theEIT Law, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises,” which do not have
an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business,
to the extent such dividends have their sources within the PRC. Similarly, any gain realized on the transfer of our ADSs by such investors is also subject to 10% PRC income tax if such gain is regarded
as income derived from sources within the PRC. For non-PRC individual investors, under PRC Individual Income Law, there could be a PRC income tax at a rate of 20% for such dividends or gains. If
we are considered a PRC “resident enterprise,” it is unclear whether dividends we pay with respect to our ADSs, or the gain you may realize from the transfer of our ADSs, would be treated as income
derived from sources within the PRC and be subject to PRC tax as stated above. If we are not considered a PRC “resident enterprise,” the holders of our ADSs that are non-PRC “resident enterprises”
could be subject to PRC income tax for gains from transferring or otherwise disposing their ADSs, since such activities might be recognized as “transferring the equity interests of a PRC resident
enterprise indirectly by disposing of the equity interests of an overseas holding company” under Circular 7 or GATA. However, since Circular 7 specifies that it does not apply if a non-PRC resident
enterprise purchases and sells equity of the same listed foreign enterprise in the open market and obtains the proceeds from indirect transfer of Chinese taxable property, for most our investors, who
either are not enterprises, or are non-resident enterprises but only trade equity in the open market and gain proceeds, they will not be required to pay tax under Circular 7. It is also unclear whether, if we
are considered a PRC “resident enterprise,” holders of our ADSs might be able to claim the benefit of income tax treaties entered into between China and other countries.
U.S. Federal Income Taxation
The following is a general discussion of certain United States federal income tax consequences of the ownership and disposition of the common shares or ADSs (evidenced by ADRs) by U.S.
Holders (as defined below). This discussion applies only to U.S. Holders that hold the common shares or ADSs as capital assets for U.S. federal income tax purposes.
This discussion is based on the Internal Revenue Code of 1986, as amended, or the Code, Treasury regulations implemented thereunder, and administrative and judicial interpretations thereof, all as
in effect on the date hereof and all of which are subject to change, possibly with retroactive effect, or to different interpretation. There can be no assurance that the IRS or a court will not take a contrary
position with respect to any United States federal income tax considerations described below.
This discussion does not address all of the tax considerations that may be relevant to specific U.S. Holders in light of their particular circumstances or to U.S. Holders subject to special treatment
under U.S. federal income tax law (such as banks, other financial institutions, insurance companies, tax-exempt entities, retirement plans, regulated investment companies, real estate investment trusts,
grantor trusts, partnerships (or other entities treated as flow-through entities for U.S. federal income tax purposes), dealers or traders in securities, brokers, United States expatriates and certain former
long-term U.S. residents, persons subject to the alternative minimum tax, persons who have acquired the shares or ADSs as part of a straddle, hedge, conversion transaction or other integrated
investment, persons who generally mark their securities to market for U.S. federal income tax purposes, persons that have a “functional currency” other than the U.S. dollar, persons who are residents in
the PRC for PRC tax purposes or persons that own directly, indirectly, or constructively 10% or more of our stock by vote or value). If a partnership holds common shares or ADSs, the consequences to
a partner will generally depend upon the status of the partner and upon the activities of the partnership. A partner of a partnership holding common shares or ADSs should consult its own tax adviser
regarding the United States tax consequences of its investment in the common shares or ADSs through the partnership. This discussion does not address any U.S. state or local or non-U.S. tax
considerations, any United States federal estate, gift or alternative minimum tax considerations, the United States federal Medicare tax on net investment income.
As used in this discussion, the term “U.S. Holder” means a beneficial owner of the common shares or ADSs that is, for U.S. federal income tax purposes, (i) an individual who is a citizen or
resident of the United States, (ii) a corporation, or other entity taxable as a corporation for United States federal income tax purposes, created or organized in or under the laws of the United States or of
any state or political subdivision thereof or therein, including the District of Columbia, (iii) an estate, the income of which is subject to United States federal income tax regardless of the source thereof,
or (iv) a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all
of its substantial decisions, or certain electing trusts that were in existence on August 19, 1996 and were treated as domestic trusts on that date.
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In general, for U.S. federal income tax purposes, a U.S. Holder of an ADS will be treated as the owner of the common shares represented by the ADSs.
Investors should consult their tax advisors as to the particular tax considerations applicable to them relating to the ownership and disposition of the common shares or ADSs, including the
applicability of U.S. federal, state and local tax laws or non- U.S. tax laws, any changes in applicable tax laws and any pending or proposed legislation or regulations.
Dividends
Subject to the discussion below under “—Passive Foreign Investment Company,” the gross amount of any distribution (without reduction for any PRC tax withheld) made by us on the common
shares or ADSs generally will be treated as a dividend includible in the gross income of a U.S. Holder as dividend income to the extent of our current or accumulated earnings and profits, as determined
under U.S. federal income tax principles, when received by the U.S. Holder, in the case of common shares, or when received by the Depositary, in the case of ADSs. To the extent the amount of such
distribution exceeds our current and accumulated earnings and profits as so computed, it will be treated first as a non-taxable return of capital to the extent of such U.S. Holder’s adjusted tax basis in
such common shares or ADSs and, to the extent the amount of such distribution exceeds such adjusted tax basis, will be treated as capital gain. We do not intend to calculate our earnings and profits
under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will generally be treated as a dividend even if that distribution would otherwise be treated as a non-
taxable return of capital or as capital gain under the rules described above. The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends
received from other U.S. corporations.
Certain dividends received by non-corporate U.S. Holders generally will be taxed at the preferential rate applicable to qualified dividend income. These reduced income tax rates are applicable to
dividends paid by “qualified foreign corporations” and only with respect to common shares or ADSs held for a minimum holding period of at least 61 days during a specified 121-day period, and if
certain other conditions are met (including, but not limited to, us not being a PFIC (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year). You
should consult your tax advisors regarding the availability of the preferential rate for dividends paid with respect to common shares or ADSs.
Dividends paid by us will constitute income from sources outside the United States for U.S. foreign tax credit limitation purposes and will be categorized as “passive category income” or, in the
case of certain U.S. Holders, as “general category income” for U.S. foreign tax credit purposes.
In the event that we are deemed to be a PRC resident enterprise under the EIT Law (see discussion under “Item 10. Additional Information — E. Taxation — People’s Republic of China Taxation”),
you may be subject to PRC withholding taxes on dividends paid to you with respect to the common shares or ADSs. Subject to generally applicable limitations, PRC withholding taxes on dividends, if
any, may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. However, such foreign tax credit may be disallowed, if the U.S. Holder has held such shares for less
than a specified minimum period during which the U.S. Holder is not protected from risk of loss, or is obligated to make payments related to the dividends. The rules relating to the U.S. foreign tax
credits are complex and U.S. Holders may be subject to various limitations on the amount of foreign tax credits that are available. U.S. Holders should consult their own tax advisors regarding the effect
of these rules in their particular circumstances.
Sale or Other Disposition of Ordinary common shares or ADSs
Subject to the discussion below under “—Passive Foreign Investment Company,” a U.S. Holder generally will recognize gain or loss for U.S. federal income tax purposes upon a sale or other
disposition of the common shares or ADSs in an amount equal to the difference between the amount realized from such sale or disposition and the U.S. Holder’s adjusted tax basis in such common
shares or ADSs. Such gain or loss generally will be a capital gain or loss and will be long-term capital gain (taxable at preferential rates for non-corporate U.S. Holders) or loss if, on the date of sale or
disposition, such common shares or ADSs were held by such U.S. Holder for more than one year. The deductibility of capital losses is subject to significant limitations. Any gain or loss on the sale or
disposition will generally be treated as U.S. source income or loss for U.S. foreign tax credit limitation purposes.
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Passive Foreign Investment Company
Special U.S. tax rules apply to companies that are considered to be PFICs. We will be classified as a PFIC in a particular taxable year if either (i) 75% or more of our gross income for the taxable
year is passive income; or (ii) on average at least 50% of the value of our assets produce passive income or are held for the production of passive income. Passive income for this purpose generally
includes, among other things, certain dividends, interest, royalties, rents and gains from commodities and securities transactions and from the sale or exchange of property that gives rise to passive
income.
In making this determination, we will be treated as earning our proportionate share of any income and owning our proportionate share of any assets of any corporation in which we hold a 25% or
greater interest (by value).
Based on our estimated gross income, the average value of our assets, including goodwill, and the nature of our business, although not free from doubt, we do not believe that we were classified as a
PFIC for U.S. federal income tax purposes for the taxable year ending December 31, 2019. Our status for any taxable year will depend on our assets and activities in each year, and because this is a
factual determination made annually after the end of each taxable year, there can be no assurance that we will not be considered a PFIC for the current taxable year or any future taxable year. The market
value of our assets may be determined in large part by reference to the market price of the ADSs and our ordinary shares, which is likely to fluctuate. Furthermore, the composition of our income and
assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly increase relative to our
revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of being classified as a PFIC may substantially
increase. In addition, because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive or our
valuation of our tangible and intangible assets, each of which may result in our becoming a PFIC for the current or subsequent table years. We do not intend to make a determination of our or any of our
future subsidiaries’ PFIC status in the future. If we were classified as a PFIC for any year during which a U.S. holder held our ADSs or common shares, we generally would continue to be treated as a
PFIC for all succeeding years during which such U.S. holder holds our ADSs or common shares.
A U.S. Holder may be able to mitigate some of the adverse U.S. federal income tax consequences described below with respect to owning the common shares or ADSs if we are classified as a PFIC
for any taxable year, provided that such U.S. Holder is eligible to make, and validly makes a mark-to-market election, described below. In certain circumstances, a U.S. Holder can make a qualified
electing fund election, or QEF election, to mitigate some of the adverse tax consequences described with respect to an ownership interest in a PFIC by including in income its share of the PFIC’s income
on a current basis. However, we do not currently intend to prepare or provide the information that would enable a U.S. Holder to make a QEF election.
In the event we are classified as a PFIC, in any year in which you hold the common shares or ADSs, and you do not make the election described in the following paragraphs, any gain recognized by
you on a sale or other disposition (including a pledge) of the common shares or ADSs would be allocated ratably over your holding period for the common shares or ADSs. The amounts allocated to the
taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the
highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed. Further, to the extent that any distribution received by you on your
common shares or ADSs were to exceed 125% of the average of the annual distributions on the common shares or ADSs received during the preceding three years or your holding period, whichever is
shorter, that distribution would be subject to taxation in the same manner as gain on the sale or other disposition of shares, described above. Classification as a PFIC may also have other adverse tax
consequences, including, in the case of individuals, the denial of a step-up in the basis of your common shares or ADSs at death.
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If we are a PFIC for any taxable year during which you hold the common shares or ADSs, then in lieu of being subject to the special tax regime and interest charge rules discussed above, you may
make an election to include gain on the common shares or ADSs as ordinary income under a mark-to-market method, provided that such the common shares or ADSs are treated as “regularly traded” on
a “qualified exchange.” In general, the common shares or ADSs will be treated as “regularly traded” for a given calendar year if more than a de minimis quantity of the common shares or ADSs are
traded on a qualified exchange on at least 15 days during each calendar quarter of such calendar year. Although the U.S. Internal Revenue Service (“IRS”) has not published any authority identifying
specific exchanges that may constitute “qualified exchanges,” Treasury Regulations provide that a qualified exchange is (a) a U.S. securities exchange that is registered with the SEC, (b) the U.S. market
system established pursuant to section 11A of the Securities and Exchange Act of 1934, or (c) a non-U.S. securities exchange that is regulated or supervised by a governmental authority of the country
in which the market is located, provided that (i) such non-U.S. exchange has trading volume, listing, financial disclosure, surveillance and other requirements designed to prevent fraudulent and
manipulative acts and practices, to remove impediments to and perfect the mechanism of a free and open, fair and orderly, market, and to protect investors; and the laws of the country in which such
non-United States exchange is located and the rules of such non-U.S. exchange ensure that such requirements are actually enforced and (ii) the rules of such non-United States exchange effectively
promote active trading of listed shares. No assurance can be given that the common shares or ADSs will meet the requirements to be treated as “regularly traded” for purposes of the mark-to-market
election.
In addition, because a mark-to-market election cannot be made for any lower-tier PFICs that we may own, you may continue to be subject to the special tax regime with respect to your indirect
interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes, including shares in any future subsidiary of ours that is treated as a PFIC.
If you make this mark-to-market election, you will be required in any year in which we are a PFIC to include as ordinary income the excess of the fair market value of your common shares or ADSs
at year-end over your basis in those common shares or ADSs. In addition, the excess, if any, of your basis in the common shares or ADSs over the fair market value of your common shares or ADSs at
year-end is deductible as an ordinary loss in an amount equal to the lesser of (i) the amount of the excess or (ii) the amount of the net mark-to-market gains that have been included in income in prior
years. Any gain recognized upon the sale of the common shares or ADSs will be taxed as ordinary income in the year of sale. Amounts treated as ordinary income will not be eligible for the preferential
tax rate applicable to qualified dividend income or long-term capital gains. Your adjusted tax basis in the common shares or ADSs will be increased by the amount of any income inclusion and
decreased by the amount of any deductions under the mark-to-market rules. If you make a mark-to market election, it will be effective for the taxable year for which the election is made and all
subsequent taxable years unless the common shares or ADSs are no longer regularly traded on a qualified exchange or the IRS consents to the revocation of the election.
The U.S. federal income tax rules relating to PFICs are complex. You are urged to consult your tax advisors with respect to the purchase, ownership and disposition of the common shares or ADSs,
any elections available with respect to such ADSs and the U.S. Internal Revenue Service information reporting obligations with respect to the purchase, ownership and disposition of the ADS.
Backup Withholding Tax and Information Reporting and Disclosure Requirements
Dividend payments made to U.S. Holders and proceeds paid from the sale or other disposition of their common shares or ADSs may be subject to information reporting to the Internal Revenue
Service and possible U.S. federal backup withholding. Certain exempt recipients (such as corporations) are not subject to these information reporting requirements. Backup withholding will not apply to
a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification, or who is otherwise exempt from backup withholding. U.S. Holders who are required to
establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification).
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a U.S. Holder’s U.S. federal income tax liability. A U.S. Holder may obtain a refund
of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the Internal Revenue Service in a timely manner and furnishing any required
information.
Investors should consult their own tax advisors as to their qualification for an exemption from backup withholding and the procedure for obtaining this exemption.
Certain U.S. Holders may be required to report information with respect to such holder’s interest in “specified foreign financial assets” (as defined in Section 6038D of the Code), including stock of
a non-U.S. corporation that is not held in an account maintained by a U.S. “financial institution,” if the aggregate value of all such assets exceeds certain thresholds. Persons who are required to report
specified foreign financial assets and fail to do so may be subject to substantial penalties. U.S. Holders are urged to consult their own tax advisors regarding the foreign financial asset reporting
obligations and their possible application to the holding of the common shares or ADSs.
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F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
We are subject to the periodic reporting and other informational requirements of the Exchange Act. Under the Exchange Act, we are required to file reports and other information with the SEC.
Specifically, we are required to file annually a Form 20-F no later than four months after the close of each fiscal year, which is December 31. The SEC maintains a web site at www.sec.gov that contains
reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system, which can be accessed without charge. As a
foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal
shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In accordance with Section 203.01 of the NYSE Listed Company
Manual, we will post this annual report on our website at www.xyre.com.
I.
Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is the risk of loss related to adverse changes in market prices, including interest rate and foreign exchange rates of financial instruments. We are exposed to various types of market risks
in the normal course of business. We have not in the past used derivatives to manage our exposure to market interest rate risk or foreign exchange risk. The following discussion and analysis, which
involves “forward-looking statements” that involve risk and uncertainties, summarizes our exposure to different market risks.
Foreign Exchange Risk
We and our subsidiaries are principally engaged in real estate development and the provision of property management services in the PRC. We started U.S. business operations, which is mainly
residential real estate development, as well as resale, in 2012. The functional currency of our PRC subsidiaries is the Renminbi, while that of our subsidiaries in the United States is U.S. dollars. Our
reporting currency is the U.S. dollar. We translate the PRC operating results using the average exchange rate for the year and we translate the PRC financial position at the year-end exchange rate. The
foreign currency translation income recognized in our other comprehensive loss amounted to US$20.0 million for the year ended December 31, 2019.
A significant portion of our revenues is denominated in RMB. However, we have substantial U.S. dollar denominated obligations, including the obligation to pay interest and principal on our
secured debt and capital commitments to support our United States business operations. Accordingly, any significant fluctuation between the RMB and the U.S. dollar could expose us to foreign
exchange risk. We do not currently hedge our exchange rate exposure. We evaluate such risk from time to time and may consider engaging in hedging activities in the future to the extent we deem
appropriate. Such hedging arrangements may require us to pledge or transfer cash and other collateral to secure our obligations under the agreements, and the amount of collateral required may increase
as a result of mark-to-market adjustments.
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The RMB is not a freely convertible currency. The PRC government may take actions that could cause future exchange rates to vary significantly from current or historical exchange rates. The
conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the PBOC. On July 1, 2005, the PRC government changed its previous policy of pegging the value of
the RMB to the U.S. dollar. Under the current policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Since July 21, 2005, this
change in policy has resulted in an approximately 15.7% appreciation of the RMB against the U.S. dollar through December 31, 2019. There remains significant international pressure on the PRC
government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. Any appreciation of the RMB against
the U.S. dollar or any other foreign currencies would make any new RMB-denominated investments or expenditures more costly to us, to the extent that we need to convert foreign currencies into RMB
for such purposes. On August 11, 2015, the PBOC allowed the RMB to depreciate by approximately 2% against the U.S. dollar. It is difficult to predict how long such depreciation of RMB against the
U.S. dollar may last. However, any significant depreciation in the exchange rates of the RMB against the U.S. dollar could adversely affect the value of any dividends paid by us to our shareholders,
which would be funded by RMB but paid in U.S. dollars. There can be no assurance that any future movements in the exchange rate of the RMB against the U.S. dollar or other foreign currencies will
not adversely affect our results of operations and financial condition (including our ability to pay dividends). A significant depreciation in the RMB against major foreign currencies may have a material
adverse impact on our results of operations, financial condition and share price because our reporting currency is the U.S. dollar and our ADSs are expected to be quoted in U.S. dollars, whereas our
revenues, costs and expenses are largely denominated in RMB.
Interest Rate Risk
The cost of financing is sensitive to fluctuations in interest rates. Our bank borrowings bear interest at variable rates, and an increase in interest rates would increase our costs there under. Our net
income is affected by changes in interest rates as a result of the impact such changes have on interest income from, and interest expense on, short-term deposits and other interest-bearing financial assets
and liabilities. In addition, our sales are also sensitive to fluctuations in interest rates. An increase in interest rates would adversely affect our prospective purchasers’ ability to obtain financing and
depress the overall housing demand. Higher interest rates, therefore, may adversely affect our revenues, gross profits and net income, and our ability to raise and service debt and to finance our
developments.
In addition, on July 27, 2017, the United Kingdom Financial Conduct Authority, which regulates London Interbank Offered Rate (“LIBOR”), announced that it will no longer require banks to
submit rates for the calculation of LIBOR to the LIBOR administrator after 2021, and it is anticipated that LIBOR will be phased out and replaced by 2022. While various replacement reference rates
have been proposed, an alternative reference rate to LIBOR has not yet been widely adopted. As such, the replacement of LIBOR could have an adverse effect on the market for, or value of, LIBOR-
linked financial instruments.
Our indebtedness consists primarily of short-term and long-term bank borrowings, secured debt and onshore corporate bonds. As of December 31, 2019, we had US$73.4 million of short-term
borrowings, with US$53.5 million denominated in RMB, US$19.9 million denominated in U.S. dollar, which bear interest rates ranging from 3.5% per annum to12% per annum, with a weighted
average interest rate at such date of 8.3%. US$28.5 million of short-term loan bear of floating interest rates, which are based on 137% of PBOC benchmark rates and Libor benchmark rates in the
following years. US$836.8 million of long-term bank loans, including current portions of long-term bank loans, bear floating interest rates, which are based on 100.00% to 210.53% of PBOC
benchmark rates in the following years. US$140.8 million of long-term debt, including current portions of long-term debt bear floating interest rates, which are based on Libor benchmark rates in the
following years. The PBOC regulates the interest rates of our Renminbi-denominated borrowings. The PBOC-published benchmark one-year lending rate in China, which directly affects the property
mortgage rates offered by commercial banks in China, as at December 31, 2017, 2018 and 2019 was 4.35%, 4.35% and 4.35%, respectively. As of December 31, 2019, the principal amount of our
aggregate outstanding variable rate debt, including long-term bank loans, was US$1,006.1 million. A hypothetical 1.00% increase in annual interest rates would increase our interest cost by
approximately US$10.1 million per year based on our debt level at December 31, 2019. The senior secured notes and other debt, except the above-mentioned US$140.8 million of floating rate debt, bear
fixed interest rates and therefore, interest rate risk is low.
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Credit Risk
We provide guarantees to mortgage lending banks in respect of the mortgage loans provided to the purchasers of our properties in the PRC up until completion of the registration of the mortgage
with the relevant authorities, which generally occurs within six to 12 months after the purchaser takes possession of the relevant properties. If a purchaser defaults under the loan while our guarantee is
in effect and we repay all debt owed by the purchaser to the mortgagee bank under the loan, the mortgagee bank must assign its rights under the loan and the mortgage to us and, after the registration of
the mortgage, we will have full recourse to the property. In line with what we believe is industry practice, we do not conduct independent credit checks on our customers but rely on the credit checks
conducted by the mortgagee banks.
As of December 31, 2019, we had outstanding guarantees of mortgages in the principal amount of US$2,617.2 million. If a purchaser defaults on the payment of its mortgage during the term of the
guarantee, the mortgage lending bank may require us to repay the outstanding amount under the loan plus any accrued interest. In this event, although we are able to retain the customer’s deposit and
sell the property to recover any amounts paid by us to the bank, there can be no assurance that we would be able to sell the property at a price equal to or greater than the amount we paid on the
defaulting purchaser’s outstanding loan amount and any accrued interest thereon. We paid US$1.8 million to satisfy guarantee obligations related to customer defaults for the year ended December 31,
2019.
During parts of 2011 and 2012 we offered certain homebuyers seller-financing arrangements. All the homebuyers entered into such arrangement were subject to credit verification procedures. In
addition, accounts receivable balances are unsecured, but monitored on an ongoing basis via our management reporting procedures. We provided longer payment terms, ranging between six months to
two years to particular home buyers after applying strict credit requirements based on our credit policy. In the second half of 2012, execution of seller-financed contracts dropped significantly. From the
fourth quarter of 2012, we stopped offering seller-financed contracts to second home buyers. Commencing in the second quarter of 2014, the Group again offer seller-financed contracts. As of
December 31, 2018 and 2019, there was no concentration of credit risk with respect to receivables and we do not have a significant exposure to any individual debtor. Since 2013, PRC banks have
tightened the distributions of mortgage loans to homebuyers. Therefore, mortgage loans for homebuyers have been subject to longer processing periods or even denied by the banks. We took the
position that the processing periods of the contracts with underlying mortgage loans exceeding one year cannot be recognized as revenue on an over time basis.
As of December 31, 2019, our cash and cash equivalents totaled US$808.1 million and restricted cash totaled US$181.5 million, predominately deposited in accounts maintained with state-owned
bank within the PRC. We have not experienced any losses in such accounts and management believes it is not exposed to any risks on its cash in bank accounts.
Inflation
Inflation has not had a significant effect on our business during the past three years. According to the National Bureau of Statistics of China, China’s overall national inflation rate, as represented by
the general consumer price index, was approximately 1.6%, 2.1% and 2.9% in 2017, 2018 and 2019, respectively. Deflation could negatively affect our business as it would be a disincentive for
prospective property buyers to make a purchase. As of the date of this annual report, we have not been materially affected by any inflation or deflation.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Our common shares, in the form of ADSs, each representing two common shares, are listed on the NYSE. JPMorgan Chase Bank, N.A. serves as the depositary for the ADSs. JPMorgan Chase
Bank, N.A.’s principal executive office is located at 4 New York Plaza, Floor 12, New York, New York, 10004.
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and other
distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or
deposited securities, and each person surrendering ADSs for withdrawal of deposited securities in any manner permitted by the deposit agreement, US$5.00 for each 100 ADSs (or any portion thereof)
issued, delivered, reduced, cancelled or surrendered, as the case may be. ADSs are represented and evidenced by American depositary receipts, or ADRs.
140
The depositary may charge the following the additional amounts to ADR holders:
•
•
•
•
•
•
•
•
•
•
a fee of US$0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the deposit agreement;
a fee of US$1.50 per ADR or ADRs for transfers pursuant to the deposit agreement;
an aggregate fee of up to US$0.05 per ADS (or portion thereof) per calendar year for services performed by the depositary in administering our ADR program;
any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection with the
servicing of our shares or other deposited securities;
a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs which
would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are
instead distributed by the depositary to those holders entitled thereto;
stock transfer or other taxes and other governmental charges;
SWIFT, cable, telex and facsimile transmission and delivery charges incurred upon request of an ADR holder;
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities;
expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and
such fees and expenses as are incurred by the depositary (including without limitation expenses incurred in connection with compliance with foreign exchange control regulations or any law or
regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable laws, rules or
regulations.
The fees described above may be amended from time to time.
The depositary collects its fees for issuance and cancellation of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for
them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The
depositary may collect its annual fee for depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry system accounts of participants acting for
them. The depositary may generally refuse to provide services to any holder until the fees and expenses owing by such holder for those services or otherwise are paid.
ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADR holder owes any tax or
other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities and deduct the amount owing from the net proceeds of such sale.
In either case the ADR holder remains liable for any shortfall. Additionally, if any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer,
split-up or combination of deposited securities or withdrawal of deposited securities (except under limited circumstances mandated by securities regulations). If any tax or governmental charge is
required to be withheld on any non-cash distribution, the depositary may sell the distributed property or securities to pay such taxes and distribute any remaining net proceeds to the ADR holders
entitled thereto.
The depositary may remit to us all or a portion of the depositary fees charged for the reimbursement of certain of the expenses we incur in respect of the ADS program established pursuant to the
deposit agreement upon such terms and conditions as we may agree from time to time. In the year ended December 31, 2019, the depositary reimbursed US$-19,307 with respect to certain fees and
expenses.
141
The table below sets forth the types of expenses that the depositary has agreed to reimburse and the amounts reimbursed in 2019:
Category of Expenses
Investor relations marketing
Legal
Total
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
PART II
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Amount
Reimbursed in the
Year Ended
December 31, 2019
(US$)
-
-
-
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures
within the meaning of Rule 13a-15(e) of the Exchange Act as of the end of the period covered by this report. Based on such evaluation, our management has concluded that, as of the end of the period
covered by this annual report, our disclosure controls and procedures were effective to ensure that information required to be disclosed by our company in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported within the time period specified in the SEC rules and forms, and (ii) accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Report of Management on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Rule 13(a)-15(f) and 15(d)-15(f) of the Exchange Act. Our
internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial
statements.
142
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the
framework in Internal Control-Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control-Integrated Framework (2013 Framework), our management concluded that, as of December 31, 2019, our internal control over financial reporting was effective to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Ernst & Young Hua Ming LLP, an independent registered public accounting firm, as
stated in their attestation report thereon which appears herein.
Changes in Internal Control over Financial Reporting
During the year ended December 31, 2019, there were no changes in our internal control over financial reporting that occurred during the period covered by the report for the year ended December
31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Xinyuan Real Estate Co., Ltd.
Opinion on Internal Control over Financial Reporting
We have audited Xinyuan Real Estate Co., Ltd. and subsidiaries’ internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Xinyuan Real Estate Co., Ltd. and subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2019
and 2018, the related consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the
related notes and our report dated April 29, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
143
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young Hua Ming LLP
Beijing, the People’s Republic of China
April 29, 2020
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
PART III
Our board of directors has determined that Mr. Thomas Gurnee, the chairman of our audit committee, qualifies as an audit committee financial expert under applicable SEC rules.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics that pertains to our directors, officers and employees with certain provisions that specifically apply to our Chief Executive
Officer, Chief Financial Officer, Vice Presidents and any other persons who perform similar functions for us. Our code of business conduct and ethics is available at our website at www.xyre.com.
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Ernst & Young Hua Ming LLP, our independent
registered public accounting firm, and its affiliate firms for the periods indicated:
Audit fees (1)
Audit-related fees (2)
Tax fees (3)
All other fees (4)
2018
US$
1,330,954
329,714
–
–
2019
US$
1,797,961
130,497
47,849
399,466
(1) “Audit fees” represent the aggregate fees billed in each of the fiscal year for the audit of financial statements of the Company and the limited quarterly procedures. In 2019, the audit fees billed
included the audit of financial statements of the Company’s subsidiary, Xinyuan Property Management Service (Cayman) Ltd, for its Hong Kong initial public offering and annual reporting
purpose.
(2) “Audit-related fees” represents aggregate fees billed in respect of review of interim financial statements of Xinyuan Property Management Service (Cayman) Ltd, and issue comfort letter for the
Company’s financing purposes.
(3) Tax fees consist of fees incurred for tax consulting services.
(4) Other fees represents aggregate fees for business advisory and diagnosis services.
144
All audit and non-audit services provided by our independent auditor must be pre-approved by our audit committee. Our audit committee has adopted a project-by-project approach in pre-approving
proposed services. All requests or applications for services to be provided by our independent auditor require a detailed description of the services to be rendered and will be presented to our audit
committee for pre-approval.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
None.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
Effective March 21, 2017, our board of directors approved a new US$40 million share repurchase program through December 2019 (the “2017 Authorization”) to be effective upon the earlier of
completion or expiration of the US$40 million share repurchase program effective December 28, 2015 through December 2017. Effective August 14, 2018, our board of directors approved a new
additional US$50 million share repurchase program through December 2019 (the “2018 Authorization”).
Effective May 20, 2019, our board of directors approved a new additional US$50 million share repurchase program through December 2021 (the “2019 Authorization”). This program will be
funded from available working capital. Repurchases under the 2019 Authorization will be made from time to time through a combination of open market and privately negotiated transactions. The per
share price cap will be determined from time to time in the discretion of management.
The following table sets forth a summary of our repurchase of our ADSs made from January 1, 2019 to December 31, 2019:
Period(1)
January 1 - January 31
February 1 - February 28
March 1 - March 31
April 1 - April 30
May 1 - May 31
June 1 through June 30
July 1 through July 31
August 1 through August 31
September 1 through September 30
October 1 through October 31
November 1 through November 30
December 1 through December 31
Total
(1) Our ADS to common share ratio is one ADS for two common shares.
Total Number of
ADSs Purchased
Average Price
Paid Per ADS
(US$)
Total Number of
ADSs Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate U.S.
Dollar Value of ADSs
that May Yet Be
Purchased Under the
Plans or Programs
4.52
4.94
4.81
4.80
4.47
4.46
4.28
4.20
4.21
4.10
3.93
3.89
4.45
704,957
524,223
940,196
686,461
412,956
259,863
277,769
389,507
362,223
298,741
518,335
482,438
5,857,669
62,886,055
60,298,364
55,779,724
52,487,704
100,639,748
99,479,855
98,290,191
96,655,342
95,130,765
93,906,877
91,867,917
50,000,000
50,000,000
704,957
524,223
940,196
686,461
412,956
259,863
277,769
389,507
362,223
298,741
518,335
482,438
5,857,669
145
Effective January 20, 2020, the board of directors approved a new bond repurchase program of up to US$50 million. The new authorization is valid through December 31, 2021, and replaces the
prior bond repurchase authorization that expired December 31, 2019. Under the program, bonds will be selected for repurchase at the Company’s discretion, based on price, timing and other
considerations. Repurchases under this program will be made through a combination of open market and privately negotiated transactions.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 16G. CORPORATE GOVERNANCE
Our ADSs are listed on the NYSE and we are therefore subject to corporate governance requirements of the NYSE. We are incorporated in the Cayman Islands and thus our corporate governance
practices are also governed by applicable Cayman Islands law. Under Section 303A of the NYSE Listed Company Manual, NYSE-listed non-U.S. companies may, in general, follow their home country
corporate governance practices in lieu of some of the NYSE corporate governance requirements.
146
The NYSE Listed Company Manual requires that the board of directors of a listed company consist of a majority of independent directors, as defined by the NYSE from time to time. The corporate
governance practice in our home country, the Cayman Islands, does not require a majority of directors of a corporation to be independent. As of the date of this annual report, the majority of our
directors are not independent directors as defined by the NYSE. Our board is currently composed of ten directors, two of whom are current officers of the Company or one of its subsidiaries, and three
of whom was formerly an executive officer of our Company within the past three years. Under NYSE rules, all non-management directors are required to meet periodically in executive session, without
any members of management present. The corporate governance practice in our home country does not require such meetings and, accordingly, our non-management directors do not meet in executive
session.
The NYSE Listed Company Manual requires each issuer to have a nominating and corporate governance committee and a compensation committee composed entirely of independent directors. In
addition, each of those committees must have a written charter setting out, at a minimum, certain prescribed duties. The corporate governance practice in our home country, the Cayman Islands, does not
require the implementation of a compensation committee, nor a nominating and corporate governance committee, nor does it require any such committees to be comprised solely of independent
directors. We have established a separate compensation committee and a nominating and corporate governance committee. However, neither of the committees consists solely of independent directors.
Each committee has a written charter which is available on our corporate website. However, the committees have not adopted and implemented all of the duties prescribed for such committee by the
NYSE.
The NYSE Listed Company Manual requires listed companies to have an audit committee that satisfies the requirements of Section 10A of the Exchange Act. As a foreign private issuer, we are not
required to comply with certain other NYSE rules related to audit committees, including the requirements to have a minimum of three members and that the members satisfy the additional
“independence” standards of Section 303A.02 of the New York Stock Exchange Listed Company Manual. Our audit committee has, as of the date of this annual report, three members, each of whom
satisfies the “independence” requirements of Rule 10A-3 under the Exchange Act, and one such member qualifies as an “audit committee financial expert” under applicable SEC rules.
In addition to the board governance rules described above, the NYSE Listed Company Manual requires shareholder action in connection with certain share issuances by a listed company.
Specifically, shareholder approval is required in connection with an issuance of an amount of equity securities equal to or greater than 20% of the outstanding voting power or equity interest of the
company, subject to limited exceptions. Shareholder approval is also required for the adoption of or material revision to an equity compensation plan, which is defined as a plan or other arrangement that
provide for the delivery of equity securities of the company to any employee, director or other service provider as compensation for services. Our home country corporate governance does not require
shareholder action in either situation and, accordingly, such actions may be and are taken on behalf of our company with just board or board committee action.
ITEM 16H. MINE SAFETY
Not applicable.
ITEM 17.
FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18.
FINANCIAL STATEMENTS
The consolidated financial statements of Xinyuan Real Estate Co., Ltd. are included at the end of this annual report.
147
ITEM 19. EXHIBITS
Exhibit
Number
1.1
1.2
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
Description of Document
Amended and Restated Memorandum and Articles of Association of Xinyuan Real Estate Co., Ltd. (incorporated by reference to Exhibit 3.1 to the registrant’s F-1 registration
statement (File No. 333-147477), as amended, initially filed with the SEC on November 16, 2007)
Amendment to Amended and Restated Articles of Association of Xinyuan Real Estate Co., Ltd. (incorporated by reference to Exhibit 99.5 to the registrant’s Form 6-K (File No. 001-
33863) filed with the SEC on December 10, 2009)
Deposit Agreement, dated as of December 11, 2007, among Xinyuan Real Estate Co., Ltd., JPMorgan Chase Bank, N.A., as depositary, and holders of American Depositary Shares
(incorporated by reference to Exhibit 2.5 to Amendment No. 1. to the registrant’s annual report (File No. 001-33863), as amended, initially filed with the SEC on September 29, 2009)
Amendment to Deposit Agreement, including the form of ADR, dated November 9, 2017 (incorporated by reference to Exhibit 99.(a)(2) to the registrant’s F-6EF (File No. 333-
221449) filed with the SEC on November 9, 2017)
Indenture, dated as of December 6, 2013, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule 1 thereto as Subsidiary Guarantors, and Citicorp International Limited,
as Trustee and Shared Security Agreement (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on December 9, 2013)
Indenture Supplement No. 1 dated as of February 13, 2015, among Citicorp International Limited as Trustee, Citicorp International Limited as Shared Security Agent, Xinyuan Real
Estate Co., Ltd. and the entities listed in Schedules I thereto as the Subsidiary Guarantors to the Indenture, dated as of May 3, 2013 with respect to the registrant’s 13% June 2019
Senior Secured Notes (incorporated by reference to Exhibit 99.2 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on February 13, 2015)
Indenture Supplement No. 2, dated as of February 3, 2016, among Citicorp International Limited as Trustee, Citicorp International Limited as Shared Security Agent, Xinyuan Real
Estate Co., Ltd. and the entities listed in Schedule I as the Subsidiary Guarantors, to the Indenture, dated as of December 6, 2013, with respect to the registrant’s 13% June 2019 Senior
Secured Notes (incorporated by reference to Exhibit 99.3 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on February 3, 2016)
Global note representing the 13% June 2019 Senior Secured Notes (US$200,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s Form 6-
K (File No. 00133863) filed with the SEC on December 9, 2013)
Indenture, dated as of August 30, 2016, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors, and Citicorp International Limited, as
Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 00133863) filed with the SEC on August 30, 2016)
Global note representing the 8.125% August 2019 Senior Secured Notes (US$300,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s
Form 6-K (File No. 00133863) filed with the SEC on August 30, 2016)
148
Exhibit
Number
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
2.17
2.18
Description of Document
Indenture, dated as of February 28, 2017, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors, and Citicorp International Limited,
as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 00133863) filed with the SEC on February 28, 2017)
Global note representing the 7.75% February 2021 Senior Secured Notes (US$300,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s
Form 6-K (File No. 00133863) filed with the SEC on February 28, 2017)
Indenture, dated as of November 22, 2017, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors, and Citicorp International
Limited, as Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on November 22, 2017)
Global note representing 8.875% Senior Notes due 2020 (US$200,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s Form 6-K (File
No. 001-33863) filed with the SEC on November 22, 2017)
Global note representing 8.875% Senior Notes due 2020 (US$100,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s Form 6-K (File
No. 001-33863) filed with the SEC on December 4, 2017)
Indenture, dated as of March 19, 2018, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors, and Citicorp International Limited, as
Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on March 19, 2018)
Global note representing 9.875% Senior Notes due 2020 (US$200,000,000 aggregate principal amount) (incorporated by reference to Exhibit 99.2 to the registrant’s Form 6-K (File
No. 001-33863) filed with the SEC on March 19, 2018)
Indenture, dated as of April 15, 2019, between Xinyuan Real Estate Co., Ltd., the entities listed on Schedule I thereto as Subsidiary Guarantors, and Citicorp International Limited, as
Trustee and Shared Security Agent (incorporated by reference to Exhibit 99.1 to the registrant’s Form 6-K (File No. 001-33863) filed with the SEC on April 18, 2019
Global note representing 14.2% Senior Notes due 2021 (US $200,000,000 aggregate principal amount) (incorporated by reference to Exhibit 2.17 to the registrant’s Form 20-F(File
No. 001-33863) filed with the SEC on April 29, 2019).
Global note representing 14.2% Senior Notes due 2021 (US $100,000,000 aggregate principal amount) (incorporated by reference to Exhibit 2.18 to the registrant’s Form 20-F(File
No. 001-33863) filed with the SEC on April 29, 2019).
2.19*
Description of Securities
4.2
4.3
4.4
2007 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the registrant’s F-1 registration statement (File No. 333-147477), as amended, initially filed with the SEC
on November 16, 2007)
2014 Restricted Stock Unit Plan (incorporated by reference to Exhibit 4.3 to the registrant’s Annual Report on Form 20-F (File No. 001-33863), filed with the SEC on April 27, 2015)
2015 Stock Option Plan (incorporated by reference to Exhibit 10.1 to the registrant’s Form S-8 (File No. 333-205371) filed with the SEC on June 30, 2015)
149
4.5
4.6
8.1*
11.1
12.1*
12.2*
13.1*
13.2*
23.1*
101*
English Summary of the Capital Lease Agreement dated as of October 23, 2012, by and among MinshengHongtai (Tianjin) Aviation Leasing Co., Ltd., and Henan Xinyuan Real Estate
Co., Ltd. (Original Language: Chinese) (incorporated by reference to Exhibit 4.7 to the registrant’s Annual Report on Form 20-F (File No. 001-33863), filed with the SEC on April 15,
2013)
English Summary of the Guarantee Agreement dated as of October 23, 2012, by and among MinshengHongtai (Tianjin) Aviation Leasing Co., Ltd., Xinyuan (China) Real Estate, Ltd.
and Henan Xinyuan Real Estate Co., Ltd. (Original Language: Chinese) (incorporated by reference to Exhibit 4.8 to the registrant’s Annual Report on Form 20-F for the year ended
December 31, 2012 (File No. 00133863), filed with the SEC on April 15, 2013)
Subsidiaries of Xinyuan Real Estate Co., Ltd.
Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to the registrant’s F-1 registration statement (File No. 333-147477), as amended,
initially filed with the SEC on November 16, 2007)
CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Consent of Ernst & Young Hua Ming LLP
The following materials from Xinyuan Real Estate Co., Ltd.’s Annual Report on Form 20-F for the year ended December 31, 2019 formatted in XBRL (eXtensible Business Reporting
Language): (i) the Condensed Consolidated Statement of Operations, (ii) the Condensed Consolidated Balance Sheet, (iii) the Condensed Consolidated Statement of Stockholders’
Equity, (iv) the Condensed Consolidated Statement of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements.
*
Filed with this Annual Report on Form 20-F
150
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
SIGNATURES
Date: April 29, 2020
151
Xinyuan Real Estate Co., Ltd.
/s/ Yong Zhang
By:
Name: Yong Zhang
Title: Chief Executive Officer
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2018 and 2019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2018 and 2019
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2018 and 2019
Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2017, 2018 and 2019
Notes to Consolidated Financial Statements
F-1
Pages
F-2
F-3
F-5
F-7
F-10
F-11
To the Shareholders and the Board of Directors of Xinyuan Real Estate Co., Ltd.
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Xinyuan Real Estate Co., Ltd. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related
consolidated statements of comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively
referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial
reporting as of December 31, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013
framework), and our report dated April 29, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standards
As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases using the modified retrospective method in 2019 and changed its
method for accounting for revenue using the modified retrospective method in 2018.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young Hua Ming LLP
We have served as the Company's auditor since 2007.
Beijing, the People's Republic of China
April 29, 2020
F-2
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ALL amounts stated in US$, except for number of shares data)
Notes
December 31,
2018
US$
December 31,
2019
US$
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Short-term investments
Accounts receivable
Other receivables
Deposits for land use rights
Other deposits and prepayments
Advances to suppliers
Real estate properties development completed
Real estate properties under development (including real estate properties under development of the consolidated
variable interest entities ("VIEs") to be used only to settle obligations of the VIEs of US$166,327,833 and nil as of
December 31, 2018 and December 31, 2019, respectively)
Amounts due from related parties
Amounts due from employees
Other current assets
Total current assets
Restricted cash, non-current
Real estate properties held for lease, net
Deposits for land use rights and properties
Property and equipment, net
Long-term investment
Deferred tax assets
Amounts due from related parties
Contract assets
Operating lease right-of-use assets
Other assets
TOTAL ASSETS
F-3
3
4
5
5
18
18
6
7
8
15
18
13
674,141,554
511,874,925
8,442,063
64,129,969
166,632,745
42,254,342
257,287,874
46,983,182
632,359,691
4,068,716,308
216,184,205
1,694,416
520,391
662,606,063
326,980,363
5,595,625
97,911,510
287,300,176
26,375,391
277,463,137
44,357,799
458,204,518
3,254,387,749
200,757,623
2,350,852
772,303
6,691,221,665
5,645,063,109
—
302,764,217
21,855,694
38,114,483
564,340,219
230,452,674
26,122,186
21,779,221
—
137,062,313
112,998,481
515,868,908
32,969,258
43,004,379
613,619,925
260,153,439
82,687,026
23,093,235
11,801,491
80,405,182
8,033,712,672
7,421,664,433
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(ALL amounts stated in US$, except for number of shares data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and notes payable (including accounts payable and notes payable of the VIEs without recourse to the
primary beneficiary of US$2,489,669 and US$431,883 as of December 31, 2018 and December 31, 2019, respectively)
Short-term bank loans and other debt
Customer deposits
Income tax payable
Other payables and accrued liabilities (including other payables and accrued liabilities of the VIEs without recourse to
the primary beneficiary of US$3,767,049 and US$854,814 as of December 31, 2018 and December 31, 2019,
respectively)
Payroll and welfare payable (including payroll and welfare payable of the VIEs without recourse to the primary
beneficiary of US$2,263,756 and US$772,009 as of December 31, 2018 and December 31, 2019, respectively)
Current portion of long-term bank loans and other debt
Lease liability, current portion
Mandatorily redeemable non-controlling interests
Amounts due to related parties
Total current liabilities
Long-term bank loans
Deferred tax liabilities
Unrecognized tax benefits
Other long-term debt
Lease liability
Amounts due to related parties
Total liabilities
Commitments and contingencies
Shareholders' equity
Common shares, US$0.0001 par value:
Authorized-500,000,000 shares; shares issued and outstanding- 107,875,468 shares as of December 31, 2019
(December 31, 2018: 119,805,636 shares)
Treasury shares
Additional paid-in capital
Statutory reserves
Retained earnings
Accumulated other comprehensive loss
Total Xinyuan Real Estate Co., Ltd. shareholders' equity
Non-controlling interest
Total equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
Notes
10
14
17
11, 12
13
18
18
11
15
15
12
13
18
22
19
19
24
December 31,
2018
US$
December 31,
2019
US$
790,631,410
43,711,388
1,921,851,255
213,272,832
1,166,659,841
73,419,108
1,106,098,647
298,227,606
341,107,500
323,163,994
33,752,390
1,647,918,456
6,562,425
22,558,686
48,502,441
24,223,625
1,418,955,459
11,283,724
8,857,212
53,682,296
5,069,868,783
4,484,571,512
720,038,940
370,508,807
45,939,234
1,040,455,200
10,014,791
31,241,768
686,064,696
338,592,787
73,605,084
1,036,690,627
10,187,705
—
7,288,067,523
6,629,712,411
16,399
(87,639,088)
532,117,479
166,495,744
99,502,126
(30,122,179)
16,410
(113,719,964)
543,290,577
175,008,459
135,873,163
(50,167,006)
680,370,481
690,301,639
65,274,668
101,650,383
745,645,149
791,952,022
8,033,712,672
7,421,664,433
The accompanying notes are an integral part of these consolidated financial statements.
F-4
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
Notes
12
3
8
15
2017
US$
1,924,560,806
41,738,319
8,732,799
1,875,307
Year ended December 31
2018
US$
2,139,370,792
63,447,420
9,584,972
5,148,101
2019
US$
2,387,031,568
67,488,169
16,128,771
11,984,304
1,976,907,231
2,217,551,285
2,482,632,812
(1,474,067,213)
(31,646,448)
(11,006,122)
(559,235)
(1,543,974,061)
(44,619,783)
(9,348,616)
(4,130,523)
(1,851,819,293)
(40,889,231)
(12,757,251)
(16,857,416)
(1,517,279,018)
(1,602,072,983)
(1,922,323,191)
459,628,213
(75,723,717)
(136,844,741)
247,059,755
16,859,086
(66,153,440)
(15,879,702)
9,969,966
(1,710,070)
756,926
2,326,010
193,228,531
(113,117,126)
80,111,405
(16,483,854)
615,478,302
(83,591,651)
(156,456,170)
375,430,481
31,225,694
(99,245,696)
(21,443,949)
(2,256,890)
(9,374,451)
(25,677,654)
1,741,732
250,399,267
(144,447,247)
105,952,020
(32,917,471)
560,309,621
(86,760,620)
(163,686,999)
309,862,002
51,493,595
(113,775,360)
(8,580,510)
1,451,200
(5,416,471)
(7,376,009)
5,848,727
233,507,174
(150,478,372)
83,028,802
(14,684,275)
Revenue:
Real estate sales
Real estate management services income
Real estate lease income
Other revenue
Total revenue
Costs of revenue:
Cost of real estate sales
Cost of real estate management services income
Cost of real estate lease income
Other costs
Total costs of revenue
Gross profit
Selling and distribution expenses
General and administrative expenses
Operating income
Interest income
Interest expense
Net loss on debt extinguishment
Gain/ (loss) on short-term investments
Share of loss of equity investees
Exchange gain/ (loss)
Other income
Income from operations before income taxes
Income taxes
Net income
Net income attributable to non-controlling interest
Net income attributable to Xinyuan Real Estate Co., Ltd. shareholders
63,627,551
73,034,549
68,344,527
F-5
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
Earnings per share:
Basic
Diluted
Shares used in computation:
Basic
Diluted
Other comprehensive income/(loss), net of tax of nil
Foreign currency translation adjustments
Comprehensive income
Comprehensive income attributable to non-controlling interest
20
20
20
20
0.49
0.48
0.57
0.57
0.60
0.60
128,704,610
131,605,869
127,129,478
129,140,830
113,482,239
114,100,896
66,062,603
(59,759,616)
(21,079,940)
146,174,008
(18,637,833)
46,192,404
(32,505,770)
61,948,862
(13,649,162)
Comprehensive income attributable to Xinyuan Real Estate Co., Ltd. shareholders
127,536,175
13,686,634
48,299,700
The accompanying notes are an integral part of these consolidated financial statements
F-6
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Depreciation and amortization
Stock-based compensation expenses
Deferred tax benefit
Amortization of deferred charges
Share of loss of equity investees
Exchange (gain)/loss
Changes in unrecognized tax benefit
Loss on extinguishment of debt (Note 12)
(Gain)/loss on short-term investments
Proceeds from disposal of short-term investments
Purchase of short-term investments
Gain from re-measurement of previously held interest upon acquisition (Note 9)
Allowance for doubtful accounts
Others
Changes in operating assets and liabilities:
Accounts receivable
Real estate properties development completed
Real estate properties under development
Contract assets
Real estate properties held for lease
Advances to suppliers
Other receivables
Deposits for land use rights
Other deposits and prepayments
Other current assets
Amounts due from related parties
Amounts due from employees
Other assets
Accounts payable
Customer deposits
Income tax payable
Other payables and accrued liabilities
Payroll and welfare payable
Net cash (used in) /provided by operating activities
2017
US$
Year ended December 31
2018
US$
2019
US$
80,111,405
105,952,020
83,028,802
13,727,526
4,894,478
(35,587,912)
6,049,202
1,710,070
(756,926)
10,737,387
15,879,702
(9,969,966)
178,849,628
(186,062,974)
—
7,067,288
1,327,529
(63,691,438)
(355,551,919)
151,787,433
—
(111,952,749)
(7,335,343)
(47,195,272)
(180,359,751)
275,227,746
(2,783,559)
(128,319,422)
(1,465,840)
(16,415,381)
131,546,280
269,509,197
40,872,077
91,455,504
6,408,972
139,712,972
15,132,875
3,382,628
(60,602,166)
12,182,821
9,374,451
25,677,654
14,707,858
21,443,949
2,256,890
77,788,586
(26,673,525)
(4,384,563)
3,016,234
1,985,331
36,940,910
232,507,523
(67,338,946)
(6,420,339)
(47,051,796)
(8,205,641)
(118,383,454)
(452,147,524)
(13,203,444)
4,174,280
(104,487,109)
389,697
(94,969,524)
127,227,761
264,194,597
88,808,505
(73,276,156)
7,097,694
(22,901,923)
17,584,443
5,621,588
(54,775,461)
7,725,283
5,416,471
7,376,009
27,665,850
8,580,510
(1,451,200)
12,897,025
(2,955,227)
—
982,936
1,661,626
(37,591,293)
(61,364,418)
914,886,994
(1,684,741)
(151,516,852)
1,455,322
(81,286,710)
3,400,084
(23,464,588)
(606,623)
(118,854,682)
(318,601)
3,414,909
392,316,329
(747,887,702)
89,454,632
(18,090,325)
(9,363,632)
272,256,758
The accompanying notes are an integral part of these consolidated financial statements.
F-7
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of properties held for lease and property and equipment
Purchase of property and equipment
Acquisition of subsidiaries, net of cash acquired (Note 9)
Acquisition of long-term investment
Return of capital
2017
US$
Year ended December 31
2018
US$
425,850
(5,565,513)
—
(822,029,106)
—
330,773
(9,132,946)
11,761,992
(127,031,797)
158,634,902
2019
US$
1,111,556
(5,510,126)
827,011
(50,546,390)
11,087,850
Net cash (used in)/provided by investing activities
(827,168,769)
34,562,924
(43,030,099)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options
Repurchase of shares for Restricted Stock Unit ("RSU") plan
Purchase of treasury shares (Note 19)
Dividends to shareholders
Amounts due to related parties
Repayments of short-term bank loans and current portion of long-term bank loans
Proceeds from short-term bank loans and current portion of long-term bank loans
Repayment of long-term bank loans
Proceeds from long-term bank loans
Repayment of other short-term debt
Proceeds from other short-term debt
Repayment of other long-term debt
Proceeds from other long-term debt
Payment of financing cost
Payment of principal from finance lease
Repayment of mandatorily redeemable non-controlling interests
Proceeds from mandatorily redeemable non-controlling interests
Contributions from (distributions to) non-controlling interests, net
6,111,912
—
(14,058,280)
(26,090,734)
82,725,874
(51,330,241)
256,681,062
(14,780,892)
10,659,297
(516,320,358)
884,488,867
(236,322,138)
788,220,956
(36,254,595)
(4,196,345)
(12,954,007)
14,210,916
23,687,327
1,390,666
(7,768,139)
(19,846,720)
(25,739,147)
(79,846,860)
(201,583,103)
310,137,935
(65,519,223)
337,961,266
(943,033,901)
407,755,830
(218,895,920)
339,551,378
(16,574,059)
(7,521,441)
(2,447,140)
8,720,772
(6,323,476)
166,480
(2,920,216)
(26,080,876)
(19,647,356)
(25,024,684)
(388,922,839)
84,837,579
(9,156,553)
255,750,791
(1,216,629,289)
125,131,566
(233,164,117)
1,170,084,599
(4,304,339)
(6,135,547)
(15,394,847)
1,905,049
31,031,810
Net cash provided by/(used in) financing activities
1,154,478,621
(189,581,282)
(278,472,789)
NET INCREASE/(DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
467,022,824
(177,920,281)
(49,246,130)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
87,460,916
(97,290,417)
(34,185,442)
F-8
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
Cash, cash equivalents and restricted cash, at beginning of year
906,743,437
1,461,227,177
1,186,016,479
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, AT END OF YEAR
1,461,227,177
1,186,016,479
1,102,584,907
SUPPLEMENTARY INFORMATION ON CASH FLOWS
Cash and cash equivalents
Restricted cash
Incomes taxes paid
Interest paid
NON-CASH ACTIVITIES
Non-controlling interest arising from asset acquisitions
Purchase consideration payables
Debt extinguishment costs included in other payables and accrued liabilities
Settlement of due from related parties as a result of business combination
Initial recognition of leases
894,551,480
566,675,697
112,460,711
223,541,763
5,193,097
70,460,343
—
—
674,141,554
511,874,925
147,809,372
284,624,926
—
75,565,148
13,761,966
—
—
662,606,063
439,978,844
130,853,782
293,543,976
—
—
5,612,697
48,761,943
11,278,234
The accompanying notes are an integral part of these consolidated financial statements.
F-9
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the years ended December 31, 2017, 2018, 2019
(ALL amounts stated in US$, except for number of shares data)
BALANCE AT DECEMBER 31, 2016
Capital injection from non-controlling interests
Exercise of share options
Treasury share repurchases
Shares repurchased under RSU plan
Foreign currency translation
Stock-based compensation expenses
Net income
Appropriation to statutory reserves
Dividends to shareholders
BALANCE AT DECEMBER 31, 2017
Adjustment to opening balance of equity (2(h))
Capital injection from non-controlling interests
Acquisition of non-controlling interests
Exercise of share options
Treasury share repurchases (Note 19)
Shares repurchased under RSU plan
Foreign currency translation
Stock-based compensation expenses
Net income
Appropriation to statutory reserves
Dividends to shareholders
Dividends to non-controlling interests
BALANCE AT DECEMBER 31, 2018
Capital injection from non-controlling interests(note(a))
Acquisition of non-controlling interests
Exercise of share options
Treasury share repurchases (Note 19)
Shares repurchased under RSU plan
Foreign currency translation
Stock-based compensation expenses
Net income
Appropriation to statutory reserves
Dividends to shareholders
Dividends to non-controlling interests
BALANCE AT DECEMBER 31, 2019
Number
of Shares
131,426,741
—
2,631,928
(5,481,846)
—
—
1,001,853
—
—
—
129,578,676
—
—
846,588
(8,984,626)
(3,089,050)
—
1,454,048
—
—
—
—
119,805,636
—
108,000
(11,715,338)
(1,438,076)
—
1,115,246
—
—
—
—
107,875,468
Common
Shares
US$
16,051
—
263
—
—
—
—
—
—
16,314
—
—
85
—
—
—
—
—
—
—
16,399
—
11
—
—
—
—
—
—
—
—
16,410
Treasury
Shares
US$
Additional
Paid-in
Capital
US$
(53,734,088) 538,414,246
—
4,255,657
—
(14,058,280)
—
—
—
—
—
—
—
—
—
4,154,255
—
—
—
(67,792,368) 543,338,206
—
—
—
—
(3,485,952)
(12,056,879)
1,390,581
—
(3,937,057)
—
(19,846,720)
—
—
—
—
—
—
—
—
3,382,628
—
—
—
—
(87,639,088) 532,117,479
8,305,257
—
166,469
—
(26,080,876)
—
—
(2,920,216)
—
—
—
—
—
—
—
—
5,621,588
—
—
—
—
(113,719,964) 543,290,577
Statutory
Reserves
US$
95,973,296
—
—
—
—
—
—
—
9,686,973
—
105,660,269
—
—
—
—
—
—
—
—
60,835,475
—
—
166,495,744
—
—
—
—
—
—
—
—
8,512,715
—
—
175,008,459
Retained
Earnings
US$
354,273,848
63,627,551
(9,686,973)
(26,090,734)
382,123,692
(269,081,493)
73,034,549
(60,835,475)
(25,739,147)
—
99,502,126
68,344,527
(8,512,715)
(23,460,775)
—
135,873,163
Accumulated
Other
Comprehensive
Income / (Loss)
US$
(34,682,888)
—
—
—
—
63,908,624
—
—
—
—
29,225,736
(9,132,084)
—
—
—
—
(50,215,831)
—
—
—
—
(30,122,179)
—
—
—
—
—
(20,044,827)
—
—
—
—
—
(50,167,006)
note(a) arose from initial public offering of Xinyuan Property Management Service (Cayman) Ltd., a subsidiary of the company.
The accompanying notes are an integral part of these consolidated financial statements.
F-10
Total Xinyuan Real
Estate Co., Ltd.
shareholders'
equity
US$
900,260,465
—
4,255,920
(14,058,280)
(3,485,952)
63,908,624
4,154,255
63,627,551
—
(26,090,734)
992,571,849
(278,213,577)
—
(12,056,879)
1,390,666
(19,846,720)
(3,937,057)
(50,215,831)
3,382,628
73,034,549
—
(25,739,147)
680,370,481
8,305,257
—
166,480
(26,080,876)
(2,920,216)
(20,044,827)
5,621,588
68,344,527
—
(23,460,775)
—
690,301,639
Non-
controlling
Interest
(Note 24)
US$
15,891,713
29,911,731
—
—
—
2,153,979
—
16,483,854
—
—
64,441,277
(37,019,325)
36,698,455
4,169,504
—
—
—
(411,701)
—
32,917,471
—
—
(35,521,013)
65,274,668
24,054,448
(317,406)
—
—
—
(1,035,113)
—
14,684,275
—
—
(1,010,489)
101,650,383
Total
US$
916,152,178
29,911,731
4,255,920
(14,058,280)
(3,485,952)
66,062,603
4,154,255
80,111,405
—
(26,090,734)
1,057,013,126
(315,232,902)
36,698,455
(7,887,375)
1,390,666
(19,846,720)
(3,937,057)
(50,627,532)
3,382,628
105,952,020
—
(25,739,147)
(35,521,013)
745,645,149
32,359,705
(317,406)
166,480
(26,080,876)
(2,920,216)
(21,079,940)
5,621,588
83,028,802
—
(23,460,775)
(1,010,489)
791,952,022
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
1.
Background information of business and organization
Xinyuan Real Estate Co., Ltd. (the "Company") and its subsidiaries (collectively the "Group") are principally engaged in residential real estate development and the provision of property management
services. The Group's operations are conducted mainly in the People's Republic of China ("PRC"). In 2012, the Group expanded its business into the U.S. residential real estate market.
As of December 31, 2019, principal subsidiaries of the Company and its consolidated variable interest entities included the following entities:
Company Name
Subsidiary companies:
Xinyuan International Property Investment Co., Ltd.
Xinyuan International (HK) Property Investment Co., Ltd.
XIN Development Group International Inc.
Xinyuan Real Estate, Ltd.
XIN Development Management East, LLC
XIN NY Holding, LLC
421 Kent Development, LLC
Xinyuan Sailing Co., Ltd.
AWAN Plasma Sdn Bhd
XIN Eco Marine Group Properties Sdn Bhd
Zhengzhou Jiasheng Real Estate Co., Ltd.
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
Cayman Islands
October 6, 2011
Hong Kong
October 26, 2011
United States
November 10, 2011
Cayman Islands
January 27, 2006
United States
August 28, 2012
United States
August 29, 2012
United States
August 29, 2012
Hong Kong
June 21, 2013
Malaysia
April 16, 2007
Malaysia
July 9, 2014
PRC
December 2, 2013
F-11
US$
500,000
100% Investment holding company
HK$
3,000,000
100% Investment holding company
US$
-
100% Investment holding company
US$
50,000,000
100% Investment holding company
US$
1,000
100% Property management services
US$
1,000
100% Investment holding company
US$
1,000
100% Real estate development
HK$
3,000,000
100% Investment holding company
MYR
33,577,000
100% Real estate development
MYR
33,217,000
100% Investment holding company
US$
60,000,000
100% Real estate development
Company Name
Subsidiary companies:
Xinyuan (China) Real Estate, Ltd. ("Xinyuan China")
Henan Xinyuan Real Estate Co., Ltd. ("Henan Xinyuan")
Qingdao Xinyuan Xiangrui Real Estate Co., Ltd.
Shandong Xinyuan Real Estate Co., Ltd.
Xinyuan Property Management Service
(Cayman) Ltd.
Xinyuan Property Management Service (BVI) Ltd
Xinyuan Property Management Service (HK) Limited
Xinyuan Science and Technology Service Group Co., Ltd.
Mingyuan Landscape Engineering Co., Ltd.
Henan Xinyuan Wanzhuo Real Estate Co., Ltd.
Suzhou Xinyuan Real Estate Development Co., Ltd.
Anhui Xinyuan Real Estate Co., Ltd.
Kunshan Xinyuan Real Estate Co., Ltd.
Xinyuan Real Estate (Chengdu) Co., Ltd.
Xuzhou Xinyuan Real Estate Co., Ltd.
Henan Xinyuan Jiye Real Estate Co., Ltd.
Beijing Xinyuan Wanzhong Real Estate Co., Ltd. ("Beijing Wanzhong")
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
PRC
April 10, 2006
PRC
May 19, 1997
PRC
February 9, 2006
PRC
June 2, 2006
Cayman Islands
December 13, 2018
British Virgin Islands
January 2, 2019
HK
January 8, 2019
PRC
December 28, 1998
PRC
February 17, 2004
PRC
December 29, 2011
PRC
November 24, 2006
PRC
December 7, 2006
PRC
January 31, 2008
PRC
June 12, 2007
PRC
November 9, 2009
PRC
November 15, 2009
PRC
March 4, 2008
F-12
US$
307,000,000
100% Investment holding company
RMB
200,000,000
100% Real estate development
RMB
10,000,000
100% Real estate development
RMB
300,000,000
100% Real estate development
HKD
50,000
67.5% Investment holding company
USD
HKD
-
1
67.5% Investment holding company
67.5% Investment holding company
RMB
50,000,000
67.5% Property management services
RMB
50,000,000
Landscaping engineering and
management
100%
RMB
20,000,000
100% Real estate development
RMB
200,000,000
100% Real estate development
RMB
50,000,000
100% Real estate development
RMB
200,000,000
100% Real estate development
RMB
220,000,000
100% Real estate development
RMB
200,000,000
100% Real estate development
RMB
50,000,000
100% Real estate development
RMB
900,000,000
100% Real estate development
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Xinyuan Renju (Beijing) Asset Management Co., Ltd.
Company Name
Beijing Xinyuan Priority Real Estate Consulting Co., Ltd.
Henan Xinyuan Priority Commercial Management Co., Ltd.
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
PRC
January 16, 2009
PRC
March 8, 2012
PRC
August 10, 2012
RMB
30,000,000
100% Management consulting service
RMB
30,000,000
100% Real estate consulting services
RMB
2,000,000
100% Leasing management services
Suzhou Xinyuan Wanzhuo Real Estate Co., Ltd. ("Suzhou Wanzhuo")
(Note 18(a))
PRC
September 20, 2012
RMB
200,000,000
20% Real estate development
Jiangsu Jiajing Real Estate Co., Ltd.
Xingyang Xinyuan Real Estate Co., Ltd.
Jinan Xinyuan Wanzhuo Real Estate Co., Ltd.
PRC
March 28, 2005
PRC
July 25, 2013
PRC
December 4, 2013
RMB
150,000,000
100% Real estate development
RMB
200,000,000
100% Real estate development
RMB
300,000,000
100% Real estate development
Sanya Beida Science and Technology Park Industrial Development
Co., Ltd.
PRC
January 10, 2014
RMB
200,000,000
100% Real estate development
Chengdu Xinyuan Wanzhuo Real Estate Co., Ltd.
Tianjin Xinyuan Real Estate Co., Ltd.
Xi'an Yinghuai Square Commerce Management Co., Ltd.
PRC
February 21, 2014
PRC
September 17, 2014
PRC
November 25, 2014
RMB
50,000,000
100% Real estate development
RMB
100,000,000
100% Real estate development
RMB
3,000,000
100% Retail store
F-13
Company Name
Subsidiary companies:
Changsha Xinyuan Wanzhuo Real Estate Co., Ltd.
Shanghai Junxin Real Estate Co., Ltd.
Beijing Yinghuai Commerce and Trade Co., Ltd.
Beijing Xinhe Investment Development Co., Ltd.
Henan Yinghuai Commerce and Trade Co., Ltd.
Henan Xinyuan Guangsheng Real Estate Co., Ltd.
Shanghai Hexinli Property Management Center. (Limited partnership)
Shandong Xinyuan Renju Real Estate Co., Ltd.
Shaanxi Zhongmao Economy Development Co., Ltd.
421 Kent Holding Co, Ltd.
Hudson 888 Owner LLC
XIN Manhattan Holding LLC
Hudson 888 Holding LLC
Shenzhen Xinchuang Investment Consulting Co., Ltd.
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
PRC
April 3, 2014
PRC
January 16, 2014
PRC
January 5, 2015
PRC
May 5, 2015
PRC
March 23, 2015
PRC
July 27, 2015
PRC
July 28, 2015
PRC
November 19, 2011
PRC
June 22, 1998
United States
May 2, 2014
United States
October 22, 2015
United States
December 9, 2015
United States
December 9, 2015
PRC
January 20, 2016
F-14
RMB
100,000,000
100% Real estate development
RMB
5,000,000
100% Real estate development
RMB
30,000,000
100% Retail store
RMB
5,000,000
100% Investment holding company
RMB
10,000,000
100% Retail store
RMB
200,000,000
100% Real estate development
RMB
10,640,000
100% Property management services
RMB
50,000,000
100% Real estate development
RMB
22,500,000
65.98% Real estate development
US$
1,000
100% Investment holding company
US$
1,000
100% Real estate development
US$
1,000
100% Investment holding company
US$
1,000
100% Investment holding company
RMB
10,000,000
100% Investment
Company Name
Subsidiary companies:
Henan Xinyuan Quansheng Real Estate Co., Ltd.
Zhengzhou Shengdao Real Estate Co., Ltd.
Henan Xinyuan Shunsheng Real Estate Co., Ltd.
Hunan Erli Real Estate Co., Ltd.
XIN Queens Holding LLC
Queens Theatre Holdco LLC
Queens Theatre Owner LLC
Zhengzhou Xinnan Real Estate Co., Ltd.
Xinyan Investment Management Co., Limited.
Hunan Xintian Real Estate Co., Ltd.
Zhengzhou Hangmei Technology Development Co., Ltd.
Zhengzhou Hangmei Zhengxing Technology Co., Ltd. (4)
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
PRC
January 14, 2015
PRC
October 14, 2013
PRC
January 13, 2016
PRC
January 4, 2008
United States
July 6, 2016
United States
July 6, 2016
United States
July 6, 2016
PRC
January 21, 2016
PRC
April 8, 2016
PRC
September 28, 2009
PRC
November 25, 2014
PRC
March 28, 2016
F-15
RMB
40,000,000
100% Real estate development
RMB
20,000,000
100% Real estate development
RMB
30,000,000
100% Real estate development
RMB
50,000,000
100% Real estate development
US$
1,000
100% Investment holding company
US$
1,000
100% Investment holding company
US$
1,000
100% Real estate development
RMB
50,000,000
100% Real estate development
RMB
100,000,000
90% Investment
RMB
20,000,000
100% Real estate development
RMB
50,000,000
51% Real estate development
RMB
50,000,000
30% Real estate consulting services
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
Company Name
Subsidiary companies:
Xi'an Dingrun Real Estate Co., Ltd.
Zhengzhou Kangshengboda Real Estate Co., Ltd.
Xinjiang Xinyuan Renju Equity Investment., Ltd.
Zhuhai Prince Real Estate Co., Ltd.
Henan Renxin Real Estate Co., Ltd. ("Henan Renxin")
Xinchuang Technology Co., Ltd. ("Xinchuang Technology ")
PRC
June 1, 2011
PRC
July 29, 2016
PRC
February 24, 2017
PRC
September 13, 1990
PRC
July 11, 2008
PRC
May 2, 2017
Hangzhou Huiyuan Investment Management Partnership Enterprise.
(Limited partnership)
PRC
May 23, 2017
Guangdong Xinyuan Real Estate Co., Ltd.
PRC
October 18, 2017
Taicang Pengchi Real Estate Co., Limited. ("Taicang Pengchi") (Note
18(a))
PRC
June 16, 2017
Khorgos XinYan Enterprise Management Consulting Co., Ltd.
Hunan Huaiwei Business Management Co., Ltd. (1)
Jinan Xinyuan Quansheng Real Estate Co., Ltd.
PRC
December 4, 2017
PRC
September 13, 2017
The PRC
May 25, 2018
F-16
RMB
20,000,000
100% Real estate development
RMB
50,000,000
100% Real estate development
RMB
10,000,000
100% Real estate consulting services
RMB
307,000,000
100% Real estate development
RMB
200,000,000
51% Real estate development
RMB
100,000,000
100% Management consulting services
RMB
5,000,000
100% Investment holding company
RMB
100,000,000
100% Real estate development
RMB
200,000,000
17% Real estate development
RMB
5,000,000
100% Management consulting services
RMB
2,000,000
51% Retail store
RMB
50,000,000
100% Real estate development
Company Name
Subsidiary companies:
Xi’an Jinbian Shunsheng Real Estate Co., Ltd. (2)
Suzhou Yuxi Real Estate Co., Limited.
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
The PRC
December 6, 2017
The PRC
March 5, 2018
RMB
20,000,000
70% Real estate development
RMB
100,000,000
20% Real estate development
Xinchuang Sailing (Dalian) Healthy Technology Industrial Investment
Co., Ltd.
The PRC
June 5, 2018
RMB
600,000,000
100% Real estate development
Dalian Xinyi Renju Real Estate Co., Ltd.
Jiangxi Xinkai Renju Management Consulting Service., Ltd.
Beijing Xinyuan Huicheng Technology Development Co., Ltd.
The PRC
June 26, 2018
The PRC
August 28, 2018
The PRC
January 26, 2018
Suzhou Yefang Real Estate Co., Limited. ("Suzhou Yefang") (Note
18(b))
The PRC
April 14, 2017
Chengdu Xinyuan Renju Enterprise Management Co., Ltd. ("Chengdu
Renju")
The PRC
October 26, 2017
Chengdu Guohongteng Real Estate Co., Ltd.
Qingdao Keda Real Estate Co., Ltd. ("Qingdao Keda")
Wuhan Yinghexin Real Estate Co., Ltd. ("Wuhan Yinghexin")
Henan Xinyuan Property Management Co., Ltd.
The PRC
July 16, 2010
The PRC
September 20, 2010
The PRC
January 15, 2014
The PRC
December 1, 2016
RMB
100,000,000
100% Real estate development
RMB
10,000,000
100% Real estate consulting services
RMB
100,000,000
100% Technical services
RMB
100,000,000
20% Real estate development
RMB
50,000,000
100% Real estate development
RMB
1,673,179,200
100% Real estate development
RMB
50,000,000
100% Real estate development
RMB
100,000,000
100% Real estate development
RMB
10,000,000
100% Property management services
F-17
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
Company Name
Subsidiary companies:
Wuhu Xinyansuifeng NO.1 Investment Center (Limited partnership)
Zhuhai Xinyuan Real Estate Co., Ltd.
Jinan Renju Building Material Co., Ltd.
Dalian Xinyi Yaju Real Estate Co., Ltd.
Guangdong Xinchuang Kechuang Zhigu Development Co., Ltd.
The PRC
November 22, 2017
The PRC
December 31, 2018
The PRC
January 2, 2019
The PRC
January 16, 2019
The PRC
February 27,2019
Jiangxi Xinyuan Heju Enterprise Management Consulting Service
Co., Ltd.
The PRC
Apirl 2,2019
Beijing I-Journey Science and Technology Development Co.,Ltd.("I-
Journey") (3)
The PRC
October 20,2015
Beijing Ruizhuo Xichuang Technology Development Co., Ltd.
("Xichuang") (3)
Beijing Ruizhuo Xitou Development Co., Ltd. ("Xitou") (3)
The PRC
July 16,2015
The PRC
July 16,2015
Beijing Future Xinzhihui Technology Development Center (Limited
Partnership) ("Xinzhihui") (3)
The PRC
December 16,2016
Beijing Future Xinhujin Technology Development Center (Limited
Partnership) ("Xinhujin") (3)
The PRC
December 30,2016
F-18
RMB
1,501,000,000
100% Investment holding company
RMB
100,000,000
100% Real estate development
RMB
50,000,000
100% Sales of construction material
RMB
100,000,000
100% Real estate development
RMB
100,000,000
100% Real estate development
RMB
10,000,000
100% Management consulting services
RMB
40,000,000
93% Development and sales of robots
RMB
30,000,000
93% Real estate brokerage
RMB
30,000,000
Internet platform for real estate
property financing
85%
RMB
30,000,000
90.67% Investment holding company
RMB
20,000,000
89.5% Investment holding company
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Company Name
Beijing Future Xinruifeng Technology Development Center (Limited
Partnership) ("Xinruifeng ") (3)
Beijing Ruihao Rongtong Real Estate Co., Ltd. ("Ruihao Rongtong")
Registered Place
and Date of
Incorporation
Registered
Capital
Percentage of
Equity
Attributable
to the Group
Principal
Activities
The PRC
February 23,2017
PRC
June 15, 2006
RMB
20,000,000
77.5% Investment holding company
RMB
250,000,000
100% Real estate development
VIE:
Beijing Yuzhouyun Technology Development Center (Limited
partnership)) and its subsidiary ("Yuzhouyun") (Note 2(a)
The PRC
March 2, 2018
RMB
18,388,300
51% Technical services
(1)
(2)
(3)
(4)
Liquidated on December 10, 2019.
Liquidated on June 10, 2019.
Acquired on November 30, 2019.
Controlled by Zhengzhou Hangmei Technology Development Co., Ltd. which is a 51% owned subsidiary of the Group.
2.
Summary of significant accounting policies
(a) The Company and basis of presentation and consolidation
The Group is principally engaged in residential real estate development and the provision of property management services. The Group's operations are conducted mainly in the PRC. In 2012, the Group
expanded its business into the U.S. residential real estate market. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting
principles ("U.S. GAAP"). The consolidated financial statements include the financial statements of the Company, its subsidiaries, VIEs, and the subsidiaries of VIEs. All inter-company transactions
and balances between the Company and its subsidiaries have been eliminated upon consolidation.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated from the date on which control is transferred out of the Group. Where there is a loss
of control of a subsidiary, the consolidated financial statements include the results for the part of the reporting year during which the Group has control.
Ruihao Rongtong
Ruihao Rongtong, with registered capital of US$37.6 million (RMB250.0 million), was invested in by the Company on May 6, 2015, for the purpose of undertaking a residential property development
project in Beijing. On March 1, 2016, June 28, 2016 and September 18, 2016, an unrelated trustee company, Ping An trust Co., Ltd. ("Ping An trust") purchased 20%, 5% and 10% of the Company's
equity interest in Ruihao Rongtong, respectively, and loaned US$124.3 million (RMB862.5 million) in aggregate to the Group. On February 28, 2017, the Company repurchased the 35% equity interest
of Ruihao Rongtong from Ping An trust. On May 23, 2017, Ping An trust subsequently repurchased back 35% of the Company's equity interest in Ruihao Rongtong, and loaned US$246.8 million
(RMB1.61 billion) in aggregate to the Group . As of December 31, 2018, Ruihao Rongtong had one project under construction. Pursuant to the share purchase agreement, the 35% of non-controlling
equity interest of Ruihao Rongtong was to be repurchased by the Company in cash at the earlier of the second anniversary date, or the date the Company elected to repurchase the 35% equity interest of
Ruihao Rongtong. Therefore, the non-controlling interest is mandatorily redeemable and is accounted for as liability in accordance with ASC 480, Distinguishing Liabilities from Equity. In addition,
since the Company planned to repurchase the 35% equity interest of Ruihao Rongtong within the next 12 months, the liability is classified as current liability as of December 31, 2018. On June 21,
2019, the Company repurchased the 35% equity interest of Ruihao Rongtao from Ping An trust and Ruihao Rongtong ceased to be variable interest entity(“VIE”).
F-19
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
In accordance with ASC 810, Consolidation, Ruihao Rongtong as of December 31, 2018 is a variable interest entity as it was not established with sufficient equity at risk to finance its activities without
additional subordinated financial support. As of December 31,2018, the Company is considered as the primary beneficiary of Ruihao Rongtong, as it has the power to direct the activities of Ruihao
Rongtong that most significantly impact their economic performance and has the obligation to absorb the losses and the right to receive benefits from Ruihao Rongtong through its voting interest
underlying its 65% equity interest in accordance with PRC Law and the articles of association of Ruihao Rongtong. Based on the above, Ruihao Rongtong was consolidated by the Company.
The carrying amounts and classifications of the assets and liabilities of the VIE are as follows:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
The financial performance and cash flows of the VIE are as follows:
Revenue
Cost of revenue
Net loss
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
December 31,
2018
US$
174,366,164
247,753
174,613,917
151,609,433
—
151,609,433
Year ended
December 31,
2018
US$
—
—
(4,786,363)
(8,804,491)
—
8,949,715
As of December 31, 2018, the current liabilities of the Ruihao Rongtong included amounts due to subsidiaries of the Group amounting to US$145,728,000, which were eliminated upon consolidation by
the Company.
As of December 31, 2018, the land use rights included in real estate properties under development of Ruihao Rongtong of US$166,327,833 were pledged as collateral for bank loans and other debt and
the creditors have no recourse to the general credit of the primary beneficiary.
Nil revenue contributed by Ruihao Rongtong to the Company’s consolidated revenues for the years ended December 31, 2018.
F-20
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Yuzhouyun
On March 2, 2018, the Group signed a partnership agreement with certain senior management members to form Yuzhouyun. According to the partnership agreement, the design and purpose of
Yuzhouyun's activities are to provide technical services to the Group. The Group acts as a limited partner and the senior management members are general partners. Substantially all significant activities
require the approval from the senior management members. The Group and senior management members agreed to share profits at the proportion of 51% and 49%, respectively. The Group, as the
limited partner, is the only party with the equity at risk to absorb losses of Yuzhouyun. Yuzhouyun's principal activities are also to provide technical service to the Group, which indicates that
Yuzhouyun's activities are conducted on behalf of the Group. Therefore, under ASC 810, Consolidation, Yuzhouyun is a variable interest entity. In addition, as the senior management members are the
Group's employees, which represent a principal-agency relationship, therefore, the Group is concluded to be "most closely associated" with Yuzhouyun. Based on the above, the Group is the primary
beneficiary because it has the power to direct the activities of Yuzhouyun that most significantly impact their economic performance and has the obligation to absorb the losses and the right to receive
benefits from Yuzhouyun.
The carrying amounts and classifications of the assets and liabilities of Yuzhouyun are as follows:
Current assets
Non-current assets
Total assets
Current liabilities
Non-current liabilities
Total liabilities
The financial performance and cash flows of Yuzhouyun are as follows:
Revenue
Cost of revenue
Net loss
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
December 31,
2018
US$
December 31,
2019
US$
5,775,479
3,557,562
9,333,041
11,808,683
—
11,808,683
2,214,155
4,244,195
6,458,350
13,967,333
—
13,967,333
Year ended
December 31,
2018
US$
Year ended
December 31,
2019
US$
7,991,038
(1,559,129)
(1,929,266)
519,050
(255,509)
—
12,555,974
(3,682,899)
(1,796,997)
368,379
(1,885)
(52,503)
As of December 31, 2018 and December 31, 2019, the current liabilities of Yuzhouyun included amounts due to subsidiaries of the Group amounting to US$9,169,167 and US$10,867,898, which were
eliminated upon consolidation by the Company.
During the year ended December 31, 2018 and December 31, 2019, the revenue of Yuzhouyun included amounts that come from the Group amounting to US$7,399,000 and US$9,997,544, which were
eliminated upon consolidation by the Company.
Yuzhouyun contributed US$591,628 and US$2,558,430 of the Company's consolidated revenues for the year ended December 31, 2018 and December 31, 2019, respectively.
F-21
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(b) Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes, and disclosure of contingent liabilities at the date of the consolidated financial statements. Estimates are used for, but not limited to, the selection of the useful lives of property
and equipment and finance lease, allowance for doubtful amount associated with accounts receivables, other receivables, contract assets and advances to suppliers, fair values of the purchase price
allocation with respect to business combinations, progress towards the completion of the performance obligation, accounting for the share-based compensation, accounting for deferred income taxes,
impairment of real estate properties under development, real estate properties held for lease and long-term investments, provision necessary for contingent liabilities and estimating the incremental
borrowing rate for operating lease liabilities. Management analyzed the forecasted cash flows for the twelve months from April 29, 2020, which indicates that the Group will have sufficient liquidity
from cash flows generated by operations and existing credit facilities and therefore, there will be sufficient financial resources to settle borrowings and payables that will be due through end of April
2021. Management believes that the estimates utilized in preparing its consolidated financial statements are reasonable and prudent. Actual results could differ from these estimates.
(c) Fair value of financial instruments
Financial instruments include cash and cash equivalents, restricted cash, short-term investments, accounts receivable, other deposits and prepayments, due from employees, due from related parties,
other receivables, long-term investments, accounts payable, customer deposits, other payables and accrued liabilities, short-term bank borrowings, long-term borrowings and due to related parties. The
carrying amounts of the aforementioned financial instruments, except for short-term investments that measurement alternative was elected, long term investments and long term borrowings,
approximate their fair value due to the short term maturities of these instruments. The carrying amounts of the long-term borrowings approximate their fair values because the stated interest rates
approximate rates currently offered by financial institutions for similar debt instruments of comparable credit risk and maturities. Long-term investment has no quoted market prices and it is not
practicable to estimate their fair value without incurring excessive costs. The Group reviews the investments for impairment whenever events or changes in circumstances indicate that the carrying
amount may no longer be recoverable.
For long-term investments other than those accounted for under the equity method or those that result in consolidation of the investee, the Company measures equity investments at fair value and
recognizes any changes in fair value in net income. However, for equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in ASC 820
to estimate fair value using the net asset value per share (or its equivalent) of the investment, the Company chose to measure those investments at cost, less any impairment, plus or minus changes
resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. At each reporting date, the Company is required to make a qualitative
assessment as to whether equity investments without a readily determinable fair value for which the measurement alternative is elected is impaired. In the event that a qualitative assessment indicates
that the investment is impaired and the fair value of the investment is less than the carrying value, the carrying value is written down to its fair value. A variety of factors are considered when
determining if a decline in fair value is below carrying value, including, among others, the financial condition and prospects of the investee.
Accounting guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in
which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A
financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Accounting guidance establishes three levels
of inputs that may be used to measure fair value:
F-22
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Level 1-Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets
Level 2-Includes other inputs that are directly or indirectly observable in the market place
Level 3-Unobservable inputs which are supported by little or no market activity
ASC 820 describes three main approaches for measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and
other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a
single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently
be required to replace an asset.
In accordance with ASC 820, investment in marketable equity securities and investment in real estate investment trusts ("REITs") classified as is within Level 1 as the Company measures the fair value
using quoted trading prices that are published on a regular basis, and investment in equity securities in unlisted companies categorized as Level 3 is measured at fair value using alternative method, less
any impairment, plus or minus changes resulting from observable price in orderly transactions.
(d) Foreign currency translation
The Group's financial information is presented in U.S. dollars. The functional currency of the Company is U.S. dollars. The functional currency of the Company's subsidiaries in the PRC is Renminbi
("RMB"), the currency of the PRC. The functional currency of the Company's subsidiaries in Malaysia is Malaysian Ringgit ("MYR"), the currency of Malaysia. The functional currency of the
Company's subsidiaries other than those in the PRC and Malaysia is U.S. dollars. Transactions by the Company's subsidiaries in the PRC which are denominated in currencies other than RMB are
remeasured into RMB at the exchange rate quoted by the People's Bank of China ("PBOC") prevailing at the dates of the transactions. Exchange gains and losses resulting from transactions
denominated in a currency other than RMB are included in the consolidated statements of comprehensive income as exchange gains (losses). The consolidated financial statements of the Company's
subsidiaries have been translated into U.S. dollars in accordance with ASC 830, Foreign Currency Matters. The PRC subsidiaries' financial information is first prepared in RMB and then is translated
into U.S. dollars at period-end exchange rates as to assets and liabilities and average exchange rates as to revenue and expenses. Capital accounts are translated at their historical exchange rates when the
capital transactions occurred.
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could
have been, or could be, converted into U.S. dollars at the rates used in translation.
(e) Cash and cash equivalents
The Group considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Group maintains bank accounts mainly in the PRC, Hong Kong and United
States. The vast majority of the PRC bank balances are denominated in RMB. Hong Kong and United States bank balances are denominated in U.S. dollars.
Cash includes cash on hand and demand deposits in accounts maintained with various state-owned and private banks within the PRC, Hong Kong and United States. Total cash in banks (excluding
restricted cash) at December 31, 2019 amounted to US$662,606,063 (December 31, 2018: US$674,141,554), of which the vast majority of deposits are not covered by insurance.
F-23
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(f) Restricted cash
The Group is required to maintain certain deposits with banks that provide mortgage loans to the Group's customers in order to purchase residential units from the Group. These balances are subject to
withdrawal restrictions and totaled US$32,420,073 as of December 31, 2019 (December 31, 2018: US$43,748,940). As of December 31, 2019, the Group held US$270,714,930 (December 31, 2018:
US$338,633,911) in its restricted cash accounts, representing funds received from sales proceeds that are subject to withdrawal restrictions. The Group is also required to maintain certain deposits with
banks and financial institutions that provide loans to the Group. As of December 31, 2019, the Group also held US$20,691,781 in its restricted cash accounts (December 31, 2018: nil) as security for its
short-term loans (Note 10), held US$3,153,579(December 31, 2018: US$129,492,074) in its restricted cash accounts as security for its current portion of long-term loans (Note 11).
As of December 31, 2019, the Group held US$112,998,481 (December 31, 2018: nil) in its bank accounts with withdrawal restriction for its long-term loans (Note 11).
(g) Real estate properties development completed and under development
Real estate properties completed and under development consist of residential unit sites and commercial offices. The Group leases the land for the residential unit sites under land use right leases with
various terms from the PRC government. Real estate properties development completed and under development are stated at the lower of carrying amounts or fair value less selling costs.
Expenditures for land development, including cost of land use rights, deed tax, pre-development costs and engineering costs, are capitalized and allocated to development projects by the specific
identification method. Costs are allocated to specific units within a project based on the ratio of the sales value of units to the estimated total sales value times the total project costs.
Costs of amenities transferred to buyers are allocated as common costs of the project that are allocated to specific units as a component of total construction costs. For amenities retained by the Group,
costs in excess of the related fair value of the amenities are also treated as common costs. Results of operations of amenities retained by the Group are included in the current operating results.
In accordance with ASC 360, Property, Plant and Equipment ("ASC 360"), real estate property development completed and under development are subject to valuation adjustments when the carrying
amount exceeds fair value. An impairment loss is recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to be generated by the assets.
When the profitability of a current project deteriorates due to a slowdown in the sales pace, reduction of pricing or some other factor, this indicates that there may be a possible future loss on delivery
and possible impairment in the recoverability of the assets. Accordingly, the assets of such project are subsequently reviewed for future losses and impairment by comparing the estimated future
undiscounted cash flows for the project to the carrying value of such project. If the estimated future undiscounted cash flows are less than the asset's carrying value, such deficit will be charged as a
future loss and the asset will then be written down to its estimated fair value.
The Group determines estimated fair value primarily by discounting the estimated future cash flows relating to the asset. In estimating the cash flows for a project, the Group uses various factors
including (a) the expected pace at which the planned number of units will be sold, based on competitive market conditions, historical trends in sales pace and actual average selling prices of similar
product offerings and any other long or short-term economic conditions which may impact the market in which the project is located; (b) the estimated net sales prices expected to be attained based on
the current market conditions and historical price trends, as well as any estimated increases in future sales prices based upon the projected rate of unit sales, the estimated time gap between presale and
expected delivery, the impact of government policies, the local and regional competitive environment, and certain external factors such as the opening of a subway line, school or factory; and (c) the
expected costs to be incurred in the future by the Group, including, but not limited to, construction cost, construction overhead, sales and marketing, sales taxes and interest costs.
F-24
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The Group's determination of fair value requires discounting the estimated cash flows at a rate commensurate with the inherent risk associated with the assets and related estimated cash flows. The
discount rate used in determining each project's fair value depends on the stage of development, location and other specific factors that increase or decrease the risk associated with the estimated cash
flows.
For the periods presented, the Group did not recognize any impairment for real estate properties completed and under development.
(h) Revenue recognition
Revenue is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those
goods or services. The Group also elected to exclude sales taxes and other similar taxes from the measurement of the transaction price. Therefore, revenues are recognized net of business tax, value
added taxes ("VAT").
Real estate sales
Revenues arising from real estate sales are recognized when or as the control of the asset is transferred to the customer. Depending on the terms of the contract and the laws that apply to the contract,
control of the asset may transfer over time or at a point in time.
For real estate sales contracts for which the Group has an enforceable right to payment for performance completed to date, revenue is recognized over time by measuring the progress towards complete
satisfaction of that performance obligation. Otherwise, revenue is recognized at a point in time when the customer obtains the physical possession, the legal title, or the significant risks and rewards of
ownership of the assets and the Group has present right to payment and the collection of the consideration is probable. The progress towards complete satisfaction of the performance obligation is
measured based on the Group's efforts or inputs to the satisfaction of the performance obligation, by reference to the contract costs incurred up to the end of reporting period as a percentage of total
estimated costs for each contract.
Generally, the Group receives short-term advances from its customers for real estate sales. Using the practical expedient, the Group does not adjust the promised amount of consideration for the effects
of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that good or
service will be one year or less. The Group also receives long-term advances from customers for real estate sales. The transaction price for such contracts is adjusted for the effects of a financing
component, if long-term advances from customers is assessed as significant at the individual contract level.
Real estate management services income
Real estate management services income is recognized in the accounting period in which the services are rendered. The Group bills a fixed amount periodically for services provided and recognizes as
revenue the amount to which the Group has a right to invoice that corresponds directly with the value of performance completed.
Real estate management lease income
Real estate lease income is generally recognized on a straight-line basis over the terms of the tenancy agreements. For real estate leases, these contracts are treated as leases for accounting purposes,
rather than contracts with customers subject to ASC 606.
Other revenue
Other revenue includes services ancillary to the Group's real estate projects, including construction service revenue and software consulting service income. Construction service revenue and software
consulting service income are recognized when services are provided as the customer simultaneously benefits from the services as they are performed.
F-25
For the years ended December 31, 2018 and 2019, revenue is recognized and disaggregated by major source as below:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Real estate sales
Real estate management services income
Other revenue
Revenue from contracts with customers
Real estate lease income
Total revenue
Contract assets
2018
US$
2,139,370,792
63,447,420
5,148,101
2,207,966,313
2019
US$
2,387,031,568
67,488,169
11,984,304
2,466,504,041
9,584,972
16,128,771
2,217,551,285
2,482,632,812
The Group pays sales commission to its real estate sales agencies for each real estate sales contract. The Group has elected to apply the optional practical expedient for costs to obtain a contract which
allows the Group to immediately expense sales commissions (included under selling and distribution expenses) when the amortization period of the asset that the Group otherwise would have used is
one year or less. For incremental costs of obtaining real estate sales contracts that extend beyond a one-year period, these incremental costs of obtaining real estate sales contracts are recognized as
assets if the real estate sales are collectible and amortized as the Group transfers the control of the assets to customers. The Group recognized US$6.2 million and US$14.9 million of such costs in
selling and distribution expense during the year ended December 31, 2018 and December 31, 2019. As of December 31, 2018 and 2019, there was no impairment losses on contract assets.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer
pays consideration before the Group transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). The Group's
contract liabilities are comprised of customer deposits, which are recognized as revenue when the Group performs under the contract.
The following table presents the Group's contract balances as of December 31, 2018 and 2019:
Contract assets
Customer deposits (note 14)
December 31, 2018
December 31, 2019
21,779,221
1,921,851,255
23,093,235
1,106,098,647
The amount of revenue recognized during the year ended December 31, 2019 and included in the customer deposits as of December 31, 2018 is US$1,188,040,187.
Impact of adoption of ASC 606
As of January 1, 2018, the Group adopted ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606),” as modified (ASC606), using the modified retrospective method, which the Group
does not adjust prior periods. The Group applied the rules to all open contracts existing as of January 1, 2018, recording a decrease of US$315.2 million to total equity for the cumulative effect of the
change, with an increase real estate properties development completed of US$35.1 million, real estate properties under development of US$1,176.1 million, contract asset of US$15.6 million and other
non-current assets of US$68.2 million, other current asset reductions of US$61.2 million, increase customer deposits of US$1,602.0 million, other current liabilities reductions of US$17.7 million and
non-current liabilities reductions of US$35.3 million. A significant portion of the Group’s revenue is derived from real estate sales of development properties in the PRC. Prior to the adoption of ASC
606, the Group recognizes revenue using the percentage-of-completion (“POC”) method. Under ASC 606, to recognize revenue over time similar to the POC method, contractual provisions need to
provide the Group with an enforceable right to payment. Historically, the Group’s contracts did not include a specific term on enforceable right to payment. For all contracts executed starting from
January 1, 2018, the Group modified certain terms to establish an enforceable right to payment for performance completed to date, including a reasonable profit. Under ASC 606, the Group recognizes
revenue on an “over time” basis prospectively for these new contracts by using cost inputs to measure progress towards the completion of the performance obligation. For contracts that did not include
enforceable right to payment terms, revenue is recognized at a point in time when title to the property is transferred to the customer upon the adoption of ASC 606.
The following table summarizes the impact of adopting ASC 606 on consolidated statement of comprehensive income as of and for the year ended December 31, 2018.
Consolidated statement of comprehensive income
Revenue
Cost of revenue
Selling and distribution expenses
General and administrative expenses
Income taxes
Net income/(loss)
(i) Accounts receivable
Amounts
without
adoption of
ASC606
1,896,940,997
(1,499,457,049)
(90,805,960)
(155,805,869)
(93,887,973)
(68,047,068)
December 31, 2018
Effects of
adoption
of ASC606
320,610,288
(102,615,934)
7,214,309
(650,301)
(50,559,274)
173,999,088
Amounts
as reported
2,217,551,285
(1,602,072,983)
(83,591,651)
(156,456,170)
(144,447,247)
105,952,020
Accounts receivable represents the Group's right to an amount of consideration that is unconditional (i.e. only the passage of time is required before payment of the consideration is due). The Group's
account receivable consists of balances due from customers for the sale of residential units in the PRC and United States and real estate management service contracts. These balances are unsecured,
bear no interest and are due within a year from the date of the sale.
F-26
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Accounts receivable are reviewed periodically as to whether their carrying value has become impaired. The Group considers the assets to be impaired if the collectability of the balances become
doubtful. As of December 31, 2019, there was US$1,456,243 allowance for doubtful accounts (December 31, 2018: US$1,539,894).
(j) Other receivables
Other receivables consist of various cash advances to unrelated companies and individuals with which the Group has business relationships.
Other receivables are reviewed periodically as to whether their carrying value has become impaired. The Group considers the assets to be impaired if the collectability of the balances becomes doubtful.
As of December 31, 2019, there was US$8,313,052 allowance for doubtful accounts (December 31, 2018: US$10,594,423).
(k) Deposits for land use rights
Deposits for land use rights consist of upfront cash payments made to local land bureaus to secure land use rights under executed short-term or long-term land framework cooperation agreements or land
use rights agreements.
Deposits for land use rights are reviewed periodically as to whether their carrying value has become impaired. The Group considers the assets to be impaired if the collectability of the balances become
doubtful. There were no impairment losses for any periods presented.
(l) Other deposits and prepayments
Other deposits and prepayments mainly consist of upfront cash payments made to third parties related to the direct negotiation model in acquiring land parcels and prepaid tax.
Other deposits and prepayments are reviewed periodically as to whether their carrying value has become impaired. The Group considers the assets to be impaired if the collectability of the balances
become doubtful. There were no impairment losses for any periods presented.
(m) Advances to suppliers
Advances to suppliers consist of balances paid to contractors and vendors for services and materials that have not been provided or received and generally relate to the development and construction of
residential units in the PRC. Advances to suppliers are reviewed periodically to determine whether their carrying value has become impaired. The Group considers the assets to be impaired if it is
doubtful that the services and materials can be provided. As of December 31, 2018 and 2019, there was no allowance provided.
(n) Customer deposits
Customer deposits consist of sales proceeds received from customers from the sale of residential units in the PRC. In the PRC, customers will generally obtain financing for the purchase of their
residential unit prior to the completion of the project. The lending institution will provide the funding to the Group upon the completion of the financing rather than the completion of the project. The
Group receives these funds and recognizes them as a customer deposit current liability until the revenue can be recognized.
(o) Notes payable and other payables
Notes payable represents short-term bank acceptance notes issued by financial institutions that entitle the holder to receive the stated amount from the financial institutions at the maturity date of the
notes. The Group has utilized notes payable to settle amounts owed to suppliers and contractors. The notes payable is non-interest bearing and is normally settled within six months. Notes payable was
US$49,652,091 and US$271,096,538 as of December 31, 2018 and 2019, respectively.
F-27
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Other payables consist of balances for non-construction costs with unrelated companies and individuals with which the Group has business relationships.
(p) Real estate properties held for lease, net
Real estate properties held for lease are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated
useful lives of the real estate properties held for lease are 20-60 years.
Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Major additions and improvements to the real estate properties held for lease are capitalized.
In accordance with ASC 360, Property, Plant and Equipment, real estate properties held for lease is subject to valuation adjustments when the carrying amount exceeds fair value. An impairment loss is
recognized only if the carrying amount of the assets is not recoverable and exceeds fair value. The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to be
generated by the assets.
For the periods presented, the Group did not recognize any impairment for real estate properties held for lease.
(q) Property and equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives
of the assets are as follows:
Corporate aircraft
Vehicles
Furniture and fixtures
Office buildings
15 years
5 years
5 years
20-60 years
Maintenance, repairs and minor renewals are charged directly to expense as incurred unless such expenditures extend the useful life or represent a betterment, in which case they are capitalized.
(r) Long-term Investments
The Group's long-term investments consist of equity method investments and equity investments without readily determinable fair value.
Equity method Investments
Where the Group has significant influence over the investee, the Group applies the equity method of accounting in accordance with ASC subtopic 323-10-20, Investments-Equity Method and Joint
Ventures ("ASC 323-10-20"). The reporting dates and accounting policies of the equity investee are the same as the Group. The investment in the equity investee is stated at cost, including the Group's
share of the equity investee's net gain or loss, less any impairment in value. The Group recognizes in its consolidated statement of comprehensive income its share of the net income (loss) of the equity
investees. The Company periodically evaluate whether declines in fair values of our investments indicate impairment and whether declines in fair value of our investments below their book value are
other-than-temporary.
Nonmarketable equity securities
Nonmarketable equity securities are investments in privately held companies without readily determinable market values.
F-28
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
On January 1, 2018, the Group adopted ASU 2016-01, pursuant to which, for equity investments without readily determinable fair value, the Group elected to use the measurement alternative to
measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer, if
any. All gains and losses on nonmarketable equity securities, realized and unrealized, are recognized in earnings. The Group performs a qualitative assessment of whether the investment is impaired at
each reporting date. If a qualitative assessment indicates that the investment is impaired, the entity has to estimate the investment's fair value in accordance with the principles of ASC 820. If the fair
value is less than the investment's carrying value, the entity recognizes an impairment loss in net income equal to the difference between the carrying value and fair value.
(s) Capitalized interest
The Group capitalizes interest as a component of building construction costs in accordance with ASC 835, Interest ("ASC 835").
As a result of the total interest costs capitalized during the period, the interest expense for the years ended December 31, 2017, 2018 and 2019, was as follows:
Amortization of issuance cost related to long-term debt
Interest expense of finance leases
Interest on borrowings
Total interest costs
Total interest costs capitalized
Interest expense, net
(t) Retirement benefits
2017
US$
4,384,801
1,705,739
197,410,532
203,501,072
(137,347,632)
2018
US$
8,624,334
1,385,292
271,831,465
281,841,091
(182,595,395)
2019
US$
8,132,103
973,842
308,747,957
317,853,902
(204,078,542)
66,153,440
99,245,696
113,775,360
Regulations in the PRC require the Group to contribute to a defined contribution retirement plan for all permanent employees. Pursuant to the mandatory requirement from the local authority in the
PRC, the retirement pension insurance, unemployment insurance, health insurance and housing fund were established for the employees during the term they are employed. For the years ended
December 31, 2017, 2018 and 2019, the Group is obligated to contribute for each employee an amount equal to 45%, 45% and 40%, respectively, of last year average salary determined by the Social
Welfare Bureau. For the year ended December 31, 2019, the Group recorded expense in the amount of US$20,420,474 (2017: US$17,101,606; 2018: US$18,422,330).
(u) Distribution of earnings and reserve fund
The Company's ability to pay dividends is primarily dependent on the Company receiving distributions from its subsidiaries. The earnings reflected in the consolidated financial statements prepared in
accordance with U.S. GAAP differ from those reflected in the statutory financial statements of the Company's subsidiaries. In accordance with the PRC Company Law, the PRC subsidiaries are required
to transfer 10% of their profit after tax, as determined in accordance with PRC accounting standards and regulations, to the statutory surplus reserve (the "SSR") until such reserve reaches 50% of the
registered capital of the subsidiaries. Subject to certain restrictions set out in the PRC Company Law, the SSR may be distributed to stockholders in the form of share bonus issued to increase share
capital, provided that the remaining balance after the capitalization is not less than 25% of the registered capital before capital increase.
F-29
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(v) Income taxes
The Group accounts for income tax using the balance sheet method. Deferred taxes are provided for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, as well as unutilized net operating losses. A valuation allowance is provided for deferred tax assets if it is more likely than
not these items will either expire before the Group is able to realize their benefits, or that future utilization is uncertain. The Group assesses its need for valuation allowances by tax reporting unit by
jurisdiction.
Late payment interests and penalties arising from underpayment of income taxes is recognized according to the relevant tax law. The amount of interest expense to be recognized is computed by
applying the applicable statutory rate of interest to the difference between the tax position recognized and the amount previously taken or expected to be taken in a tax return. Interest recognized in
accordance with ASC 740-10, Income Tax ("ASC 740-10") is classified in the consolidated financial statements as interest expense, while penalties recognized in accordance with this interpretation are
classified in the consolidated financial statements as other expenses.
In accordance with the provisions of ASC 740-10, the Group recognizes in its consolidated financial statements the impact of a tax position if a tax return's position or future tax position is "more likely
than not" to prevail (defined as a likelihood of more than fifty percent of being sustained upon audit, based on the technical merits of the tax position). Tax positions that meet the "more likely than not"
threshold are measured (using a probability weighted approach) at the largest amount of tax benefit that has a greater than fifty percent likelihood of being realized upon settlement. The Group's
estimated liability for unrecognized tax benefits is periodically assessed for adequacy and may be affected by changing interpretations of laws, rulings by tax authorities, certain changes and/or
developments with respect to audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some
cases, appeal or litigation process. The actual benefits ultimately realized may differ from the Group's estimates. As each audit is concluded, adjustments, if any, are appropriately recorded in the
Group's consolidated financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require the Group to adjust the recognition and measurement
estimates with regards to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur.
(w) Land Appreciation Tax ("LAT")
In accordance with the relevant taxation laws for real estate companies of the provinces in which the subsidiaries operate in the PRC, the local tax authorities levy LAT based on progressive rates
ranging from 30% to 60% on the appreciation of land value, being the proceeds of sales of properties less deductible expenditures, generally including borrowing costs and relevant property
development expenditures. LAT is generally prepaid based on a fixed percentage (varying by local tax jurisdiction) of customer deposits and is expensed when the related revenue is recognized.
(x) Comprehensive income
Comprehensive income is defined as the changes in equity of the Group during a period from transactions and other events and circumstances excluding transactions resulting from investments by
owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive Income, requires that all items that are required to be recognized under current accounting standards as
components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For each of the periods presented, the Group's
comprehensive income includes net income and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive income.
(y) Advertising and promotion expenses
Advertising and promotion costs are expensed as incurred, or the first time the activity takes place, in accordance with ASC 720-35, Advertising Costs. For the year ended December 31, 2019, the Group
recorded advertising and promotion expenses of US$62,341,805 (2017: US$53,932,462; 2018: US$56,575,316).
F-30
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(z) Leases
The Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) from January 1, 2019 by using the modified retrospective method and did not restate the comparable periods. The
Company has elected the package of practical expedients, which allows the Company to carry forward our original assessment of whether contracts contained lease, lease classification, and the initial
direct cost. Lastly, the Company elected the short-term lease exemption for all contracts with lease terms of 12 months or less.
The Group determines if an arrangement is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an
identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the
use of the asset and (b) the right to direct the use of the asset.
Lessee
The Group categorizes leases with contractual terms longer than twelve months as either operating or finance. Finance leases are generally those leases that transfer ownership to the Group or allow the
Group to purchase assets at a nominal amount by the end of the lease term. Assets acquired under finance leases are recorded in property and equipment, net and real estate properties held for lease, net.
All other leases are recorded as operating lease right-of-use (“ROU”) assets.
Lease liability is recorded based the present value of the lease payments over the lease term using a discount rate at commencement date. As the implicit rate in the Group’s leases is not typically readily
available, the Group uses an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This incremental
borrowing rate reflects the fixed rate at which the Group could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic
environment. Leased assets are recognized based on the initial present value of the lease payments, reduced by lease incentives.
Operating lease expense for lease payments is recognized on a straight-line basis over the lease term. The expected lease terms are based on the non-cancelable term of the lease and may contain options
to extend or terminate the lease when it is reasonably certain that the Group will exercise that option. Finance lease assets are amortized in a manner consistent with the Group’s normal depreciation
policy for owned assets. Variable lease payments not dependent on an index or rate are excluded from the ROU assets and lease liability calculations and are recognized in expense in the period which
the obligation for those payments is incurred.
Upon adoption, the Company recognized ROU assets of US$15.0 million and total lease liability (including current and non-current) of US$14.4 million for operating leases as of January 1, 2019. The
impact of adopting ASU 2016-02 on the Company’s opening retained earnings and current year net income was insignificant. As of December 31, 2019, the Company recognized operating lease ROU
assets of US$11.8 million and total lease liability US$11.2 million, including current portion of US$4.9 million for operating lease.
Lessor
As a lessor, the Company’s leases are classified as operating leases under ASC 842, and thus the pattern of recognition of real estate lease income remains unchanged from previous lease accounting
guidance. Leases, in which the Group is the lessor, are substantially all accounted for as operating leases and the lease components and non-lease components are accounted for separately.
F-31
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(aa) Property warranty
The Company and its subsidiaries provide customers with assurance-type warranties which cover major defects of building structure and certain fittings and facilities of properties sold as stipulated in
the relevant sales contracts. The warranty period varies from two months to three years, depending on different property components the warranty covers.
The Group regularly estimates potential costs for materials and labor with regards to warranty-type claims expected to be incurred subsequent to the delivery of a property. The Group regularly monitors
the warranty reserve and makes adjustments to its pre-existing warranties, if any, in order to reflect changes in trends and historical data as information becomes available. The Group may seek recourse
against its contractors or any related third parties if it can be demonstrated they are at fault. In addition, the Group withholds up to 5% of the contract cost from sub-contractors for periods of two to five
years. These amounts are included in current liabilities, and are only paid to the extent that there has been no warranty claim against the Group relating to the work performed or materials supplied by
the subcontractors. For the periods presented, the Group had not recognized any warranty liability nor incurred any warranty costs in excess of the amount retained from subcontractors.
(ab) Earnings per share
Earnings per share are calculated in accordance with ASC 260, Earnings per Share. Basic earnings per share is computed by dividing net income attributable to holders of common shares by the
weighted average number of common shares outstanding during the period. Diluted earnings per common share reflects the potential dilution that could occur if securities or other contracts to issue
common shares were exercised or converted into common shares. Common share equivalents consists of common shares issuable upon the exercise of the share options and vesting of restricted shares
units using treasury stock method. Common equivalents shares are excluded from the computation of diluted earnings per share if their effects would be anti-dilutive. The non-vested options granted
with performance conditions are excluded in the computation of diluted EPS unless the options are dilutive and unless their conditions (a) have been satisfied at the reporting date or (b) would have
been satisfied if the reporting date was the end of the contingency period.
(ac) Treasury Shares
The Company accounted for shares repurchased as treasury shares at cost in accordance to ASC Subtopic 505-30, Treasury Shares. When the Company decides to retire the treasury shares, the
difference between the original issuance price and the repurchase price may be allocated between additional paid-in capital and retained earnings.
On July 12, 2013, the Board of Directors unanimously authorized management to repurchase up to US$60 million of the Company's shares from the approval date to July 5, 2015. On December 28,
2015, the Board of Directors unanimously authorized management to repurchase up to US$40 million of the Company's shares from the approval date to the end of 2017. The Board of Directors review
the Company's share repurchase program periodically and to adjust the amount authorized for repurchase as necessary. On March 21, 2017, the Board of Directors unanimously authorized management
to repurchase up to US$40 million of the Company's shares from the approval date to the end of 2019. On August 14, 2018, the Board of Directors unanimously authorized management to repurchase
up to US$50 million of the Company's shares from the approval date to the end of 2019. On May 20, 2019, the Board of Directors unanimously authorized management to repurchase up to US$50
million of the Company's shares from the approval date to the end of 2021. As of December 31, 2019, the Company had a balance of 52,850,536 (2018: 41,135,198) treasury shares amounting to
US$113,719,964 (2018: US$87,639,088).
(ad) Senior Secured Notes
On August 30, 2016, the Company issued notes with an aggregate principal amount of US$300,000,000 due on August 30, 2019 (the "August 2019 Senior Secured Notes") at a coupon rate of 8.125%
per annum payable semi-annually. Interest is payable on February 28 and August 30 of each year, commencing February 28, 2017. The August 2019 Senior Secured Notes have a three year term
maturing on August 30, 2019. Given that the August 2019 Senior Secured Notes is debt in its legal form and is not a derivative in its entirety, it has been classified as other long-term debt. The Company
has evaluated and determined that there was no embedded derivative requiring bifurcation from the August 2019 Senior Secured Notes under the requirements of ASC 815. The embedded redemption
options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the August 2019 Senior
Secured Notes. The August 2019 Senior Secured Notes were issued at par.
F-32
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
On February 28, 2017, the Company issued notes with an aggregate principal amount of US$300,000,000 due on February 28, 2021 (the "February 2021 Senior Secured Notes") at a coupon rate of
7.75% per annum payable semi-annually. Interest is payable on February 28 and August 28 of each year, commencing August 28, 2017. The February 2021 Senior Secured Notes have a four year term
maturing on February 28, 2021. Given that the February 2021 Senior Secured Notes is debt in its legal form and is not a derivative in its entirety, it has been classified as other long-term debt. The
Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the February 2021 Senior Secured Notes under the requirements of ASC 815. The embedded
redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the February
2021 Senior Secured Notes. The February 2021 Senior Secured Notes were issued at a discount.
On November 22, 2017 and December 1, 2017, the Company issued notes with an aggregate principal amount of US$200,000,000 and US$100,000,000 due on November 22, 2020 (the "November
2020 Senior Secured Notes") at a coupon rate of 8.875% per annum payable semi-annually. Interest will be payable on November 22 and May 22 of each year, commencing May 22, 2018. The
November 2020 Senior Secured Notes have a three year term maturing on November 22, 2020. Given that the November 2020 Senior Secured Notes is debt in its legal form and is not a derivative in its
entirety, it has been classified as other long-term debt. The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the November 2020 Senior Secured
Notes under the requirements of ASC 815. The embedded redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered
clearly and closely related to the characteristics of the November 2020 Senior Secured Notes. The November 2020 Senior Secured Notes were issued at a discount.
On March 19, 2018, the Company issued notes with an aggregate principal amount of US$200,000,000 due on March 19, 2020 (the "March 2020 Senior Secured Notes") at a coupon rate of 9.875% per
annum payable semi-annually. Interest is payable on March 19 and September 19 of each year, commencing September 19, 2018. The March 2020 Senior Secured Notes have a two year term maturing
on March 19, 2020. Given that the March 2020 Senior Secured Notes is debt in its legal form and is not a derivative in its entirety, it has been classified as other long-term debt. The Company has
evaluated and determined that there was no embedded derivative requiring bifurcation from the March 2020 Senior Secured Notes under the requirements of ASC 815. The embedded redemption
options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the March 2020 Senior
Secured Notes. The March 2020 Senior Secured Notes were issued at a discount.
On April 15, 2019 and April 26, 2019, the Company issued notes with an aggregate principal amount of US$200,000,000 and US$100,000,000 due on October 15, 2021 (the “October 2021 Senior
Secured Notes”) at a coupon rate of 14.20% per annum payable semi-annually. Interest is payable on April 15 and October 15 of each year, commencing October 15, 2019. The October 2021 Senior
Secured Notes have a two and a half years term maturing on October 15, 2021. Given that the October 2021 Senior Secured Notes is debt in its legal form and is not a derivative in its entirety, it has
been classified as other long-term debt. The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the October 2021 Senior Secured Notes under the
requirements of ASC 815. The embedded redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely
related to the characteristics of the October 2021 Senior Secured Notes. The October 2021 Senior Secured Notes were issued at a premium.
Onshore corporate bonds
During the periods presented, Xinyuan China issued a series of onshore corporate bonds. Given that each onshore corporate bond individually is debt in its legal form and is not a derivative in its
entirety, it has been classified as other long-term debt. The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from these onshore corporate bonds
under the requirements of ASC 815. The onshore corporate bonds were issued at par.
F-33
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(ae) Short-term investments
All highly liquid investments with original maturities of greater than three months, but less than 12 months, are classified as short-term investments. Investments that are expected to be realized in cash
during the next 12 months are also included in short-term investments.
Equity investments that have readily determinable fair values are measured at fair value with changes recognized in gain(loss) on short-term investments in consolidated statements of comprehensive
income. Equity investments without readily determinable fair values and for which we do not have the ability to exercise significant influence are accounted for at cost with adjustments for observable
changes in prices or impairments.
(af) Assets acquisition and business combinations
Pursuant to ASC 805, Business Combinations ("ASC 805"), the Company determines whether a transaction or other event is a business combination by applying the definition below, which requires that
the assets acquired and liabilities assumed constitute a business. The guidance requires an entity to first evaluate whether substantially all of the fair value of the gross assets acquired is concentrated in a
single identifiable asset or a group of similar identifiable assets. If that threshold is met, the set of assets and activities is not a business. If it is not met, the entity evaluates whether the set meets the
definition of a business. ASC 805 defines a business as consisting of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs. Inputs are defined as
economic resources, while processes are defined as protocols, systems or standards. Inputs and processes create, or have the ability to contribute to the creation of, outputs. Outputs are often present in
businesses but are not required to meet the definition of a business. To be considered a business under ASC 805, the acquisition of net assets must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create outputs. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an assets
acquisition.
The Company accounted for its acquisitions of Suzhou Yefang, Wuhan Yinghexin and Qingdao Keda as asset acquisitions either because the fair value of the gross assets acquired is concentrated in a
single identifiable asset or a group of similar identifiable assets or the acquired entities had no processes in place to apply to inputs to have the ability to create outputs.
The excess of the fair value of purchase consideration over the fair values of identifiable assets acquired and liabilities assumed is recorded as goodwill. The Group reviews goodwill for impairment at
least annually or more frequently if events or changes in circumstances would more likely than not reduce the fair value of our single reporting unit below its carrying value. As of December 31, 2019,
no impairment of goodwill has been identified.
(ag) Non-controlling interests
A non-controlling interest is recognized to reflect the portion of their equity which is not attributable, directly or indirectly, to the Group. Consolidated net income on the consolidated statements of
comprehensive income includes the net loss/(income) attributable to non-controlling interests. The cumulative results of operations attributable to non-controlling interests are recorded as non-
controlling interests in the Group's consolidated balance sheets. Losses attributable to the Group and the non-controlling interest in a subsidiary may exceed their interests in the subsidiary's equity. The
excess, and any further losses attributable to the Group and the non-controlling interest, shall continue to be attributed to those interests.
(ah) Effect of change in estimate
Revisions in estimated gross profit margins related to estimated costs and revenues are made in the period in which circumstances requiring the revisions become known. During the year ended
December 31, 2019, real estate development projects (Zhengzhou International New City IV, Zhengzhou Hangmei International Wisdom City I, Henan Xin Central I, Jinan Royal Palace, Chengdu
Xinyuan City and Sanya Yazhou Bay No.1), which recognized gross profit in 2018, had changes in their estimated gross profit margins. As these projects moved closer to completion during 2019, the
Company adjusted its prior estimates related to selling prices and development costs. As a result of the changes in estimate above, gross profit, net income and basic and diluted earnings per share
decreased by US$59.1 million (2017: decreased US$11.1 million, 2018: increased US$34.5 million), US$44.3 million (2017: decreased US$8.3 million, 2018: increased US$25.9 million), US$0.39 per
share (2017: decreased US$0.06 per share, 2018: increased US$0.20 per share), and US$0.39 per share (2017: decreased US$0.06 per share, 2018: increased US$0.20 per share), respectively, for the
year ended December 31, 2019.
F-34
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(ai) Share-based compensation
The Group has adopted ASC 718, Compensation-Stock Compensation, which requires that share-based payment transactions with employees, such as restricted shares or stock options, be measured
based on the grant-date fair value of the equity instrument issued, and the Company has elected to recognize compensation expense using the straight-line method for all restricted shares and stock
options granted with service conditions that have a graded vesting schedule. In addition, the Company recognizes share-based compensation expense net of an estimated forfeiture rate and therefore,
only recognizes compensation cost for those shares expected to vest over the service period of the award. The estimation of the forfeiture rate is primarily based on historical experience of employee
turnover. To the extent the Company revises this estimate in the future, the share-based payments could be materially impacted in the year of revision, as well as in the following years.
The Company also has a policy of using authorized shares in the existing pool to satisfy any future exercise of share options and shares repurchased held by a third party trustee to satisfy the RSUs
granted under the Company's 2014 Restricted Stock Unit plan.
For options granted with performance conditions, share-based compensation expense is recognized based on the probable outcome of the performance condition using the accelerated method over the
requisite service period. A performance condition is not taken into consideration in determining fair value of the non-vested shares granted. The fair value of liabilities incurred in share-based payment
transactions with employees are remeasured at the end of each reporting period through settlement. Changes in the fair value of a liability incurred under a share-based payment arrangement that occur
during the requisite service period are recognized as compensation costs over that period.
(aj) Segment Reporting
In accordance with ASC 280, Segment Reporting, segment reporting is determined based on how the Group's chief operating decision maker reviews operating results to make decisions about allocating
resources and assessing performance for the Group. According to the management approach, the Group operates in geographical segments. Therefore, each of its individual property developments is a
discrete operating segment. The Group has aggregated its segments on a geographical basis as property development projects undertaken within a region have similar expected economic characteristics,
type of properties offering, customers and market and regulatory environment (Note 21).
(ak) Comparative information
Certain of the prior year comparative figures have been reclassified to conform to the current year's presentation.
(al) Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses ("ASU 2016-13"). The amendments in ASU 2016-13 update guidance on reporting credit losses for financial
assets. This ASU requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. For available-for-sale debt securities with
unrealized losses, entities will be required to recognize credit losses through an allowance for credit losses. These amendments affect loans, debt securities, trade receivables, net investments in leases,
off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. For public business entities that are
U.S. SEC filers, ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Group is currently evaluating the impact on its
consolidated financial statements of adopting this guidance.
F-35
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies the accounting for goodwill impairment by eliminating Step two
from the goodwill impairment test. If the carrying amount of a reporting unit exceeds its fair value, an impairment loss shall be recognized in an amount equal to that excess, versus determining an
implied fair value in Step two to measure the impairment loss. The guidance is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019. Early adoption
is permitted for all entities for annual and interim goodwill impairment testing dates on or after January 1, 2017. The guidance should be applied on a prospective basis. The Group does not believe the
adoption of ASU 2017-04 will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement. The update
eliminates, modifies, and adds certain disclosure requirements for fair value measurements. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and
early adoption is permitted. The added disclosure requirements and the modified disclosure on the narrative description of measurement uncertainty should be applied prospectively for only the most
recent interim or annual period presented. All other changes to disclosure requirements in this update should be applied retrospectively to all periods presented upon their effective date. The Group does
not believe the adoption of ASU 2018-13 will have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That Is a Service Contract. This update requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ASC
350-40 to determine which implementation costs to defer and recognize as an asset. This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early
adoption is permitted. This guidance should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Group does not believe the adoption of
ASU 2018-15 will have a material impact on its consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This update clarifies that certain transactions
between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer and precludes an entity from presenting consideration from a
transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The update is effective in fiscal years beginning after
December 15, 2019, and interim periods therein, and early adoption is permitted for entities that have adopted ASC 606. This guidance should be applied retrospectively to the date of initial application
of Topic 606. The Group does not believe the adoption of ASU 2018-18 will have a material impact on its consolidated financial statements.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This update simplifies the accounting for income taxes as part of the
FASB's overall initiative to reduce complexity in accounting standards. The amendments include removal of certain exceptions to the general principles of ASC 740, Income taxes, and simplification in
several other areas such as accounting for a franchise tax (or similar tax) that is partially based on income. The update is effective in fiscal years beginning after December 15, 2020, and interim periods
therein, and early adoption is permitted. Certain amendments in this update should be applied retrospectively or modified retrospectively, all other amendments should be applied prospectively. The
Group is currently evaluating the impact on its financial statements of adopting this guidance.
3.
Short-term investments
The short-term investments represent investments in REITs, which are publicly traded on the Hong Kong Stock Exchange, marketable equity securities, and investment in private equity fund, which are
expected to be realized in cash during the next 12 months.
F-36
The following summarizes the short-term investments measured at fair value at December 31, 2018 and 2019:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Level 1
REITs
Total
Level 1
Equity securities with readily determinable fair value
Level 3
Equity securities without readily determinable fair value
Total
December 31, 2018
US$
Cost
Unrealized
gain in profit
8,442,063
8,442,063
7,291,863
7,291,863
1,150,200
1,150,200
December 31, 2019
US$
Cost
Unrealized
loss in profit
Fair
value
Fair
value
2,076,443
3,519,182
5,595,625
3,700,257
3,519,182
7,219,439
(1,623,814)
-
(1,623,814)
During the year ended December 31, 2019, there was no change in the carrying amount of equity securities without readily determinable fair value measured under fair value alternative method using
significant unobservable inputs (Level 3).
During the year ended December 31, 2019, US$3,075,014 (2018: US$3,407,090 realized loss) net realized gain and US$1,623,814 (2018: US$1,150,200 unrealized gain) unrealized loss are included in
earnings.
4.
Other receivables
As of December 31, 2019, other receivables consisted of the followings:
Henan Derun Real Estate Co. Ltd (“Henan Derun”)
Zhengzhou Jiahe Real Estate Co. Ltd (“Zhengzhou Jiahe”)
Zhangjiakou Xingyuan City Construction Development Co. Ltd
Huzhou Xinhong Jingcheng Construction and Development Co. Ltd
Due from contractors
Others
Other receivables
December 31,
2019
US$
124,436,299
67,429,462
19,696,568
16,369,944
24,444,823
34,923,080
287,300,176
Other non-current assets as of December 31, 2018 included a prepayment of US$95.6 million to Henan Derun for the purchase of 10% equity interest in Henan Derun. In December 2019, the Group and
Henan Derun agreed to terminate the equity interest purchase. In addition, the Group agreed to provide Henan Derun financing using the prepayment and charge an interest of 18% per annum
commencing from the date of prepayment made to Henan Derun. As of December 31, 2019, the prepayment is recorded as other receivable aggregating to US$124.4 million (December 31, 2018:
US$13.5 million). In March 2020, the Group entered into an agreement with Henan Derun pursuant to which the above receivables shall be settled by Henan Derun’s transfer of certain parcels of land
properties to a project company 80% owned by the Group and the Group will assume the bank loans of Henan Derun aggregating to US$77.1 million which were pledged by such land properties. The
Group evaluated the potential impairment and concluded that no impairment allowance is required because the fair value of the relevant land properties attributed to the Group as appraised by an
external valuer exceeded the total amount of the above receivables and bank loans assumed by the Group.
F-37
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Receivable from Zhengzhou Jiahe of US$67.4 million (December 31, 2018: US$60.7 million) bears an interest from 15% to 18% per annum with a due date of December 31, 2019. The balance is now
overdue. The directors of the Company are of the view that no impairment provision is required for the balance because it was secured by the 100% equity interest in Zhengzhou Jiahe with a fair value
appraised by an external valuer significantly higher than the balance.
5.
Real estate properties development completed and under development
The following summarizes the components of real estate properties development completed and under development at December 31, 2018 and 2019:
Development completed:
Zhengzhou Century East A
Suzhou International City Garden
Jinan Xinyuan Splendid
Zhengzhou Xin City
Beijing Xindo Park
Suzhou Lake Royal Palace
Xingyang Splendid I
Zhengzhou Thriving Family
Shanghai Yipin Royal Palace
December 31,
2018
US$
December 31,
2019
US$
4,000,881
1,460,187
4,952,551
14,946,209
42,003,855
4,880,245
16,616,861
14,908,355
82,320,988
3,913,910
1,579,238
5,175,618
11,094,087
41,462,271
4,966,527
3,201,168
11,397,709
80,709,011
F-38
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
December 31,
2018
US$
December 31,
2019
US$
New York Oosten
Chengdu Thriving Family
Sanya Yazhou Bay No.1
Xi'an Metropolitan
Kunshan Royal Palace
Jinan Xin Central
Changsha Xinyuan Splendid
Zhengzhou Fancy City II (South)
Kunshan Xindo Park
Zhengzhou Xindo Park
Zhengzhou Fancy City I
Henan Xin Central I
Xuzhou Colorful City
Henan Xin Central II
Zhengzhou International New City I
Zhengzhou International New City II
Tianjin Spring Royal Palace I
Xingyang Splendid Phase II
Xingyang Splendid Phase III
Real estate properties development completed
Under development:
Current:
Xuzhou Colorful City
Xingyang Splendid II
Xingyang Splendid III
Xingyang Splendid IV
Jinan Royal Palace
Tianjin Spring Royal Palace I
Henan Xin Central II
Zhengzhou Fancy City II(North)
Zhengzhou International New City I
Zhengzhou International New City II
Tongzhou Xinyuan Royal Palace
Changsha Mulian Royal Palace
XIN Eco Marine Group Properties Sdn Bhd
Hudson Garden Project
Flushing Project
Changsha Furong Thriving Family
Zhengzhou International New City III A
Zhuhai Xin World
Xinyuan Chang'an Royal Palace
Kunshan Xinyu Jiayuan
Zhengzhou International New City Pending Staging
Zhengzhou Hangmei International Wisdom City I
F-39
127,749,947
88,492,260
31,716,745
48,352,943
8,279,289
41,158,302
7,340,408
151,224
23,673,323
13,794,988
19,329,493
36,230,637
—
—
—
—
—
—
—
632,359,691
49,972,999
44,074,338
62,771,683
11,743,049
328,737,914
101,091,391
99,196,076
77,295,404
339,890,348
171,711,098
214,011,166
108,637,317
15,064,162
106,844,124
92,821,714
39,054,048
86,999,855
102,997,747
144,771,923
159,974,516
238,835,232
91,069,505
1,201,783
64,327,235
6,627,299
43,103,208
5,742,133
29,175,427
7,540,854
1,263,824
8,251,834
8,301,650
17,254,407
14,913,267
5,547,620
9,884,003
17,458,454
17,044,177
19,221,577
15,283,105
2,563,122
458,204,518
—
—
—
46,472,092
223,967,341
—
—
95,360,634
—
—
234,987,743
—
27,488,080
123,555,996
107,304,741
15,540,229
110,507,107
153,864,698
157,044,224
146,779,965
376,230,958
75,943,506
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Xinyuan Golden Water View City
Suzhou Galaxy Bay
Xi'an Metropolitan II
Zhengzhou International New City III B
Zhengzhou International New City III C
Zhengzhou International New City III D
Tianjin Spring Royal Palace II
Zhengzhou Fancy City III
Jinan Royal Spring Bay
Suzhou Gusu Shade I (Suzhou New Project)
Wuhan Canglong Royal Palace (Wuhan New Project)
Dalian International Health Technology Town I
Qingdao Royal Dragon Bay
Chengdu Xinyuan City
Zhengzhou International New City IV
Xingyang Splendid V
Xingyang Splendid Building 46
Foshan Xinchuang AI International Science and Technology Innovation Valley
Profit recognized
Less: progress billings (Note 14)
Total real estate properties under development
Total real estate properties development completed and under development
December 31,
2018
US$
December 31,
2019
US$
428,430,649
51,739,509
5,609,532
94,547,682
99,240,244
42,706,005
70,891,230
89,529,453
119,400,947
39,163,694
124,701,587
33,796,959
246,387,446
688,987,085
176,269,525
45,984,974
4,836,734
—
5,049,788,864
348,170,931
(1,329,243,487)
438,686,015
62,557,317
5,903,626
19,164,288
88,758,649
8,416,916
62,093,526
79,922,540
135,015,228
45,267,243
141,707,492
85,174,478
212,457,554
723,555,656
220,859,532
31,136,007
7,997,771
225,362,486
4,489,083,638
301,358,319
(1,536,054,208)
4,068,716,308
3,254,387,749
4,701,075,999
3,712,592,267
As of December 31, 2019, land use rights included in the real estate properties under development totaled US$2,179,888,833 (December 31, 2018: US$2,733,197,585).
As of December 31, 2019, land use rights with an aggregate net book value of US$798,910,332 (December 31, 2018: US$1,046,360,853) was pledged as collateral for certain bank loans and other
debts.
6.
Real estate properties held for lease, net
The Group leases buildings to various third parties its owned properties including elementary schools, basement parking, kindergartens, parking facilities, clubhouses as well as shopping mall. These
leases are non-cancelable operating leases with remaining lease periods that vary from 25 days to 20 years. The leases may include minimum base rents with escalated contingent rent clauses.
F-40
Elementary schools
Basement parking
Kindergartens
Parking facilities
Clubhouses
Shopping mall
Residential properties
Others
Total costs
Accumulated depreciation
Real estate properties held for lease, net
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
December 31,
2018
US$
December 31,
2019
US$
3,107,711
9,633,568
10,194,286
55,941,369
7,789,415
243,346,989
—
2,972,811
332,986,149
(30,221,932)
302,764,217
3,057,371
14,694,085
10,049,512
100,036,672
8,574,329
290,610,416
124,280,030
2,924,658
554,227,073
(38,358,165)
515,868,908
The Group has shopping mall equipment with gross amount of US$7,266,822 and US$7,149,114 acquired under finance lease as of December 31, 2018 and 2019, respectively.
Depreciation expense for real estate properties held for lease for the year ended December 31, 2019 amounted to US$8,625,765(2017: US$7,280,421; 2018: US$7,963,627).
As of December 31, 2019, US$206,516,986 of real estate properties held for lease were pledged as collateral for certain bank loans and other debts (2018: US$175,429,630).
As of December 31, 2019, minimum future rental income on non-cancellable leases (none of which contains any contingent rental clauses), in the aggregate and for each of the five succeeding fiscal
years and thereafter, is as follows:
Year
2020
2021
2022
2023
2024 and thereafter
Total
Amount
US$
15,986,263
15,587,876
14,786,872
13,728,432
107,158,511
167,247,954
F-41
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
7.
Property and equipment, net
Property and equipment consisted of the following:
Finance lease right-of-use asset –Corporate aircraft
Vehicles
Furniture and fixtures
Office buildings
Total
Accumulated depreciation
Property and equipment, net
December 31,
2018
US$
December 31,
2019
US$
37,494,502
5,109,037
12,580,384
10,994,284
66,178,207
(28,063,724)
38,114,483
36,887,168
5,069,515
10,523,537
21,842,187
74,322,407
(31,318,028)
43,004,379
On October 23, 2012, the Group acquired a corporate aircraft under a finance lease. The lease has an eight-year term and expires on September 15, 2021 with 32 quarterly lease payments of
US$1,426,000. A deposit in the amount of US$6.7 million may be used as full and final payment to Minsheng to purchase the corporate aircraft.
Depreciation expense for property and equipment for the year ended December 31, 2019 amounted to US$5,904,454 (2017: US$5,350,256; 2018: US$4,908,299) which includes amortization expense
related to the corporate aircraft capital lease amounting to US$2,336,187 (2017: US$2,613,008; 2018: US$2,582,340).
Accumulated depreciation expense for property and equipment as of December 31, 2019 amounted to US$31,318,028 (2017: US$23,994,047; 2018: US$28,063,724) which includes accumulated
amortization expense related to the corporate aircraft capital lease amounting to US$14,601,171 (2017: US$11,375,747; 2018: US$13,238,949).
8.
Long-term investment
As of December 31, 2018 and 2019, the long-term investment consisted of the following:
Nonmarketable equity securities
Zhengzhou Lianhe Real Estate Co., Ltd.
Zhengzhou Taike Real Estate Co., Ltd.
Equity method investees
Qingdao Huiju Zhihui City Industrial Development Co., Ltd.
Wuhu Penghong Investment Center (Limited Partnership)
Madison Developments Limited.
Others
Total
Nonmarketable equity securities
Zhengzhou Lianhe Real Estate Co., Ltd.
Zhengzhou Taike Real Estate Co., Ltd.
Equity method investees
Qingdao Huiju Zhihui City Industrial Development Co., Ltd.
Wuhu Penghong Investment Center (Limited Partnership)
Madison Developments Limited.
Suzhou Rongjingchen Real Estate Co., Ltd
Others
Total
Initial Cost
US$
Ownership
December 31,
2018
US$
241,648
738,073
505,162,873
30,608,185
19,095,969
59,289,036
Initial Cost
US$
Ownership
241,648
738,073
523,459,957
30,608,185
19,095,969
42,041,464
69,160,051
1.85%
3.75%
49%
n/a
50%
n/a
1.85%
3.75%
49%
n/a
50%
24%
n/a
291,409
728,523
478,778,879
23,613,358
16,743,122
44,184,928
564,340,219
December 31,
2019
US$
286,689
716,723
488,227,667
18,333,122
16,294,996
41,452,466
48,308,262
613,619,925
F-42
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Equity method investees
On April 19, 2017, the Company signed an agreement to acquire up to 70% equity interest of Qingdao Huiju Zhihui City Industrial Development Co., Ltd. ("Qingdao Huiju"), which is developing a real
estate project in Qingdao city from Beijing Huiju Technology Industry Development Co., Ltd. ("Beijing Huiju"), a non-affiliated company for a consideration of US$505.2 million. As of December 31,
2019, US$505.2 million had been paid and a 49% equity interest has been transferred to the Company. Based on the articles of association, the Company cannot exercise control of Qingdao Huiju until
it acquires the entire 70% equity interest, but has the ability to exercise significant influence over Qingdao Huiju's operating and financial decisions and accounted for it as an equity method investment.
The Group initiated various legal actions against Beijing Huiju for, inter alia, (i) the transfer of the remaining 21% equity interest in Qingdao Huiju to the Group and appointment of directors into the
board of Qingdao Huiju, (ii) refund of unauthorized transfer of cash of US$98.7 million from Qingdao Huiju to Beijing Huiju, and (iii) return of business license and official seals of Qingdao Huiju to
Qingdao Huiju. In March 2019, the PRC local court held that Beijing Huiju shall refund the unauthorized cash transferred to Beijing Huiju to Qingdao Huiju and has frozen the cash of US$98.7 million
in Beijing Huiju’s bank account. In January 2020, local PRC court held that Beijing Huiju shall return the business license and official seals of Qingdao Huiju to Qingdao Huiju. However, Beijing Huiju
appealed to PRC Courts against the refund of cash and return of business and official seals to Qingdao Huiju. Currently the above lawsuits are in progress. Based on independent legal advice and after
due and careful enquiry, the directors of the Company are of the view that Group is entitled to the receipt of the 21% equity interest in Qingdao Huiju and the appointment of directors into the board of
Qingdao Huiju, and Qingdao Huiju is entitled to get back the cash, business license and seals from Beijing Huiju. Hence the above events shall have not any material adverse effect on the Group’s
investment in and receivable from Qingdao Huiju.
On September 4, 2017, the Company with two non-affiliated companies, established a limited partnership, Wuhu Penghong Investment Center (Limited Partnership) ("Wuhu Penghong"), in which the
Company and the other two partners each invested US$30.6 million, US$91.8 million and US$3.1 million in cash, respectively, to invest in real estate project. The other two partners hold substantive
participating rights whereas the Company only exercises significant influence, and therefore, accounted for its investment in Wuhu Penghong under the equity method.
On March 21, 2018, the Company acquired 50% equity interest in Madison Developments Limited ("MDL"), which is developing a real estate project in London, England from ED Jersey Limited, a
non-affiliated company for a consideration of US$19.1 million. Based on the articles of association, the Company cannot exercise control of MDL, but has the ability to exercise significant influence
over MDL's operating and financial decisions and accounts for it as an equity method investment.
In July 2019, the Company acquired 24% equity interest in Suzhou Rongjingchen Real Estate Co., Ltd. ("Suzhou Rongjingchen"), which is developing a real estate project in Suzhou city from Suzhou
Kaijingsheng Real Estate Co., Ltd., a non-affiliated company, for a consideration of US$42.0 million. Based on the articles of association, the Company cannot exercise control of Suzhou Rongjingchen,
but has the ability to exercise significant influence over Suzhou Rongjingchen's operating and financial decisions and accounted for it as an equity method investment.
As of December 31, 2019, the Group's investment in the investees in the aggregate exceeded its proportionate share of the net assets of the equity method investee by nil (December 31, 2018: nil). This
difference, if any, represents equity method goodwill and therefore, is not amortized. For the year ended December 31, 2019, the Group recognized its share of loss from its equity method investments
of US$5,416,471 (2017: loss of US$1,710,070; 2018: loss of US US$9,374,451). As of December 31, 2018 and 2019, there was no material impairment related to these investments.
F-43
Summarized combined financial information of the equity method investees is as follows:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Current assets
Noncurrent assets
Current liabilities
Non-current liabilities
Non-controlling interest
Gross revenue
Gross profit
Loss from continuing operations
Net loss
Net loss attributable to the Company
December 31,
2019
US$
(in thousands)
1,413,713
411,764
499,078
460,617
5,778
68,353
14,976
(5,928)
(10,691)
(11,614)
The above summarized financial information represents the operating performance and financial position of the investees since they became equity method investees of the Group.
9.
Acquisition of subsidiaries
2018 Acquisition Activitiy
On September 6, 2018, the Group's equity method investee, Wuhu Penghua Tenth Investment Center (Limited Partnership) ("Wuhu Penghua"), repurchased all partnership interests from all its partners
except the Group for a consideration of US$146.6 million. As a result, the Company was the sole partner remaining. Therefore, Wuhu Penghua and its subsidiaries Chengdu Renju and Chengdu
Guohongteng Real Estate Co., Ltd. (collectively, the "Wuhu Group") became wholly-owned by the Company.
This acquisition was consistent with the Group's strategy to develop residential real estate markets in fast growth cities in China, and was accounted for under the acquisition method of accounting with
acquired assets and assumed liabilities recorded at their acquisition date fair values. A gain of US$4,384,563 was recognized as a result of the re-measurement of previously held equity interest in the
Wuhu Group based on the acquisition-date fair value and is presented as a component of other income. The goodwill recognized at the acquisition date amounting to US$534,697 is primarily as a result
of the ASC 740 requirement to recognize a deferred tax liability, calculated as the difference between the tax effect of the fair value of the acquired real estate property under development and its
corresponding tax base. None of the goodwill recognized is tax deductible.
The operational results of the Wuhu Group have been included in the Group's consolidated financial statements since September 6, 2018 ("Acquisition Date").
The purchase price allocation for the acquisition is primarily based on a valuation determined by the Group with the assistance of an independent third party valuation firm. The following table
summarizes the fair values of the assets acquired and liabilities assumed on Acquisition Date.
F-44
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Carrying amount of previously held equity interests
Remeasurement gain
Fair value of previously held equity interests(i)
Less: Goodwill
Fair value of net identifiable assets acquired:
Cash and cash equivalents
Real estate properties under development
Current assets
Current liabilities
Deferred tax liabilities
Long-term bank loan
Net assets acquired
US$
202,354,932
4,384,563
206,739,495
534,697
206,204,798
11,761,992
538,393,230
7,471,403
(57,705,079)
(534,697)
(293,182,051)
206,204,798
(i) The business combination was achieved without the transfer of consideration. The difference between the fair value of previously held equity interest and the fair value of net identifiable assets
acquired was recognized as goodwill. As the Wuhu Group were private companies, the fair value of the Group's previously held equity interest is estimated based on asset-based approach using
significant unobservable inputs that market participants would consider, which mainly include estimated revenue and estimated cost for the construction project.
The amount of revenue and net income of the Wuhu Group included in the Group's consolidated statement of comprehensive income for the period from the Acquisition Date to December 31, 2018 are
US$30,248,316 and US$6,710,751, respectively.
The pro forma results of operations for the acquisition has not been presented because the revenue and earnings generated before the acquisition is immaterial.
2019 Acquisition Activity
In November 2019, the Group acquired Beijing Ruizhuo Xitou Development Co., Ltd. (“Xitou”), a related party, for a total consideration of US$16,486,299, represents extinguishment of pre-existing
receivable (Note 18). Xitou is primarily engaged in provision of online platform services for real estate project financing purposes.
In November 2019, the Group acquired Beijing Ruizhuo Xichuang Technology Development Co., Ltd. (“Xichuang”), a related party, for a total consideration of US$11,212,797, represents
extinguishment of pre-existing receivable (Note 18). Xichuang is primarily engaged in the provision of online platform services for sourcing, sale and purchase of real estate properties.
In November 2019, the Group acquired Beijing I-Journey Science and Technology Development Co,Ltd.("I-Journey"), a related party, for a total consideration of US$21,062,847, represents
extinguishment of pre-existing receivable (Note 18). I-journey is primarily engaged in the sale of household robots and provision of community cloud services.
The acquisitions of Xitou, Xichuang and I-journey were in line with the Group’s strategy to extend its business to provide real estate and property management related technology services. The above
acquisitions were accounted for under the acquisition method of accounting with acquired assets and assumed liabilities recorded at their acquisition date fair values. The goodwill recognized upon the
acquisitions amounting to US$6,624,594, US$5,159,916 and US$12,927,103 respectively is primarily as a result of the excess of the acquisition considerations over the respective fair value of net
identifiable assets acquired. The goodwill recognized in other non-current assets is attributable primarily to expected synergies and the assembled workforce. The goodwill is not deductible for tax
purposes. None of the goodwill recognized is tax deductible.
F-45
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The operational results of Xitou, Xichuang and I-journey have been included in the Group's consolidated financial statements since November 30, 2019 ("Date of Acquisition"). The pro forma results of
operations for the acquisitions have not been presented because the revenue and earnings generated before the acquisitions is immaterial.
The purchase price allocation for the acquisitions is primarily based on a valuation determined by the Group with the assistance of an independent third party valuation firm. The following table
summarizes the fair values of the assets acquired and liabilities assumed on Date of Acquisition.
Cash and cash equivalents
Intangible assets (1)
Technology
Trade mark
Other current assets
Deferred tax assets
Other non-current assets
Goodwill
Current liabilities
Deferred tax liabilities
Non-controlling interest
Total Consideration
Xinruifeng
subgroup
US$
Xinhujin subgroup
US$
Xinzhihui subgroup
US$
Total
US$
472,974
276,511
77,526
827,011
9,446,403
—
262,373
1,057,527
29,935
6,624,594
(269,349)
(1,057,527)
(80,631)
16,486,299
5,877,125
—
164,373
1,170,995
14,176
5,159,916
(241,318)
(1,170,995)
(37,986)
11,212,797
6,249,820
2,623,205
691,872
658,831
43,115
12,927,103
(1,499,623)
(658,831)
(50,171)
21,062,847
21,573,348
2,623,205
1,118,618
2,887,353
87,226
24,711,613
(2,010,290)
(2,887,353)
(168,788)
48,761,943
(1)
Intangible assets acquired in 2019 have estimated useful lives between six and ten years.
(2) Xinruifeng, Xinhujin and Xinzhihui are parents of Xitou, Xichuang and I-journey, respectively.
10.
Short-term bank loans and other debt
Short-term bank loans and other debt represent amounts due to various banks and financial institutions that are due on the dates indicated below. Short-term bank loans and other debt at December 31,
2018 and 2019 consisted of the following:
Loan from The Bank of East Asia
Due January 2, 2020, at 1.10% plus 1 month LIBOR
Loan from Henan Zhongyuan Microfinance Co., Ltd.
Due July 26, 2019, at 11.60% per annum
Loan from Zhongyuan Aviation Finance Leasing Co., Ltd.
Due December 20 2020, at 10.00% per annum
Loan from Hua Xia Bank Co., Ltd.
Due May 30, 2020, at 6.5250% per annum
Loan from Shandong Rongyue Finance Leasing Co., Ltd.
Due December 24, 2020, at 5.00% per annum
Loan from Kunlun Trust Co., Ltd.
Due June 28, 2019, at 10.50% per annum
Loan from Zhongyuan Commercial Factoring Co., Ltd.
Due January 30, 2020, at 10.00% per annum
Loan from Tianjin financial exchange center Co., Ltd. at 9.00% per annum
Loan from Tianjin financial exchange center Co., Ltd. at 8.50% per annum
Loan from Tianjin financial exchange center Co., Ltd. at 8.00% per annum
Total short-term bank loans and other debt
F-46
December 31,
2018
US$
December 31,
2019
US$
—
19,900,000
7,285,231
—
—
—
—
11,467,562
8,600,671
4,300,335
36,426,157
—
—
—
28,668,902
189,215
51,604
240,819
43,711,388
73,419,108
As of December 31, 2019, except when otherwise indicated, the Group's short-term bank loans and other debt were all denominated in RMB and were mainly secured by the Group's real estate
properties held for lease with net book value of US$ 14,899,171 (December 31, 2018: nil), the real estate properties development completed with net book value of US$ 10,168,195 (December 31,
2018: nil), and restricted cash of US$20,691,781 (December 31, 2018:nil).
The weighted average interest rate on short-term bank loans and other debt as of December 31, 2019 was 8.33% (December 31, 2018: 10.68%).
11.
Long-term bank loans
Long-term bank loans as of December 31, 2018 and 2019 analyzed by final installment maturity dates consisted of the following:
Loan from ICBC
Due December 26, 2021, at 6.175% per annum
Due December 22, 2021, at 6.175% per annum
Due December 30, 2021, at 6.60% per annum
Due December 22, 2021, at 9.80% per annum
Due July 23, 2022, at 4.75% per annum
Loan from China Guangfa Bank
Due July 17, 2021, at 6.175% per annum
Due October 20, 2019, at 6.4125% per annum
Loan from Bank of China
Due March 30, 2020, at 6.65% per annum
Due October 31, 2021 at 4.75% per annum
Loan from Bank of Beijing
Due February 14, 2020 at 4.75% per annum
Loan from The Bank of East Asia
Due June 1, 2019, at 1.10% plus 1 month LIBOR
Due June 5, 2019, at 1.10% plus 1 month LIBOR
Due August 15, 2019, at 1.10% plus 1 month LIBOR
Due August 30, 2019, at 1.10% plus 1 month LIBOR
Due September 19, 2019, at 1.10% plus 1 month LIBOR
Due January 9, 2020, at 1.10% plus 1 month LIBOR
Due June 2, 2019, at 1.10% plus 1 month LIBOR
Due September 27, 2019, at 1.10% plus 3 month LIBOR
Due June 4, 2021, at 1.10% plus 1 month LIBOR
Due June 6, 2021, at 1.10% plus 1 month LIBOR
Due August 20, 2021, at 1.10% plus 1 month LIBOR
Due September 27, 2021, at 1.10% plus 1 month LIBOR
Due October 20, 2021, at 1.10% plus 1 month LIBOR
Due October 27, 2021, at 1.10% plus 1 month LIBOR
F-47
December 31,
2018
US$
December 31,
2019
US$
116,560,788
58,284,765
53,619,303
58,281,851
—
286,746,707
—
10,490,733
10,490,733
33,512,064
64,110,036
97,622,100
42,810,934
9,675,654
10,000,000
20,000,000
9,700,000
2,220,000
3,178,000
34,421,617
24,294,636
—
—
—
—
—
—
113,489,907
66,890,284
33,448,009
30,770,333
33,448,009
14,334,451
178,891,086
18,048,508
—
18,048,508
7,167,226
50,457,269
57,624,495
32,372,065
—
—
—
—
—
3,178,000
—
—
22,500,000
30,000,000
19,170,000
9,100,000
2,100,000
17,570,000
103,618,000
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Loan from Ping An Bank Co., Ltd.
Due May 31, 2021, at 6.8875% per annum
Due May 27, 2021, at 7.3625% per annum
Due March 27, 2022, at 6.9825% per annum
Loan from China Construction Bank
Due July 2, 2021, at 6.65% per annum
Due August 1, 2021, at 4.35% per annum
Due August 1, 2021, at 4.75% per annum
Due August 1, 2021, at 4.75% per annum
Due April 4, 2021, at 6.175% per annum
Loan from Bank of Minsheng
Due June 14, 2031, at 8.50% per annum
Due March 30, 2023 at 8.8825% per annum
Loan from Bank of Hengfeng
Due September 20, 2021, at 8.0009% per annum
Loan from Zheshang Bank Co., Ltd
Due September 21, 2021, at 7.60% per annum
Loan from Bank of Communications Co., Ltd
Due March 18, 2022, at 7.600% per annum
Loan from Bank of Zhengzhou Co., Ltd
Due September 26, 2021, at 7.000075% per annum
Loan from Bank of Huaxia Co., Ltd
Due December 27, 2021, at 5.08% per annum
Total
Less: current portion of long-term bank loans
Total long-term bank loans
As of December 31, 2019, the contractual maturities of these loans are as follows:
Year
2020
2021
2022
2023
2024 and thereafter
Less: current portion of long-term bank loans
Total: long-term bank loans
F-48
116,417,997
14,570,463
—
130,988,460
56,824,805
—
—
17,484,555
36,424,700
110,734,060
62,798,694
291,394,685
354,193,379
73,580,837
80,272,928
9,890,771
39,405,407
129,569,106
—
44,723,488
11,180,872
17,201,343
—
73,105,703
59,487,973
286,402,339
345,890,312
65,150,082
29,286,630
17,344,686
—
—
—
1,249,943,747
(529,904,807)
37,104,728
64,505,031
11,610,908
1,134,834,710
(448,770,014)
720,038,940
686,064,696
Amount
US$
448,770,014
599,627,953
37,269,574
4,156,992
45,010,177
(448,770,014)
686,064,696
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
As of December 31, 2019, except when otherwise indicated, the Group's long term bank loans were all denominated in RMB and were mainly secured by the Group's real estate properties under
development with net book value of US$78,726,065 (December 31, 2018: US$30,727,630), land use rights with net book value of US$382,772,544 (December 31, 2018: US$462,352,750), the Group's
real estate properties held for lease with net book value of US$144,272,409 (December 31, 2018: 123,781,349), the real estate properties development completed with net book value of US$457,032
(December 31, 2018: nil),and restricted cash of US$116,152,060 (December 31, 2018:nil).
The interest rates of these bank loans are adjustable based on the range of 100% to 206% of the PBOC prime rate. The weighted average interest rate on long-term bank loans as of December 31, 2019
was 6.94% (December 31, 2018: 7.16%).
12.
Other long-term debt
As of December 31, 2018 and 2019, other long-term debt analyzed by final installment maturity dates consisted of the following:
Senior notes
November 2020 Senior Secured notes due on November 22, 2020 at 8.875%
August 2019 Senior Notes due on August 30, 2019 at 8.125%
February 2021 Senior notes due on February 28, 2021 at 7.75%
March 2020 Senior Secured Notes due on March 12, 2020 at 9.875%
October 2021 Senior Secured Notes due on October 16, 2021 at 14.20%
Corporate bonds
Due December 28, 2020 at 8.20%
Due January 27, 2021 at 7.47%
Due March 14, 2021 at 7.09%
Due August 15, 2019 at 8.20%
Due April 7, 2020 at 8.20%
Due September 21, 2020 at 8.50%
Due April 1, 2024 at 8.40%
Due January 4, 2022 at 8.50%
Loan from Ping An Trust Co., Ltd
Due May 22, 2020 at 10.3192%
Due November 30, 2019 at 10.3192%
Due May 23, 2019 at 10.3192%
Due November 23, 2020 at 11.20%
Due May 22, 2021 at 15.00%
Due May 29, 2021 at 11.50%
Due April 26, 2021 at 11.50%
Loan from Guo Tou Tai Kang Trust Co., Ltd
Due October 30, 2019 at 9.30%
Due November 2, 2019 at 9.30%
Kunlun Trust Co., Ltd
Due March 17, 2020 at 7.62%
Loan from Wanxiang Trust Co., Ltd
Due December 4, 2020 at 12.00%
Due April 30, 2021 at 12.00%
Due January 4, 2020 at 12.00%
Due July 18, 2020 at 12.00%
F-49
December 31,
2018
US$
December 31,
2019
US$
295,673,796
286,741,749
270,624,821
197,226,325
—
58,275,179
43,709,787
72,849,705
63,404,057
89,655,359
28,998,553
—
—
189,416,016
130,813,615
189,780,277
—
—
—
—
2,360,415
26,780,511
296,897,742
—
261,941,119
123,055,415
295,968,740
1,962,386
8,213,641
7,551,597
—
—
21,947,434
58,887,016
650,673
43,003,354
—
—
200,682,320
42,989,020
85,863,364
24,248,158
—
—
21,855,694
21,501,677
1,427,905
—
—
—
—
28,668,903
12,929,675
21,501,677
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Loan from China Huarong Asset Management Co., Ltd
Due November 27, 2020 at 11.50%
Due October 30, 2020 at 11.50%
Due November 8, 2021 at 12.00%
Loan from China Resources Investment Trust Co., Ltd
Due November 9, 2020 at 9.405%
Loan from Chang An International Trust Co., Ltd
Due December 10, 2023 at 9.00%
Loan from Henan Zhongyuan Microfinance Co., Ltd
Due July 23, 2021 at 11.60%
Loan from Kent EB-5 LLC
Due January 23, 2020 at 5.95%
Due April 30, 2020 at 5.95%
Due June 25, 2020 at 5.95%
Due August 4, 2020 at 5.95%
Due August 20, 2020 at 5.95%
Due October 1, 2020 at 5.95%
Due November 23, 2020 at 5.95%
Due March 15, 2021 at 5.95%
Due September 12, 2021 at 5.95%
Loan from Bank of Ozark
Due March 24, 2021 at 4.50% plus 1 month LIBOR
Loan from Bank Direct Capital Finance
Due November 1, 2020 at 5.5%
Loan from CMGT Lender 35 LLC
Due May 24, 2021 at 12.26%
Loan from 135-35 NORTHERN BLVD 1&2 LLC
Due May 1, 2021 at 8.5%
Total principal of other long-term debt
Less: current portion of other long-term debt
Total other long-term debt
The March 2020, November 2020, February 2021 and October 2021 Senior Secured Notes are senior secured pari passu obligations of the Company.
F-50
11,656,370
40,951,099
—
10,894,183
28,095,525
30,145,351
50,996,620
42,286,632
—
—
9,500,000
5,000,000
5,000,000
5,000,000
5,000,000
10,000,000
10,000,000
9,500,000
500,000
172,013,417
6,880,537
9,500,000
5,000,000
5,000,000
5,000,000
5,000,000
10,000,000
10,000,000
9,500,000
500,000
24,008,924
50,157,305
1,762,072
822,506
—
—
18,660,737
28,955,968
2,158,468,849
2,006,876,072
(1,118,013,649)
(970,185,445)
1,040,455,200
1,036,690,627
As of December 31, 2019, the contractual maturities of these debts are as follows:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Year
2020
2021
2022
2023
Less: current portion of other long term debt
Total: Other long-term debt
Amount
US$
970,185,445
989,429,149
34,402,683
12,858,795
(970,185,445)
1,036,690,627
As of December 31, 2019, except when otherwise indicated and the Senior Secured Notes, the Group's other long-term debt was all denominated in RMB and mainly secured by the Group's real estate
properties under development with net book value of US$1,445,969 (December 31, 2018: US$963,588), land use rights with net book value of US$ 416,137,788 (December 31, 2018: US$584,008,103),
real estate properties held for lease with net book value of US$47,345,406 (December 31, 2018: US$51,648,281), and real estate properties development completed with net book value of
US$50,301,375 (December 31, 2018: US$36,801,393).
August 2019 Senior Secured Notes
On August 30, 2016, the Company issued an aggregate principal amount of US$300,000,000 of the August 2019 Senior Secured Notes. The August 2019 Senior Secured Notes bear interest at 8.125%
per annum payable semi-annually. Interest will be payable on February 28 and August 30 of each year, commencing February 28, 2017.
The effective interest rate of August 2019 Senior Secured Notes is 9.06%.
The August 2019 Senior Secured Notes were issued pursuant to an indenture, dated August 30, 2016, between the Company, the "Subsidiary Guarantors" identified below and Citicorp International
Limited, as trustee and collateral agent (the "August 2019 Indenture"). The Company's obligations under the August 2019 Indenture and the August 2019 Senior Secured Notes have been guaranteed by
certain of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Ltd., South Glory International Ltd.,
Elite Quest Holdings Ltd. and Xinyuan International (HK) Property Investment Co., Limited (the "Subsidiary Guarantors") and will be guaranteed by such other future subsidiaries of the Company as is
set forth in and in accordance with the terms of the August 2019 Indenture. The Company's obligations under the August 2019 Indenture and the August 2019 Senior Secured Notes are secured by a
pledge of the capital stock of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Limited, South
Glory International Limited and Elite Quest Holdings Ltd.
At any time prior to August 30, 2019, the Company may at its option redeem the August 2019 Senior Secured Notes, in whole but not in part, at a redemption price equal to 100.0% of the principal
amount of the August 2019 Senior Secured Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. "Applicable Premium" means
with respect to any August 2019 Senior Secured Note at any redemption date, the greater of (i) 1.00% of the principal amount of such August 2019 Senior Secured Note and (ii) the excess of (A) the
present value at such redemption date of the principal amount of such August 2019 Senior Secured Note, plus all required remaining scheduled interest payments due on such August 2019 Senior
Secured Note through the maturity date of the August 2019 Senior Secured Notes (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the
Adjusted Treasury Rate (as defined in the August 2019 Indenture) plus 100 basis points, over (B) the principal amount of such August 2019 Senior Secured Note on such redemption date.
F-51
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
At any time prior to August 30, 2019, the Company may redeem up to 35% of the aggregate principal amount of the August 2019 Senior Secured Notes with the net cash proceeds of one or more sales
of our common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of 108.125% of the principal amount of the August 2019 Senior Secured Notes,
plus accrued and unpaid interest, if any, to (but not including) the redemption date, provided that at least 65% of the aggregate principal amount of the August 2019 Senior Secured Notes issued on
August 30, 2016 remain outstanding after each such redemption.
The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the August 2019 Senior Secured Notes under the requirements of ASC 815. The
embedded redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the
August 2019 Secured Senior Notes.
The August 2019 Indenture, contains certain covenants that, among others, restrict the Company's ability and the ability of the Company's Restricted Subsidiaries (as defined in the August 2019
Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay dividends or purchase or redeem capital stock, to sell assets (including limitations on the
use of proceeds of asset sales), to grant liens on the collateral securing the August 2019 Senior Secured Notes or other assets, to make certain other payments or to engage in transactions with affiliates
and holders of more than 10% of the Company's Common Shares, subject to certain qualifications and exceptions and satisfaction, in certain circumstances of specified conditions, such as a Fixed
Charge Coverage Ratio (as defined in the August 2019 Indenture) of 2.50 to 1.0.
From August 31, 2018 to December 31, 2018, the Company redeemed the August 2019 Senior Secured Notes for a total principal amount of US$11.9 million. The Company recognized gain on
extinguishment of debt amounting to US$511,919, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$577,449 and the loss from
unamortized deferred debt issuance costs amounting to US$65,530.
From January 1, 2019 to December 31, 2019, the Company redeemed the August 2019 Senior Secured Notes for a total principal amount of US$288.1 million. The Company recognized loss on
extinguishment of debt amounting to US$1,111,583 in 2019, consisting of the loss from the difference between repurchase price and principal amount of the debt amounting to US$125,165 and the loss
from unamortized deferred debt issuance costs amounting to US$986,418.
February 2021 Senior Secured Notes
On February 28, 2017, The Company issued an aggregate principal amount of US$300,000,000 of the February 2021 Senior Secured Notes. The February 2021 Senior Secured Notes bear interest at
7.75% per annum payable semi-annually. Interest will be payable on February 28 and August 28 of each year, commencing August 28, 2017. The February 2021 Senior Secured Notes have a four year
term maturing on February 28, 2021.
The effective interest rate of February 2021 Senior Secured Notes is 8.68%.
The February 2021 Senior Secured Notes were issued pursuant to an indenture, dated February 28, 2017, between the Company, the "Subsidiary Guarantors" identified below and Citicorp International
Limited, as trustee and collateral agent (the "February 2021 Indenture"). The Company's obligations under the February 2021 Indenture and the February 2021 Senior Secured Notes have been
guaranteed by certain of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Ltd., South Glory
International Ltd., Elite Quest Holdings Ltd. and Xinyuan International (HK) Property Investment Co., Limited (the "Subsidiary Guarantors") and will be guaranteed by such other future subsidiaries of
the Company as is set forth in and in accordance with the terms of the February 2021 Indenture. The Company's obligations under the February 2021 Indenture and the February 2021 Senior Secured
Notes are secured by a pledge of the capital stock of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good
Development Limited, South Glory International Limited and Elite Quest Holdings Ltd.
F-52
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
At any time prior to February 28, 2021, the Company may at its option redeem the February 2021 Senior Secured Notes, in whole but not in part, at a redemption price equal to 100.0% of the principal
amount of the February 2021 Senior Secured Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. "Applicable Premium" means
with respect to any February 2021 Senior Secured Note at any redemption date, the greater of (i) 1.00% of the principal amount of such February 2021 Senior Secured Note and (ii) the excess of (A) the
present value at such redemption date of the principal amount of such February 2021 Senior Secured Note, plus all required remaining scheduled interest payments due on such February 2021 Senior
Secured Note through the maturity date of the February 2021 Senior Secured Notes (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the
Adjusted Treasury Rate (as defined in the February 2021 Indenture) plus 100 basis points, over (B) the principal amount of such February 2021 Senior Secured Note on such redemption date.
At any time prior to February 28, 2021, the Company may redeem up to 35% of the aggregate principal amount of the February 2021 Senior Secured Notes with the net cash proceeds of one or more
sales of our common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of 107.75% of the principal amount of the February 2021 Senior Secured
Notes, plus accrued and unpaid interest, if any, to (but not including) the redemption date, provided that at least 65% of the aggregate principal amount of the February 2021 Senior Secured Notes issued
on February 28, 2017 remain outstanding after each such redemption.
The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the February 2021 Senior Secured Notes under the requirements of ASC 815. The
embedded redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the
February 2021 Secured Senior Notes.
The February 2021 Indenture, contains certain covenants that, among others, restrict the Company's ability and the ability of the Company's Restricted Subsidiaries (as defined in the February 2021
Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay dividends or purchase or redeem capital stock, to sell assets (including limitations on the
use of proceeds of asset sales), to grant liens on the collateral securing the February 2021 Senior Secured Notes or other assets, to make certain other payments or to engage in transactions with affiliates
and holders of more than 10% of the Company's Common Shares, subject to certain qualifications and exceptions and satisfaction, in certain circumstances of specified conditions, such as a Fixed
Charge Coverage Ratio (as defined in the February 2021 Indenture) of 2.0 to 1.0.
From August 31, 2018 to December 31, 2018, the Company redeemed the February 2021 Senior Secured Notes for a total principal amount of US$25.4 million. The Company recognized gain on
extinguishment of debt amounting to US$2,642,710, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$3,043,135 and the loss from
unamortized deferred debt issuance costs amounting to US$400,425.
From January 1, 2019 to December 31, 2019, the Company redeemed the February 2021 Senior Secured Notes for a total principal amount of US$10.6 million. The Company recognized gain on
extinguishment of debt amounting to US$1,126,617, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$1,246,256 and the loss from
unamortized deferred debt issuance costs amounting to US$119,639.
November 2020 Senior Secured Notes
On November 22, 2017 and December 1, 2017, the Company issued an aggregate principal amount of US$200,000,000 and US$100,000,000 of the November 2020 Senior Secured Notes, respectively.
The November 2020 Senior Secured Notes bear interest at 8.875% per annum payable semi-annually. Interest will be payable on May 22 and November 22 of each year, commencing May 22, 2018.
The November 2020 Senior Secured Notes have a three year term maturing on November 22, 2020.
The effective interest rate of November 2020 Senior Secured Notes is 9.95%.
F-53
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The November 2020 Senior Secured Notes were issued pursuant to an indenture, dated November 22, 2017, between the Company, the "Subsidiary Guarantors" identified below and Citicorp
International Limited, as trustee and collateral agent (the "November 2020 Indenture"). The Company's obligations under the November 2020 Indenture and the November 2020 Senior Secured Notes
have been guaranteed by certain of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Ltd., South
Glory International Ltd., Elite Quest Holdings Ltd. and Xinyuan International (HK) Property Investment Co., Limited (the "Subsidiary Guarantors") and will be guaranteed by such other future
subsidiaries of the Company as is set forth in and in accordance with the terms of the November 2020 Indenture. The Company's obligations under the November 2020 Indenture and the November
2020 Senior Secured Notes are secured by a pledge of the capital stock of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd.,
Victory Good Development Limited, South Glory International Limited and Elite Quest Holdings Ltd.
At any time prior to November 22, 2020, the Company may at its option redeem the November 2020 Senior Secured Notes, in whole but not in part, at a redemption price equal to 100.0% of the
principal amount of the November 2020 Senior Secured Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. "Applicable
Premium" means with respect to any November 2020 Senior Secured Note at any redemption date, the greater of (i) 1.00% of the principal amount of such November 2020 Senior Secured Note and (ii)
the excess of (A) the present value at such redemption date of the principal amount of such November 2020 Senior Secured Note, plus all required remaining scheduled interest payments due on such
November 2020 Senior Secured Note through the maturity date of the November 2020 Senior Secured Notes (but excluding accrued and unpaid interest to the redemption date), computed using a
discount rate equal to the Adjusted Treasury Rate (as defined in the November 2020 Indenture) plus 100 basis points, over (B) the principal amount of such November 2020 Senior Secured Note on such
redemption date.
At any time prior to November 22, 2020, the Company may redeem up to 35% of the aggregate principal amount of the November 2020 Senior Secured Notes with the net cash proceeds of one or more
sales of our common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of 108.875% of the principal amount of the November 2020 Senior
Secured Notes, plus accrued and unpaid interest, if any, to (but not including) the redemption date, provided that at least 65% of the aggregate principal amount of the November 2020 Senior Secured
Notes issued on November 22, 2017 remain outstanding after each such redemption.
The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the November 2020 Senior Secured Notes under the requirements of ASC 815. The
embedded redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the
November 2020 Secured Senior Notes.
The November 2020 Indenture, contains certain covenants that, among others, restrict the Company's ability and the ability of the Company's Restricted Subsidiaries (as defined in the November 2020
Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay dividends or purchase or redeem capital stock, to sell assets (including limitations on the
use of proceeds of asset sales), to grant liens on the collateral securing the November 2020 Senior Secured Notes or other assets, to make certain other payments or to engage in transactions with
affiliates and holders of more than 10% of the Company's Common Shares, subject to certain qualifications and exceptions and satisfaction, in certain circumstances of specified conditions, such as a
Fixed Charge Coverage Ratio (as defined in the November 2020 Indenture) of 2.0 to 1.0.
From January 1, 2019 to December 31, 2019, the Company redeemed the November 2020 Senior Secured Notes for a total principal amount of US$0.9 million. The Company recognized gain on
extinguishment of debt amounting to US$38,136, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$47,200 and the loss from
unamortized deferred debt issuance costs amounting to US$9,064.
F-54
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
March 2020 Senior Secured Notes
On March 19, 2018, the Company issued an aggregate principal amount of US$200,000,000 of the March 2020 Senior Secured Notes. The March 2020 Senior Secured Notes bear interest at 9.875% per
annum payable semi-annually. Interest will be payable on March 19 and September 19 of each year, commencing September 19, 2018. The March 2020 Senior Secured Notes have a two year term
maturing on March 19, 2020.
The effective interest rate of March 2020 Senior Secured Notes is 11.34%.
The March 2020 Senior Secured Notes were issued pursuant to an indenture, dated March 19, 2017, between the Company, the "Subsidiary Guarantors" identified below and Citicorp International
Limited, as trustee and collateral agent (the "March 2020 Indenture"). The Company's obligations under the March 2020 Indenture and the March 2020 Senior Secured Notes have been guaranteed by
certain of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Ltd., South Glory International Ltd.,
Elite Quest Holdings Ltd. and Xinyuan International (HK) Property Investment Co., Limited (the "Subsidiary Guarantors") and will be guaranteed by such other future subsidiaries of the Company as is
set forth in and in accordance with the terms of the March 2020 Indenture. The Company's obligations under the March 2020 Indenture and the March 2020 Senior Secured Notes are secured by a
pledge of the capital stock of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Limited, South
Glory International Limited and Elite Quest Holdings Ltd.
At any time prior to March 19, 2020, the Company may at its option redeem the March 2020 Senior Secured Notes, in whole but not in part, at a redemption price equal to 100.0% of the principal
amount of the March 2020 Senior Secured Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. "Applicable Premium" means
with respect to any March 2020 Senior Secured Note at any redemption date, the greater of (i) 1.00% of the principal amount of such March 2020 Senior Secured Note and (ii) the excess of (A) the
present value at such redemption date of the principal amount of such March 2020 Senior Secured Note, plus all required remaining scheduled interest payments due on such March 2020 Senior Secured
Note through the maturity date of the March 2020 Senior Secured Notes (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted
Treasury Rate (as defined in the March 2020 Indenture) plus 100 basis points, over (B) the principal amount of such March 2020 Senior Secured Note on such redemption date.
At any time prior to March 19, 2020, the Company may redeem up to 35% of the aggregate principal amount of the March 2020 Senior Secured Notes with the net cash proceeds of one or more sales of
our common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of 109.875% of the principal amount of the March 2020 Senior Secured Notes,
plus accrued and unpaid interest, if any, to (but not including) the redemption date, provided that at least 65% of the aggregate principal amount of the March 2020 Senior Secured Notes issued on
March 19, 2018 remain outstanding after each such redemption.
The Company has evaluated and determined that there was no embedded derivative requiring bifurcation from the March 2020 Senior Secured Notes under the requirements of ASC 815. The embedded
redemption options and repurchase features did not qualify for derivative accounting because the embedded derivatives were considered clearly and closely related to the characteristics of the March
2020 Senior Secured Notes.
The March 2020 Indenture, contains certain covenants that, among others, restrict the Company's ability and the ability of the Company's Restricted Subsidiaries (as defined in the March 2020
Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay dividends or purchase or redeem capital stock, to sell assets (including limitations on the
use of proceeds of asset sales), to grant liens on the collateral securing the March 2020 Senior Secured Notes or other assets, to make certain other payments or to engage in transactions with affiliates
and holders of more than 10% of the Company's Common Shares, subject to certain qualifications and exceptions and satisfaction, in certain circumstances of specified conditions, such as a Fixed
Charge Coverage Ratio (as defined in the March 2020 Indenture) of 2.0 to 1.0.
F-55
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
From January 1, 2019 to December 31, 2019, the Company redeemed the March 2020 Senior Secured Notes for a total principal amount of US$75.7 million. The Company recognized loss on
extinguishment of debt amounting to US$563,941, mainly consisting of the loss from unamortized deferred debt issuance costs amounting to US$563,941.
October 2021 Senior Secured Notes
On April 15, 2019 and April 26, 2019, the Company issued Senior Notes with an aggregate principal amount of US$300,000,000 due on October 15, 2021 (the “October 2021 Notes”). The October
2021 Notes bear interest at 14.2% per annum, payable semi-annually. Interest will be payable on April 15 and October 15 of each year, commencing October 15, 2019. The October 2021 Notes have a
two and a half year (thirty month) term maturing on October 15, 2021.
The October 2021 Notes were issued pursuant to an indenture, dated as of April 15, 2019, between the Company, the Subsidiary Guarantors (as defined below) and Citicorp International Limited, as
trustee and shared security agent (the “October 2021 Indenture”). The Company’s obligations under the October 2021 Indenture and the October 2021 Notes are guaranteed initially by certain of the
Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Limited, South Glory International Limited, Elite
Quest Holdings Limited and Xinyuan International (HK) Property Investment Co., Limited (the “Subsidiary Guarantors”) and will be guaranteed by such other future subsidiaries of the Company as is
set forth in and in accordance with the terms of the October 2021 Indenture. The Company’s obligations under the October 2021 Indenture and the October 2021 Notes are secured by a pledge of the
capital stock of the Company's wholly-owned subsidiaries, Xinyuan Real Estate, Ltd., Xinyuan International Property Investment Co., Ltd., Victory Good Development Limited, South Glory
International Limited and Elite Quest Holdings Limited.
At any time prior to October 15, 2021, the Company may at its option redeem the October 2021 Notes, in whole but not in part, at a redemption price equal to 100.0% of the principal amount of the
October 2021 Notes plus the Applicable Premium as of, and accrued and unpaid interest, if any, to (but not including) the redemption date. "Applicable Premium" means with respect to any October
2021 Note at any redemption date, the greater of (i) 1.00% of the principal amount of such Note and (ii) the excess of (A) the present value at such redemption date of the principal amount of such Note,
plus all required remaining scheduled interest payments due on such Note through the maturity date of the October 2021 Notes (but excluding accrued and unpaid interest to the redemption date),
computed using a discount rate equal to the Adjusted Treasury Rate (as defined in the Indenture) plus 100 basis points, over (B) the principal amount of such Note on such redemption date.
At any time prior to October 15, 2021, the Company may redeem up to 35% of the aggregate principal amount of the October 2021 Notes with the net cash proceeds of one or more sales of the
Company's common shares in certain equity offerings, within a specified period after the equity offering, at a redemption price of 114.2% the principal amount of the October 2021 Notes, plus accrued
and unpaid interest, if any, to (but not including) the redemption date, provided that at least 65% of the aggregate principal amount of the October 2021 Notes issued on April 15, 2019 remain
outstanding after each such redemption and any such redemption takes place within 60 days after the closing of the related equity offering.
Following a Change of Control (as defined in the October 2021 Indenture), the Company must make an offer to purchase all outstanding October 2021 Notes at a purchase price equal to 101.0% of the
principal amount thereof plus accrued and unpaid interest, if any, to (but not including) the offer to purchase payment date.
The October 2021 Indenture contains certain covenants that, among others, restrict the Company's ability and the ability of the Company's Restricted Subsidiaries (as defined in the October 2021
Indenture) to incur additional debt or to issue preferred stock, to make certain payments or investments, to pay dividends or purchase or redeem capital stock, sell assets, or make certain other payment,
subject to certain qualifications and exceptions and satisfaction, in certain circumstances of specified conditions, such as a Fixed Charge Coverage Ratio (as defined in the October 2021 Indenture) of
2.0 to 1.0.
F-56
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
From January 1, 2019 to December 31, 2019, the Company redeemed the October 2021 Senior Secured Notes for a total principal amount of US$2.5 million. The Company recognized loss on
extinguishment of debt amounting to US$25,240, consisting of the gain from the difference between repurchase price and principal amount of the debt amounting to US$52,500 and the loss from
unamortized deferred debt issuance costs amounting to US$77,740.
Onshore Corporate Bonds
On December 28, 2015, Xinyuan China issued the first tranche of the onshore corporate bonds with an aggregate principal amount of RMB 1 billion (US$154 million) due on December 28, 2020 (the
"First Tranche Bonds") at a coupon rate of 7.5% per annum payable annually. Interest is payable on December 28 of each year, commencing December 28, 2016.
From November 19, 2018 to November 30, 2018, the Company redeemed the First Tranche Bonds for a total principal amount of RMB 0.6 billion (US$87 million). The Company recognized loss on
extinguishment of debt amounting to US$6,518,487, consisting of both the debt redemption price amounting to US$6,509,574 and unamortized deferred debt issuance costs amounting to US$8,913.
From August 14, 2019 to November 12, 2019, the Company redeemed the First Tranche Bonds for a total principal amount of RMB 0.4 billion (US$57 million). The Company recognized loss on
extinguishment of debt amounting to US$1,484, consisting of both the debt redemption price amounting to US$175 and unamortized deferred debt issuance costs amounting to US$1,659.
On January 27, 2016, Xinyuan China issued the second tranche of the onshore corporate bonds with an aggregate principal amount of RMB 0.7 billion (US$107 million) due on January 27, 2021 (the
"Second Tranche Bonds") at a coupon rate of 7.47% per annum payable annually. Interest is payable on January 27 of each year, commencing January 27, 2017.
From December 14, 2018 to December 21, 2018, the Company redeemed the Second Tranche Bonds for a total principal amount of RMB 0.4 billion (US$58 million). The Company recognized loss on
extinguishment of debt amounting to US$4,775,500, consisting of both the debt redemption price amounting to US$4,773,284 and unamortized deferred debt issuance costs amounting to US$2,216.
From June 21, 2019 to August 12, 2019, the Company redeemed the Second Tranche Bonds for a total principal amount of RMB90 million (US$13 million). The Company recognized gain on
extinguishment of debt amounting to US$127,864, consisting of both the debt redemption price amounting to US$128,426 and unamortized deferred debt issuance costs amounting to US$562.
On March 14, 2016, Xinyuan China issued the third tranche of the onshore corporate bonds with an aggregate principal amount of RMB 0.5 billion (US$77 million) due on March 14, 2021 (the "Third
Tranche Bonds") at a coupon rate of 7.09% per annum payable annually. Interest is payable on March 14 of each year, commencing March 14, 2017.
From March 14, 2019 to August 14, 2019, the Company redeemed the Third Tranche Bonds for a total principal amount of RMB497.9 million (US$71 million). The Company recognized loss on
extinguishment of debt amounting to US$743,034, consisting of both the debt redemption price amounting to US$740,934 and unamortized deferred debt issuance costs amounting to US$2,100.
The above three tranches of onshore corporate bonds were issued at par. Upon the third anniversary of the issuance of each tranche of bonds, Xinyuan China may adjust the applicable coupon rate and
the holders have the right within a specified time period to require the Company to repurchase the bonds following the Company's announcement of whether it intends to adjust the interest rate. Upon
the third anniversary on December 28, 2017, the first tranche of the onshore corporate bonds have been reclassified to current liabilities. Upon the third anniversary on January 27, 2018, the second
tranche of the onshore corporate bonds have been reclassified to current liabilities. Upon the third anniversary on March 14, 2018, the third tranche of the onshore corporate bonds have been reclassified
to current liabilities. On December 28, 2018, Xinyuan China adjusted the annual interest rate of the First Tranche Bonds to 8.2% from 7.5%.
On August 15, 2016, Xinyuan China issued a new tranche of onshore corporate bonds with an aggregate principal amount of RMB 1.5 billion (US$216 million) due on August 15, 2019 (the "New
Tranche") at a coupon rate of 7.5% per annum payable annually. Interest is payable on August 15 of each year, commencing August 15, 2017.
F-57
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
On April 7, 2017, Xinyuan China issued a new second tranche of onshore corporate bonds with an aggregate principal amount of RMB 1.13 billion (US$173 million) due on April 7, 2020 (the "2017
Tranche") at a coupon rate of 8.2% per annum payable annually. Interest is payable on April 7 of each year, commencing April 7, 2018.
Upon the first anniversary of the issuance of the New Tranche and 2017 Tranche, respectively, Xinyuan China may adjust the applicable coupon rate and the holders have the right within a specified
time period to require the Company to repurchase the bonds following the Company's announcement of whether it intends to adjust the interest rate. On August 15, 2017, Xinyuan China adjusted the
annual interest rate of the New Tranche Bonds to 8.2% from 7.5%. The annual interest rate of the 2017 Tranche Bonds remained unchanged, at 8.2%.
From August 1, 2018 to August 3, 2018, the Company redeemed the New Tranche for a total principal amount of RMB 1.05 billion (US$153 million). The Company recognized loss on extinguishment
of debt amounting to US$5,989,710, consisting of both the debt redemption price amounting to US$5,710,866 and unamortized deferred debt issuance costs amounting to US$278,844.
On August 15, 2019, the Company redeemed the New Tranche for a total principal amount of RMB 0.45 billion (US$64 million).
On March 20, 2018, the Company redeemed the 2017 Tranche for a total principal amount of RMB 0.5 billion (US$73 million). The Company recognized loss on extinguishment of debt amounting to
US$3,782,353, consisting of both the debt redemption price amounting to US$3,494,557 and unamortized deferred debt issuance costs amounting to US$287,796.
On April 7, 2019, the Company redeemed the remaining amount of RMB 0.63 billion (US$90 million) 2017 Tranche, recognizing loss on extinguishment of debt amounting to US$1,535,132 in 2019,
consisting of the debt redemption price amounting to US$1,535,132.
On September 20, 2018, Xinyuan China issued a new tranche of onshore corporate bonds with an aggregate principal amount of RMB 600 million (US$87 million) due on September 21, 2020 (the
"2018 Tranche") at a coupon rate of 8.5% per annum payable annually. Interest is payable on September 21 of each year, commencing September 21, 2019. The above tranches of onshore corporate
bonds were issued at par.
On September 21, 2018, the Company redeemed the 2018 Tranche for a total principal amount of RMB 400 million (US$58 million). The Company recognized loss on extinguishment of debt
amounting to US$3,599,937, consisting of both the debt redemption price amounting to US$3,291,086 and unamortized deferred debt issuance costs amounting to US$308,851.
From August 26, 2019 to September 23, 2019, the Company redeemed the 2018 Tranche for a total principal amount of RMB76 million (US$11 million). The Company recognized loss on
extinguishment of debt amounting to US$20,958, consisting of unamortized deferred debt issuance costs amounting to US$20,958.
On January 4, 2019, Xinyuan (China) Real Estate, Ltd. issued a new tranche of the onshore corporate bonds with an aggregate principal amount of RMB600 million (US$87 million) due on January 4,
2022 (the “2019 Tranche”) at a coupon rate of 8.5% per annum payable annually. Interest is payable on January 4 of each year, commencing January 4, 2020.
From January 4, 2019 to June 21, 2019, the Company redeemed the 2019 Tranche for a total principal amount of RMB591 million (US$85 million). The Company recognized loss on extinguishment of
debt amounting to US$1,894,262 in 2019, consisting of both the debt redemption price amounting to US$1,428,945 and unamortized deferred debt issuance costs amounting to US$465,317.
On April 1, 2019, Xinyuan (China) Real Estate, Ltd. issued another new tranche of the onshore corporate bonds with an aggregate principal amount of RMB 980 million (US$146 million) due on April
1, 2024 (the “2019 First Tranche Bonds”) at a coupon rate of 8.4% per annum payable annually. Interest is payable on April 1 of each year, commencing April 1, 2020.
From April 1, 2019 to June 21, 2019, the Company redeemed the 2019 First Tranche Bonds for a total principal amount of RMB637 million (US$91 million). The Company recognized loss on
extinguishment of debt amounting to US$3,977,493 in 2019, consisting of both the debt redemption price amounting to US$3,494,668 and unamortized deferred debt issuance costs amounting to
US$482,825.
F-58
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
13.
Lease
Lessee
The Group has operating and finance leases, which primarily consist of corporate aircraft, office space and equipment. The Group’s leases include options to extend the lease term. The Group’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants. The Group has operating leases for office and dormitory in the United States and China. The leases
have remaining lease terms of up to 2 years.
Lease recorded on the consolidated balance sheets are summarized as follows:
Lease Assets
Finance lease ROU assets
Property and equipment, net
Real estate properties held for lease, net
Total
Operating lease ROU assets
Lease Liabilities
Current
Current portion of finance lease
Current portion of operating lease
Total
Non-current
Finance lease, net of current portion
Operating lease, net of current portion
Total
The components of lease expenses recognized as follows:
Operating lease cost:
Operating lease cost
Short-term lease cost
Finance lease cost:
Amortization of ROU assets
Interest on the lease liabilities
Total lease cost
For the years ended December 31, 2017 and 2018, the Group recorded operating lease expenses of US$5,132,393 and US$9,614,639, respectively.
F-59
December 31,
2019
US$
22,285,997
7,020,033
29,306,030
11,801,491
6,409,827
4,873,897
11,283,724
3,839,456
6,348,249
10,187,705
Year ended
December 31,
2019
US$
6,480,093
2,612,901
2,465,268
1,019,758
12,578,020
Supplemental cash flow information related to leases was as follows:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Operating cash flows for operating leases
Operating cash flows for finance leases
Financing cash flows for finance leases
Maturities of lease liabilities are as follows:
Year ending December 31, 2020
Year ending December 31, 2021
Year ending December 31, 2022
Year ending December 31, 2023
Total lease payments
Less: imputed interest
Present value of lease liabilities
Other supplemental information related to lease term and discount rate is summarized below:
Weighted-average remaining lease term (years)
Operating leases
Finance leases
Weighted-average discount rate
Operating leases
Finance leases
14.
Customer deposits
Year ended
December 31,
2019
US$
6,275,565
1,393,198
6,135,547
December 31, 2019
Finance Leases
US$
Operating Leases
US$
7,511,008
4,059,224
—
—
11,570,232
1,320,949
10,249,283
6,470,913
4,443,336
1,007,535
294,239
12,216,023
993,877
11,222,146
December 31,
2019
2.32
1.63
4.35%
8.05%
Advances for real estate properties comprise of sales proceeds received from customers for the pre-sale of residential units in the PRC. Advances for real estate properties are typically funded up to 40%
- 80% by mortgage loans made by banks to the customers. The Group holds certain cash balances in restricted cash accounts at the relevant banks (Note 2 (f)). The Group, in return, has a right to
withhold transfer of title to the customer until outstanding amounts are fully settled.
Advances for real estate properties
Add: increase in revenue recognized in excess of amounts received from customers
Less: recognized as progress billings (Note 5)
Customer deposits (Note 2(h))
F-60
December 31,
2018
US$
3,218,686,349
32,408,393
(1,329,243,487)
December 31,
2019
US$
2,616,487,072
25,665,783
(1,536,054,208)
1,921,851,255
1,106,098,647
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
15.
Income taxes
(a) Corporate income tax ("CIT")
Under the current law of the Cayman Islands, the Company is not subject to income tax and withholding tax.
The Company's PRC subsidiaries are subject to income tax at the statutory rate of 25% in accordance to the PRC corporate income tax laws and regulations. Further, under the same tax laws and
regulations, dividends paid by PRC enterprises out of profits earned post-2007 to non-PRC tax resident investors are subject to PRC dividend withholding tax of 10%. A lower withholding tax rate may
be applied based on applicable tax treaty with certain jurisdictions.
The Company's HK subsidiaries are subject to income tax at the statutory rate of 16.5% in accordance to the HK profits tax laws and regulations. The Company did not make any provisions for Hong
Kong Profits Tax as there were no assessable profits arising in or derived from Hong Kong for any of the periods presented. Under the Hong Kong tax law, the Company's HK subsidiaries are exempted
from income tax on its foreign-derived income and there are no withholding taxes in Hong Kong on remittance of dividends.
The Company's US subsidiaries are subject to income tax at the effective rate of approximately 33% in accordance with US corporate income tax laws and regulations, dividends and interests paid by
US enterprises to non-US tax resident enterprises are subject to US withholding tax of 30%.
Income before income tax expenses consists of:
PRC
Non PRC
Total
Income tax expenses for the years ended December 31, 2017, 2018 and 2019 are summarized as follows:
Current:
CIT tax expense
Land Appreciation Tax ("LAT") expense
Deferred tax benefit
Income tax expense
F-61
2017
US$
Year ended December 31,
2018
US$
275,898,007
(82,669,476)
355,674,888
(105,275,621)
2019
US$
355,606,696
(122,099,522)
193,228,531
250,399,267
233,507,174
2017
US$
Year ended December 31,
2018
US$
2019
US$
103,302,037
40,203,748
(30,388,659)
141,399,866
62,996,403
(59,949,022)
133,862,272
68,631,338
(52,015,238)
113,117,126
144,447,247
150,478,372
The Group's income tax expense differs from the tax expense computed by applying the PRC statutory CIT rate of 25% for the years ended December 31, 2017, 2018 and 2019, are as follows:
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
CIT at rate of 25%
Tax effect of non-deductible expenses
LAT expense
CIT benefit of LAT
Changes in valuation allowance
International rate differences
Dividend and interest withholding taxes
Adjustment of estimated income tax accruals
Others
Income tax expense
(b) Unrecognized tax benefit
2017
US$
Year ended December 31,
2018
US$
48,307,133
3,641,665
40,203,748
(10,050,937)
3,180,741
10,149,331
18,877,500
(954,552)
(237,503)
62,599,817
5,799,761
62,996,403
(15,749,101)
(491,075)
18,224,012
15,403,663
(3,952,396)
(383,837)
2019
US$
58,376,794
8,867,037
68,631,338
(17,157,834)
23,073,210
17,351,758
(3,816,800)
(4,285,329)
(561,802)
113,117,126
144,447,247
150,478,372
The following table summarizes the activities related to the Group's unrecognized tax benefits:
Balance at January 1
Additions for tax positions of current year
Reclassification from prior year tax payable
Movement in current year due to foreign exchange rate fluctuation
Reductions for tax positions of prior years
Reduction due to company liquidation
2017
US$
20,491,988
10,813,497
—
2,001
(76,110)
—
2018
US$
31,231,376
15,500,052
—
—
—
(792,194)
Balance at December 31
31,231,376
45,939,234
2019
US$
45,939,234
14,547,590
13,118,260
—
—
—
73,605,084
The movement in the liability for unrecognized tax benefits of US$10,813,497 in 2017 was due to deemed interest income from subsidiaries of the Company during the year. The movement in the
liability for unrecognized tax losses of US$2,001 was due to the fluctuation of US$/RMB exchange rate, and therefore was recorded as other comprehensive income arising from the foreign currency
translation. The remaining change of US$76,110 was recognized due to the availability for taxation deductions in 2017.
The movement in the liability for unrecognized tax benefits of US$15,500,052 in 2018 was due to deemed interest income from subsidiaries of the Company during the year. The change of US$792,194
was recognized mainly due to the liquidation of a company.
The movement in the liability for unrecognized tax benefits in 2019 included an amount of US$12,713,235 and related late payment interests of US$1,834,355 which was due to deemed interest income
from subsidiaries of the Company during the year. Reclassification from prior year tax payable included an amount of US$12,793,498 and related late payment interests of US$324,762, which was due
to uncertain tax position in respect of investment loss deduction claimed in the 2018 tax return filed in 2019.
As of December 31, 2018 and 2019, unrecognized tax benefits of nil and US$12,793,498, respectively, if ultimately recognized, will impact the effective tax rate. The Group anticipates new
unrecognized tax benefits, related to tax positions similar to those giving rise to its existing unrecognized tax benefits, to originate after December 31, 2019. It is possible that the amount of uncertain tax
positions will change in the next twelve months, however, an estimate of the range of the possible outcomes cannot be made at this time.
F-62
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The Group's income tax returns for fiscal year 2009 through fiscal year 2019 remain open to potential examination. In addition, local tax authorities may exercise broad discretion in applying the tax
law, thus potentially exposing the subsidiaries to audits of tax years outside the general statute of limitations.
(c) LAT
LAT is applicable at progressive tax rates ranging from 30% to 60% on the appreciation of land values, with an exemption provided for the sales of ordinary residential properties if the appreciation
values do not exceed certain thresholds specified in the relevant tax laws.
For all periods presented, the Group has made provision for LAT with respect to properties sold up to the respective reporting date in accordance with the requirements set forth in the relevant PRC tax
laws and regulations.
(d) Deferred tax
The tax effects of temporary differences that give rise to the Group's deferred tax assets and liabilities as of December 31, 2018 and 2019 are as follows:
Deferred tax assets:
Tax loss carried forward
Accruals and provisions
Capitalized expenses
Revenue recognition at a point in time less tax paid under deemed profit method
Revenue recognition of real estate lease income on a straight-line basis
Deemed interest expense
Valuation allowance
Operating lease liability
Others
Total deferred tax assets
Deferred tax liabilities:
Revenue recognition over time
Real estate properties accelerated cost deduction
Taxable temporary differences arising from asset acquisitions
Dividend and interest withholding taxes
Operating lease right-of-use assets
Others
Total deferred tax liabilities
December 31,
2018
US$
December 31,
2019
US$
42,185,810
48,850,991
26,796,716
130,498,661
14,269,520
43,266,604
(5,941,941)
—
—
50,163,293
62,936,343
50,288,336
127,927,710
17,164,019
55,979,839
(28,022,499)
2,805,537
418,310
299,926,361
339,660,888
(77,968,759)
(1,212,993)
(307,747,731)
(52,991,279)
—
(61,732)
(84,241,946)
(1,193,345)
(280,540,093)
(49,174,479)
(2,950,373)
—
(439,982,494)
(418,100,236)
Certain of the Company's PRC subsidiaries have PRC tax net operating loss carry forwards of US$173.4 million (2018: US$159.9 million) which will expire in one to ten years, if unutilized. Losses
incurred in the U.S. amounting to US$10.3 million (2018: US$1.5 million) can be carried forward for 20 years.
F-63
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
During 2018 and 2019, the Company has considered its operational funding needs, future development initiatives and its dividend distribution plan and is permanently reinvesting all but US$374.4
million and US$491.7 million of its PRC subsidiaries earnings as at December 31, 2018 and 2019 respectively. Accordingly, the Company accrued deferred income tax liabilities of US$37.4 million and
US$49.2 million for the withholding tax liability associated with the distribution of retained earnings that are not permanently reinvested as at December 31, 2018 and 2019, respectively. As of
December 31, 2018 and 2019, the total amount of undistributed earnings from the Company's PRC subsidiaries that are considered to be permanently reinvested were US$227.2 million and US$283.7
million, and the related unrecognized deferred tax liabilities were approximately US$22.7 million and US$28.4 million, respectively. The Company's remaining subsidiaries do not have retained
earnings for all the periods presented.
In assessing the ability to realize the deferred tax assets, the Group has considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Accordingly, the Group recorded
valuation allowances amounting US$5,941,941 and US$28,022,499 as of December 31, 2018 and 2019, respectively.
16.
Share-based compensation
As of December 31, 2019, the Company primarily has three share-based compensation plans under which awards may be granted to both employees and non-employees, namely, the 2007 Long Term
Incentive Plan (the "2007 Plan"), 2015 Long Term Incentive Plan (the "2015 Plan"), and 2014 Restricted Stock Unit Plan (the "2014 RSU Plan"). On 31 January 2019, Cayman Property Management
Service (Cayman) Ltd., a subsidiary of the Company, operates a restricted share award scheme (the “Scheme”). On September 28, 2019, the Company approved the employee stock option plan of
Xinchuang Technology Co. Ltd. ("Xinchuang Technology"). Compensation cost of US$5,621,588 (2017: US$4,894,478, 2018: US$3,382,628) was recorded in general and administrative expenses with
a corresponding credit to additional paid-in capital in the year ended December 31, 2019. The compensation cost is primarily regarded as a permanent difference for income tax purposes as relevant
equity awards were mainly granted by the Company and a subsidiary, which are registered in the Cayman Islands, a tax-free jurisdiction. Hence, no tax benefit was recognized upon the recognition of
compensation cost. The Company has a policy of using authorized shares in the existing pool to satisfy any future exercise of share options and shares repurchased held by a third party trustee to satisfy
the RSUs granted under the 2014 RSU Plan.
2007 Plan
In November 2007, the Company adopted the 2007 Plan which provides for the grant of options, restricted shares, restricted stock units, stock appreciation rights and other stock-based awards to
purchase its common shares. The maximum aggregate number of common shares which may be issued pursuant to all awards, including options, is 10 million common shares, subject to adjustment to
account for changes in the capitalization of the Company.
Under the 2007 Plan, the Company granted share options with service conditions to purchase common shares to employees, at an exercise price ranging from US$1.085 to US$1.81 per option. These
options have a weighted average grant date fair value of US$0.36 ~ US$0.61 per option and the total expected compensation cost has considered the expected forfeitures. These options generally have
vesting periods based on length of service of 36 months and will expire no later than 2025.
2015 Plan
In June 2015, the Company approved the 2015 Plan to provide grant of options to purchase shares of company stock with maximum aggregate number of 20 million common shares, subject to
adjustment to account for changes in the capitalization of the Company.
On July 1, 2015, under the 2015 Plan, the Company granted share options with service conditions to purchase up to 6,574,600 common shares to twenty-two employees, at an exercise price of US$1.71
per share. These options have a weighted average grant date fair value of US$0.48 per option and a total expected compensation cost, net of expected forfeitures, of US$3,165,867. These options have
vesting periods based on length of service of 34 months and will expire no later than July 1, 2025.
On July 29, 2015, under the 2015 Plan, the Company granted share options with service conditions to purchase up to 81,600 common shares to one employee, at an exercise price of US$1.71 per share.
These options have a weighted average grant date fair value of US$0.42 per option and a total expected compensation cost, net of expected forfeitures, of US$34,294. These options have vesting periods
based on length of service of 33 months and will expire no later than July 29, 2025.
F-64
No options were granted during the years ended December 31, 2018 and 2019, for 2007 Plan and 2015 Plan.
Assumptions
The fair value of each option is estimated on the date of grant using the Dividend Adjusted Black-Scholes option-pricing model that uses the assumptions noted below.
Average risk-free rate of return
Expected term
Volatility rate
Dividend yield
Options
Granted in
2015
Under the
2007 Plan
1.82-1.92%
6 Years
46.3-55.2%
5%
Options
Granted in
2015
Under the
2015 Plan
1.57-1.92%
6 Years
55.0-55.9%
5%
The risk-free rate for periods within the expected life of the option is based on the implied yield rates of U.S treasury yield curve in effect at the time of grant. The expected life of options represents the
period of time the granted options are expected to be outstanding. The Company had limited historical exercise data. Therefore, the expected life was estimated as the average of the contractual term and
the vesting period. The dividend yield was based on the Company's dividend distribution plan. The expected volatility was based on the historical daily stock price of the Company, annualized.
F-65
Share Option Activity
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
As of January 1, 2019, all options granted under 2007 plan were fully vested. The following table is a summary of the Company's share option activity under the 2007 Plan (in US$, except options):
Options Under the 2007 Plan
Outstanding, January 1, 2019
1.21 (exercise price)
1.085 (exercise price)
1.64 (exercise price)
1.21 (exercise price)
1.81(exercise price)
Granted
Exercised
1.085 (exercise price)
1.81 (exercise price)
Forfeited
Outstanding and Exercisable, December 31, 2019
1.21 (exercise price)
1.085 (exercise price)
1.64 (exercise price)
1.21 (exercise price)
Number of
Options
Weighted
Average
Exercise
Price
Weighted
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic Value
12,738
100,000
100,000
39,400
68,000
—
40,000
68,000
—
12,738
60,000
100,000
39,400
1.21
1.085
1.64
1.21
1.81
—
1.085
1.81
—
1.21
1.085
1.64
1.21
1.95
2.50
3.87
5.50
6.85
—
—
—
—
0.95
1.50
2.87
4.50
32,991
271,500
216,000
102,046
135,320
—
38,893
32,116
—
8,662
48,300
25,000
26,792
The aggregate intrinsic value in the table above represents the total intrinsic value (the aggregate difference between the Company's closing stock price of US$1.89 per common share as of December
31, 2019 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2019. As of December
31, 2019, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees, under the 2007 Plan. Total fair value of options vested
during the year ended December 31, 2017, 2018 and 2019 was US$40,703, US$33,919 and nil, respectively.
F-66
As of January 1, 2019, all options granted under 2015 plan were fully vested, with no option exercised or forfeited during 2019. And there was no new grant during the year ended December 31, 2019.
The following table is a summary of the Company's share option activity under the 2015 Plan (in US$, except options):
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Options Under the 2015 Plan
Outstanding, January 1, 2019
1.71 (exercise price)
Outstanding and Exercisable, December 31, 2019
1.71 (exercise price)
Number of
Options
2,796,734
2,796,734
Weighted
Average
Exercise
Price
Weighted
Remaining
Contractual
Life (Years)
Aggregate
Intrinsic Value
1.71
1.71
6.50
5.50
5,845,173
5,789,239
The aggregate intrinsic value in the table above represents the total intrinsic value (the aggregate difference between the Company's closing stock price of US$1.89 per common share as of December
31, 2019 and the exercise price for in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2019. As of December
31, 2019, there was no unrecognized compensation cost related to non-vested share-based compensation arrangements granted to employees, under the 2015 Plan. Total fair value of options vested
during the year ended December 31, 2017, 2018 and 2019 was US$769,798, US$228,534 and nil, respectively.
2014 RSU Plan
On May 23, 2014, the Board of Directors approved the 2014 RSU Plan, which is administered by the Compensation Committee of the Board of Directors. The 2014 RSU Plan provides for discretionary
grants of restricted stock units, or RSUs, to or for the benefit of participating employees. The maximum number of common shares that may be delivered to 2014 RSU Plan participants in connection
with RSUs granted under the 2014 RSU Plan is 10,000,000, subject to adjustment if the Company's outstanding common shares are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through a reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar transaction.
On May 23, 2014, the Company established a trust that is governed by a third party trustee and deposited US$7,042,725 into the trust. The trustee used the funds to acquire 4,234,884 common shares in
the open market. Repurchased shares were granted to certain employees and awards vest ratably over a three year service vesting period. The aggregate fair value of the restricted shares granted at the
grant date shall be recognized as compensation expense using the straight-line method.
On April 10, 2015, under the 2014 RSU Plan, the Company deposited US$3,259,998 into the trust. The trustee used the funds to acquire 2,076,964 common shares from the open market. The awards
vest ratably over a three year service vesting period. The aggregate fair value of the restricted shares granted at the grant date shall be recognized as compensation expense using the straight-line
method.
On April 18, 2016, under the 2014 RSU Plan, the Company deposited US$4,003,999 into the trust. The trustee used the funds to acquire 1,614,220 common shares from the open market. The awards
vest ratably over a three year service vesting period. The aggregate fair value of the restricted shares granted at the grant date shall be recognized as compensation expense using the straight-line
method.
On July 27, 2017, under the 2014 RSU Plan, the Company deposited US$3,485,952 into the trust. The trustee has not used the funds to acquire any common shares from the open market as of
December 31, 2017. The awards vest ratably over a three year service vesting period. The aggregate fair value of the restricted shares granted at the grant date shall be recognized as compensation
expense using the straight-line method. The trustee has used the funds to acquire 1,356,584 common shares from the open market as of December 31, 2018.
F-67
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
On July 30, 2018, under the 2014 RSU Plan, the Company deposited US$3,976,660 into the trust. The trustee has used the funds to acquire 1,732,466 common shares from the open market as of
December 31, 2018. The awards vest ratably over a three-year service vesting period. The aggregate fair value of the restricted shares granted at the grant date shall be recognized as compensation
expense using the straight-line method.
On August 30, 2019, under the 2014 RSU Plan, the Company deposited US$2,912,539 into the trust. The trustee has used the funds to acquire 1,438,076 common shares from the open market as of
December 31, 2019. The awards vest ratably over a three-year service vesting period. The aggregate fair value of the restricted shares granted at the grant date shall be recognized as compensation
expense using the straight-line method.
The weighted average grant-date fair value of restricted shares granted during the years ended December 31, 2017, 2018 and 2019 was US$2.68, US$2.21 and US$2.12, respectively, which was derived
from the fair value of the underlying ordinary shares.
Other awards
On September 28, 2019, the Board of Directors of the Company approved the employee stock option plan of Xinchuang Technology Co., Ltd. (“Xinchuang Technology”), a subsidiary of the Company.
Under the plan, the Company reserved 150 million shares, representing 30% of Xinchuang Technology’s issued capital for purpose of providing share option awards to the Company’s senior
management and employees. In November 2019, the Company granted a total 100 million share options to certain employees of the Group with an exercise price of US$0.14 (RMB 1). The options
become vested in 5 tranches subject to achievement of certain performance conditions as follows: (i) 5% on the grant date with no performance condition; (ii) 5% for each of the first, second, third
anniversary of the grant date, respectively; and (iii) the remaining 80% shall vest upon the completion of the initial public offering of Xinchuang. The total fair value of the share options granted in
October 2019 is US$3.5 million, which shall be recognized as compensation expense using the accelerated method. The fair value is determined by an external valuer using the discounted cash flow
method to determine the underlying equity fair value of Xinchuang Technology. Key assumptions, such as the discount rate, cash flow projections and the discount for lack of marketability, are
determined by the Group with best estimates.
As of December 31, 2019, there were no shares expired and the Group recognized expense relating to the options is immaterial (2018: nil, 2017: nil) in profit or loss during the period.
Xinyuan Property Management Service (Cayman) Ltd., a subsidiary of the Company, operates a restricted share award scheme (the “Scheme”) for the purpose of providing incentives and rewards to
eligible participants (the “Participants”) who contribute to the success of its operations. The Participants of the Scheme include its directors and senior executives. The Scheme was adopted by its board
on 31 January 2019 (the “Adoption Date”). Pursuant to the Scheme, an award of 56,250 restricted shares (subdivided into 56,250,000 restricted shares in August 2019), representing 15% of its share
capital, was granted to the Participants with a total exercise price at an aggregate consideration of US$1,204,094 (RMB8,400,000). The considerations were fully settled in cash upon the issuance of
restricted shares. And the restricted shares vest in three tranches of 2%, 18% and 80% on 1 January 2020, 1 January 2021 and 1 January 2022, respectively, in accordance with certain vesting conditions,
that is, performance condition based on the completion of IPO which requires recognition on an accelerated basis.
On June 14, 2019, Mr. Zhang Lizhou (one of the participants) resigned as an executive director. Upon the resignation of Mr. Zhang Lizhou, the Company repurchased the 18,750 shares granted to him at
a consideration of US$401,365 (RMB2,800,000) which was equal to the amount paid by Mr. Zhang Lizhou to the Company at the issuance date. The remaining settled aggregate consideration of
US$802,729 (RMB5,600,000) according to the Scheme was recognized as liability because the restricted shares will be repurchased by the Company at the original amount paid by participants upon the
termination of employment.
The aggregate fair value of the restricted shares granted at the grant date amounting to US$4,931,051 (RMB34,400,000) are recognized as compensation expense using the accelerated method. The fair
value is determined by an external valuer using the discounted cash flow method to determine the underlying equity fair value of Xinyuan Property Management Service (Cayman) Ltd. Key
assumptions, such as the discount rate, cash flow projections and the discount for lack of marketability, are determined by the Group with best estimates.
As of December 31, 2019, there were no shares vested, expired and the Group recognized expense relating to the Scheme of US$1,762,927 (RMB12,298,534) (2018: nil, 2017: nil) in profit or loss
during the period.
F-68
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
17.
Other payables and accrued liabilities
The components of other payables and accrued liabilities are as follows:
Contract deposit
Accrued expenses
Debt extinguishment costs
Deed tax and maintenance fund withheld for customers
Bidding deposit
Welfare payable
Other tax payable
Accrued aircraft operating expense
Accrued interest expense
Purchase consideration payable for asset acquisitions and business combinations
Others
Total
18.
Related party and employee transactions
(a) Amounts due from related parties
Current:
Starry Sky
I-journey
Xitou
Xichuang
Qingdao Huiju
Henan Hongguang Olympic Real Estate Co., Ltd.
Madison Development Limited
Suzhou Wanzhuo's non-controlling interest holders
Taicang Pengchi's non-controlling interest holders
Xinzheng Meihang Network Technology Co., Ltd.
Others
Total current amounts due from related party
Non current:
Xinzheng Meihang Network Technology Co., Ltd.
Madison Development Limited
Suzhou Wanzhuo's non-controlling interest holders
Taicang Pengchi's non-controlling interest holders
Suzhou Yefang's non-controlling interest holders
Total non-current amounts due from related party
Total
F-69
December 31,
2018
US$
December 31,
2019
US$
107,480,079
51,306,223
13,761,966
9,998,534
3,723,584
1,893,635
14,786,612
1,415,369
47,214,392
75,565,148
13,961,958
341,107,500
98,280,724
47,003,084
11,665,069
8,272,296
4,213,479
1,480,963
26,734,901
1,654,945
38,893,375
66,868,333
18,096,825
323,163,994
December 31,
2018
US$
December 31,
2019
US$
8,052,075
16,366,841
14,494,710
7,539,604
61,392,033
51,340,375
22,988,260
27,201,258
5,630,819
—
1,178,230
—
—
—
—
84,455,456
84,031,006
—
—
—
22,578,925
9,692,236
216,184,205
200,757,623
26,122,186
—
—
—
—
26,122,186
—
27,739,567
18,856,638
24,624,693
11,466,128
82,687,026
242,306,391
283,444,649
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
As of December 31, 2018, the Company advanced US$7,903,416 of working capital funds to Starry Sky. Of the amount advanced, US$1,100,070 was in the form of unsecured interest bearing loans,
which has no fixed payment terms and bears interest at 10%. Accrued interest amounted to US$148,659 as of December 31, 2018. The remaining advances are unsecured and bear no interest. As of
December 31, 2019, the Company reclassified advances to long-term investment. On June 6, 2019 the Group and Nanjing Starry Sky (the other shareholder of Starry Sky) agreed to convert the advance
into capital contribution.
As of December 31, 2018, the Group advanced US$36,699,899 of working capital funds to I-journey, Xitou and Xichuang, without any fixed payments terms. As of December 31, 2018, US$18,410,797
was in the form of unsecured interest bearing loans, which bears interest from 10% to 12%. Accrued interest amounted to US$1,701,256. The remaining advances are unsecured and bear no interest.
During 2019, the Group completed its acquisitions of I-journey, Xitou and Xichuang for a total consideration of US$48,761,943, which is settled by the outstanding advances as of the acquisition date
(Note 9). Certain senior management members became non-controlling shareholders of I-journey, Xitou and Xichang upon the completion of the acquisition by a total cash contribution of US$168,430.
As of December 31, 2018 and December 31, 2019, the balances due from Qingdao Huiju, the Company’s equity method investee, are related to advances for operational needs without any fixed
payment terms. This balance is unsecured, bears no interest, and is expected to be repaid in one year.
Henan Hongguang Olympic Real Estate Co., Ltd. ("Henan Hongguang") is the non-controlling shareholder of Henan Renxin (Note1), one of the Company's subsidiaries. As of December 31, 2019, the
balance due from Henan Hongguang is related to advances for operational needs without any fixed payment terms. This balance is unsecured, bears no interest, and is expected to be repaid in one year.
Xinzheng Meihang Network Technology Co., Ltd. ("Meihang") is the non-controlling shareholder of Zhengzhou Hangmei Technology Development Co., Ltd. ("Zhengzhou Hangmei"), one of the
Company's subsidiaries. As of December 31, 2018, and December 31, 2019, the balances due from Meihang are US$22,944,780 and US$22,578,925, respectively, which have a three year payment
terms, and bear interest at 11.5%. In 2019, the Company received interest amounted to US$5,716,045. Accrued interest amounted to US$3,177,406 and nil as of December 31, 2018 and December 31,
2019, respectively.
As of December 31, 2019, the balance due from Madison Development Limited, an equity method investee, amounting to US$21,055,073 is related to advances for operational needs. This balance is
unsecured, bears interest at 15%, and has no fixed repayment term. Accrued interest amounted to US$6,684,494 as of December 31, 2019. This balance is expected to be repaid over one year.
On September 12, 2017, the Company sold 80% of its equity interest in Suzhou Wanzhuo to four non-affiliated passive investors for an aggregate cash consideration of US$23,687,327. Pursuant to the
updated articles of association, the Company still exercises control over the relevant principal activities of Suzhou Wanzhuo and therefore, continues to consolidate it in its financial statements. As of
December 31, 2019, the balances due from the non-controlling interest holders amounting to US$18,856,638 are related to advances for working capital funds. The balances are in the form of an
unsecured interest bearing loan, which has no fixed payment terms, and bears interest at 4.75%. Accrued interest is immaterial as of December 31, 2019. This balance is expected to be repaid over one
year.
On December 1, 2017, the Company together with seven other non-affiliated companies acquired 100% of Taicang Pengchi for an aggregate cash consideration of US$28,836,311. The Company
accounted for the acquisition of Taicang Pengchi as an asset acquisition because the only asset of Taicang Pengchi is the land. Pursuant to the articles of association, the Company exercises control over
the relevant significant activities of Taicang Pengchi and therefore, consolidates it in its financial statements. As of December 31, 2019, the balance of due from the non-controlling interest holders
amounting to US$24,624,693 are related to advances for working capital funds. This balance is unsecured, bears no interest, and is expected to be repaid over one year.
As of December 31, 2019, the balance due from Suzhou Yefang amounting to US$11,466,128 is related to advances for working capital funds. This balance is unsecured, bears no interest, and is
expected to be repaid over one year.
In evaluating the collectability of the amounts due from related parties balance, the Group considers many factors, including the related parties' repayment history and their credit-worthiness. An
allowance for doubtful accounts is made when collection of the full amount is no longer probable. For the periods presented, based on management's evaluation, no allowance was deemed necessary.
F-70
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
(b) Amounts due to related party
Current:
Suzhou Wanzhuo's non-controlling interest shareholders
Suzhou Yefang's non-controlling interest holders
Xinzheng Meihang Network Technology Co., Ltd.
Others
Total current amounts due to related party
Non current:
Xinzheng Meihang Network Technology Co., Ltd.
Total
December 31,
2018
US$
December 31,
2019
US$
23,447,245
11,902,028
—
13,153,168
48,502,441
31,241,768
79,744,209
15,997,603
1,496,762
27,133,055
9,054,876
53,682,296
—
53,682,296
As of December 31, 2018 and December 31, 2019, Suzhou Wanzhuo's non-controlling interest holders advanced US$18,929,073 and US$11,397,546 of working capital funds in aggregate to Suzhou
Wanzhuo in the form of an unsecured interest-bearing loan, which has no fixed payment terms, and bears annual interest from 4.25% to 4.75%, respectively. Accrued interest amounted to US$3,913,866
and US$3,131,821 as of December 31, 2018 and December 31, 2019, respectively. The remaining advance amounting to US$1,468,236 for shareholder service is unsecured, bears no interest, and is
expected to be paid in one year.
On June 6, 2018, the Company together with 4 other non-affiliated companies acquired 100% of Suzhou Yefang for an aggregate cash consideration of US$15,615,240. The Company accounted for the
acquisition of Suzhou Yefang as an asset acquisition because the only asset of Suzhou Yefang is the land. Pursuant to the articles of association, the Company exercises control over the relevant
significant activities of Suzhou Yefang and therefore, consolidates it in its financial statements. As of December 31, 2019, the Company repaid the entire payable to its non-controlling shareholders
except for accrued interest amounted to US$1,496,762.
Meihang is the non-controlling shareholder of Zhengzhou Hangmei, one of the Company's subsidiaries. As of December 31, 2018, and December 31, 2019, Meihang advanced US$27,579,790 and
US$27,133,055 of working capital funds to Zhengzhou Hangmei in the form of an unsecured interest (10%) bearing loan with a three year payment term. In 2019, the Company repaid interest amounted
to US$6,315,967. Accrued interest amounted to US$3,661,978 and nil as of December 31, 2018 and December 31, 2019, respectively.
(c) Amounts due from employees
Advances to employees
December 31,
2018
US$
December 31,
2019
US$
1,694,416
2,350,852
The balance represents cash advances to employees for traveling expenses and other expenses. The balances are unsecured, bear no interest and have no fixed payment terms.
(d) Others
In 2018, the Company sold a small percentage of the equity interests (ranging from 0.50% to 5.54%) in eight real estate project companies to senior management and employees for a total consideration
of US$8,720,772. In 2019, the Company sold additional percentage of the equity interests in the eight real estate project companies to senior management and employees for a total consideration of
US$604,914 and the total sold equity interests ranges from 0.57% to 5.59% as of December 31, 2019. According to the equity transfer agreement, the Company is obligated to repurchase the equity
interest back from management. Therefore, the non-controlling interest is mandatorily redeemable and is accounted for as a liability.
F-71
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
In 2019, the Company sold 6.03% of the equity interests in one real estate project company to senior management and employees for a total consideration of US$1,300,135. According to the equity
transfer agreement, the Company is obligated to repurchase the equity interest back from management. Therefore, the non-controlling interest is mandatorily redeemable and is accounted for as a
liability.
On June 24, 2017, Beijing Wanzhong, one of the Company's subsidiaries, invested US$2,142,573 in the Xin Future No.1 Private Equity Fund. The fund is operated by Beijing Xinyuan Future
Investment Management Limited, an investment company controlled by the Company's senior management. Management accounted for this investment at fair value using the net asset value practical
expedient. The Company can redeem its investment on the last trading day of each quarter by providing written notice in advance. On September 26, 2018, the Company redeemed its investment
resulting in US$59,970 gain recorded in net realized gain on short-term investments during the year ended December 31, 2018.
For the year ended December 31, 2019, total directors' remuneration amounted to US$7,036,954(2017: US$10,634,720; 2018: US$7,056,388).
19.
Equity
(i) As at December 31, 2019, the Company's authorized share capital was 500 million common shares, par value US$0.0001 per share (December 31, 2018: 500 million common shares).
(ii) During the year ended December 31, 2019, 11,715,338 common shares were repurchased at a total cost of US$26,080,876.
(iii) During the year ended December 31, 2019, the Company distributed quarterly dividends of US$0.05 per common share to common shareholders amounting to a total of US$23,460,775.
All other equity transactions have been disclosed in consolidated statement of changes in shareholders’ equity.
20.
Earnings per share
Basic and diluted net earnings per share for each period presented are calculated as follows:
Numerator:
Net income attributable to Xinyuan Real Estate Co., Ltd. Shareholders – basic and diluted
Denominator:
Weighted average number of shares outstanding-basic*
Stock options
Restricted stock units
Weighted average number of shares outstanding-diluted
Basic earnings per share
Diluted earnings per share
2017
US$
December 31,
2018
US$
63,627,551
128,704,610
1,877,785
1,023,474
131,605,869
0.49
0.48
73,034,549
127,129,478
1,728,058
283,294
129,140,830
0.57
0.57
2019
US$
68,344,527
113,482,239
618,657
—
114,100,896
0.60
0.60
*
The restricted shares repurchased by the trustee that are unvested are excluded from the number of shares outstanding for purposes of computing basic earnings per share in accordance with ASC
260. However, these unvested restricted shares are factored into the computation of diluted earnings per share using the treasury stock method.
F-72
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
During the year ended December 31, 2019, nil (2017: 180,000; 2018: nil) stock options, and 876,400 (2017: nil; 2018:1,019,128) RSUs, were excluded from the calculation of earnings per share,
respectively, because their effect would be anti-dilutive.
21.
Segment reporting
The Group's long-lived assets and revenue are mainly located in and derived from the PRC. Starting in 2012, a relatively smaller portion of the Group's long-lived assets and revenue are located in and
derived from the United States. The Group considers that each of its individual property developments is a discrete operating segment. The Group has aggregated its segments on a geographical basis as
property development projects undertaken within a region have similar expected economic characteristics, type of properties offered, customers and market and regulatory environment. The Group's
reportable operating segments are comprised of Henan Region, Shandong Region, Shanghai Region (including Shanghai and Jiangsu Province), Sichuan Region, Beijing Region (including Beijing and
Tianjin), Hainan Region, Hunan Region, Shaanxi Region, Guangdong Region, Hubei Region, and Liaoning Region in the PRC; and the United States.
Each geographic operating segment is principally engaged in the construction and development of residential real estate units. The "property management" category relates to property management
services. The "other" category relates to investment holdings, landscaping, engineering and management, real estate sale, purchase and lease activities. The accounting policies of the various segments
are the same as those described in Note 2, "Summary of Significant Accounting Policies".
The Group's chief operating decision maker relies upon net sales, gross profit and net income when making decisions about allocating resources and assessing performance of the Group. Net sales for
geographic segments are generally based on the location of the project development. Net income for each segment includes net sales to third parties, related cost of sales and operating expenses directly
attributable to the segment. Capital expenditures for each segment includes cost for acquisition of subsidiaries, vehicles, and fixtures and furniture.
F-73
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
No single customer accounted for more than 10% of net sales for the years ended December 31, 2017, 2018 and 2019.
Summary information by operating segment is as follows:
December 31, 2017
Net real estate sales
Real estate lease income
Real estate management
services income
Other revenue
Total revenue
Cost of real estate sales
Cost of real estate lease
income
Cost of real estate
management services
Other costs
Total cost of revenue
Gross profit
Operating expenses
Operating income/(loss)
Interest income
Interest expense
Net realized gain on
short-term investments
Share of (loss)/gain in an
equity investee
Loss on extinguishment
of debt
Exchange gains
Unrealized income on
short-term investments
Other income
Income/(loss) before
income taxes
Income tax
benefit/(expense)
Henan
US$
Shandong
US$
Jiangsu
US$
Sichuan
US$
886,207,602 252,186,589 284,388,321 79,054,170
—
3,567,372
183,530
—
Hainan
US$
Beijing
US$
540,766 87,304,257 133,499,073
6,071
Hunan
US$
—
—
Shanghai
US$
973,450 38,646,991 63,283,292
3,832,764
209,186
Shaanxi
US$
Tianjin
US$
—
United
States
US$
Guangdong
US$
Others
US$
Consolidated
US$
98,476,295
—
—
19,659
— 1,924,560,806
8,732,799
914,217
1,505,932
508,891
—
52,893
—
21,184
—
87,307
—
—
—
11,396
—
118,391
—
5,046
—
74
356,429
—
—
307,793
— 39,875,958
762,332
—
41,738,319
1,875,307
891,789,797 252,423,012 284,409,505 79,141,477
(607,656,121) (204,691,234) (247,765,242) (71,332,282)
540,766 87,315,653 133,623,535
(363,305) (55,291,475) (107,834,718)
1,187,682 38,647,065 67,472,485
98,784,088
(664,093) (23,602,129) (46,516,108) (108,350,506)
19,659 41,552,507 1,976,907,231
— (1,474,067,213)
—
(2,170,672)
(348,420)
(3,353,579)
(158,879)
—
—
(174,601)
(332,094)
—
(4,420,100)
(935,942)
(227,081)
—
(10,706)
—
(127,375)
—
—
—
(51,424)
—
(3,846)
—
(95,235)
—
—
—
—
—
—
—
—
—
—
(47,777)
(11,006,122)
— (30,710,506)
(33,226)
(10,342)
(31,646,448)
(559,235)
(610,989,816) (205,050,360) (251,246,196) (71,491,161)
7,650,316
280,799,981
(3,772,416) (44,507,378)
(64,061,347)
(414,729) (55,295,321) (108,104,554)
25,518,981
126,037 32,020,332
(10,099,854)
(7,726,269)
33,163,309
(16,659,076)
47,372,652
(10,497,498)
(996,187) (23,602,129) (50,936,208) (108,350,506)
(9,566,418)
191,495 15,044,936 16,536,277
(10,597,926)
(9,123,653)
(747,409)
(6,001,987)
(10,342) (30,791,509) (1,517,279,018)
459,628,213
(212,568,458)
9,317 10,760,998
(680,754) (28,092,891)
216,738,634
11,355,876
(18,393,523)
36,875,154
338,069
(362,759)
16,504,233
218,937
(1,829,665)
3,877,900 (44,381,341) 24,294,063
26,443
516,950
—
(5,056,962)
100,988
—
15,419,127
320,666
—
(555,914)
268,325
(2,100,301)
9,042,949
271,527
(1,214,368)
7,412,624
69,336
—
(20,164,344)
—
(3,570,310)
(671,437) (17,331,893)
264
3,371,705
— (33,625,552)
247,059,755
16,859,086
(66,153,440)
3,110,564
—
7,395
(1,062,499)
(974,405)
(2,818)
—
(362,736)
151,003
2,326,004
—
—
—
—
—
—
—
—
—
—
—
—
—
—
9,077
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6
—
4,746,951
7,873,987
—
329,652
(1,710,070)
— (15,879,702)
1,119,662
—
(15,879,702)
756,926
—
—
1,944,976
—
2,095,979
2,326,010
213,863,323
35,876,059
14,898,082
3,978,888 (48,912,276) 24,320,506
15,739,793
(2,387,890)
8,100,108
7,481,960
(23,734,648)
(671,173) (55,324,201)
193,228,531
(77,985,230)
(11,359,619)
(6,913,466)
(812,628)
4,065,308 (10,189,683)
(2,560,610)
686,619
(1,713,343)
(840,827)
8,694,642
145,513 (14,333,802)
(113,117,126)
Net income/(loss)
135,878,093
24,516,440
7,984,616
3,166,260 (44,846,968) 14,130,823
13,179,183
(1,701,271)
6,386,765
6,641,133
(15,040,006)
(525,660) (69,658,003)
80,111,405
Depreciation and
amortization
Capital expenditure
Real estate properties
development completed
Real estate properties
under development
Real estate properties
held for lease
5,597,930
5,756,237
416,607
11,636
3,445,463
13,725
218,043
22,550
767,841
2,960,195
148,453
1,361
185,123
21,262
68,648
—
9,836
20,322
1,766,074
9,571
232,618
257,643
38
392,779
870,852
294,575
13,727,526
9,761,856
49,708,034
82,128,992
13,625,012 146,791,480 52,675,024 97,350,745
49,346,740 90,003,702
— 127,107,105 131,656,359
—
—
840,393,193
937,340,899
78,988,478 217,051,399
— 200,296,958
— 109,107,637
— 40,379,791 140,257,927 168,236,598 93,205,573
11,135,393 1,996,000,653
53,783,548
5,633,936
38,824,172 23,503,438
—
—
50,422,065
4,578,302
— 100,574,370
—
—
613,482
277,933,313
Total long-lived assets
Total assets
207,599,517 420,656,893
125,896 23,378,186 1,314,221,789
2,715,305,431 693,368,606 459,080,321 584,350,518 296,118,475 108,984,575 266,196,168 103,055,884 98,249,020 440,219,180 354,473,170 93,723,704 171,309,218 6,384,434,270
50,598,511 391,437,638 16,714,738
1,706,170 125,298,084
51,791,292
19,666,135
4,639,263
609,466
F-74
December 31,
2018
Henan
US$
Shandong
US$
Jiangsu
US$
Sichuan
US$
Beijing
US$
Hainan
US$
Hunan
US$
Shanghai
US$
Tianjin
US$
Shaanxi
US$
United
States
US$
Guangdong
US$
Hubei
US$
Liaoning
US$
Others
US$
Consolidated
US$
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
1,002,960,937 291,763,807 330,352,688 80,701,160 12,314,328 169,606,837 97,162,300
— 86,165,279 58,795,214
8,815,926
4,463,583
497,354
917,227
86,593
—
—
111,408
641,119
—
2,064,129
—
3,061,093
297,202
—
4,506
—
473,667
—
318,863
—
2,176,071
—
476,184
—
482,597
—
—
—
30
2,464,039
—
—
570,646
1,010,782,815 292,265,667 331,743,582 81,106,616 14,490,399 170,083,021 97,756,305
641,119 86,165,309 63,323,382
9,386,572
(701,238,639) (228,347,098) (214,621,791) (75,842,475)
(9,355,460) (87,710,266) (100,986,641)
(57,369) (56,487,052) (59,670,857)
(9,357,970)
(2,245,710)
(470,614)
(2,336,287)
(554,861)
(2,733,062)
(388,790)
—
(1,224,399)
—
(94,807)
—
(435,324)
—
—
—
—
(1,475,782)
(238,406)
—
(1,978,147)
—
(4,551)
—
(517,028)
—
—
—
—
(2,870,604)
—
—
—
—
(706,606,201) (230,042,111) (217,052,885) (76,832,660)
4,273,956
304,176,614 62,223,556 114,690,697
(9,355,460) (87,714,817) (102,979,451)
(5,223,146)
5,134,939 82,368,204
(295,775) (56,487,052) (64,519,608)
(1,196,226)
345,344 29,678,257
(9,357,970)
28,602
—
—
—
—
—
—
—
—
—
—
—
—
427,072
305,244 2,139,370,792
—
—
—
—
803,559
9,584,972
— 57,922,288
348,335
—
63,447,420
5,148,101
—
427,072 59,379,426 2,217,551,285
—
(298,443)
— (1,543,974,061)
—
—
—
—
(48,809)
(9,348,616)
—
—
(39,016,117)
(1,465,624)
(44,619,783)
(4,130,523)
—
—
(298,443) (40,530,550) (1,602,072,983)
615,478,302
128,629 18,848,876
(62,812,091) (12,610,671) (15,284,915)
(4,275,577) (64,432,460) (12,088,762)
(11,008,482)
(163,680)
(5,904,656)
(5,834,584)
(4,654,552)
(1,185,184)
(1,949,565) (1,485,827) (36,356,815)
(240,047,821)
241,364,523 49,612,885 99,405,782
568,283
(1,009,438)
23,934,452
(15,091,954)
478,524
—
(1,621) (59,297,521) 70,279,442 (16,231,628)
194,297
104,895
(2,259,789)
1,388,846
(2,137,378)
22,667
—
181,664 23,773,601
230,432
62,536
—
— (1,689,514)
(7,030,810)
78,014
(915,585)
(4,625,950)
3,311
(3,501,863)
(1,185,184)
5,506
—
(1,949,565) (1,357,198) (17,507,939)
4,147,965
— (72,640,175)
—
—
5,966
375,430,481
31,225,694
(99,245,696)
183,450
—
—
—
(1,342,875)
(1,067,320)
(949,748)
(3,719,920)
(24,665,987)
(13,029,174)
—
—
—
—
—
—
—
—
—
(1,544)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(3,773,556)
—
(162,149)
—
391,338
—
4,585,338
—
(521,424)
—
32,867
—
27,078
—
(1,822)
—
(948,161)
—
(120,442)
—
2,093,750
—
—
—
(1,295,899)
—
—
—
—
—
—
—
—
—
—
(3,590,540)
(3,407,090)
—
(998,689)
(9,374,451)
—
3,222,038
(21,443,949)
—
335,310 (12,982,246)
(25,677,654)
—
1,180
—
—
1,150,200
137,735
1,150,200
1,741,732
Net real estate
sales
Real estate lease
income
Real estate
management
services income
Other revenue
Total revenue
Cost of real
estate sales
Cost of real
estate lease
income
Real estate
management
services cost
Other costs
Total cost of
revenue
Gross profit
Operating
expenses
Operating
income/(loss)
Interest income
Interest expense
Net realized loss
on short-term
investments
Share of loss in
an equity
investee
(Loss)/gain on
extinguishment
of debt
Exchange
(loss)/gain
Unrealized
income on short-
term investments
Other income
Income/(loss)
before income
taxes
Income tax
benefit/(expense)
207,578,879 48,861,940 98,406,217
(1,291,097) (60,569,021) 70,334,976 (16,010,253) (1,447,136) 23,055,872
(7,988,823)
(6,030,752)
(2,475,577)
(1,948,385) (1,015,922) (99,061,651)
250,399,267
(66,585,136) (24,338,485) (33,672,476)
(1,312,549)
5,810,925 (33,888,754) 14,764,618 1,503,472
(8,088,479)
1,735,041
3,037,875
(392,906)
(152,722)
689,435
(3,557,106)
(144,447,247)
Net
income/(loss)
Depreciation and
amortization
Capital
expenditure
Real estate
property
development
completed
Real estate
property under
development
Real estate
properties held
for lease, net
Total long-lived
assets
Total assets
140,993,743 24,523,455 64,733,741
(2,603,646) (54,758,096) 36,446,222
(1,245,635)
56,336 14,967,393
(6,253,782)
(2,992,877)
(2,868,483)
(2,101,107)
(326,487) (102,618,757)
105,952,020
5,881,359
664,325
2,398,697
553,823
1,506,886
44,773
1,395,291
277,113
150,980
1,888,104
(95,404)
137,262
15,028
8,235
306,403
15,132,875
8,700,583
4,689,576
6,226
10,229
2,279,441
—
278
—
290,791
13,183
89,510
—
197,756
58,259
318,555
16,654,387
119,978,648
46,110,853 38,293,044 88,492,260 42,003,855 31,716,745
7,340,408 82,320,988
— 48,352,943 127,749,947
—
—
—
—
632,359,691
1,630,532,021 520,017,386 240,985,540 620,344,540 214,011,166
— 113,205,249
— 106,218,839 150,381,455 199,665,838 102,997,747 124,701,587 30,590,778 15,064,162 4,068,716,308
72,389,385
7,929,336 39,824,983 36,086,237
—
— 47,347,197 4,037,272
— 94,612,752
—
—
—
—
537,055
302,764,217
370,303,455 500,658,792 95,890,366 37,986,138 42,680,909
337,113 53,834,857 1,342,491,007
3,326,001,406 902,384,756 740,208,056 839,829,759 340,188,589 39,269,241 274,708,013 95,034,595 185,400,019 330,029,859 384,883,423 134,196,645 127,532,829 34,993,328 279,052,154 8,033,712,672
6,535,427 125,890,353 25,781,516 23,600,985
5,953,273 48,805,523 4,056,266
176,034
F-75
December 31, 2019
Henan
US$
Shandong
US$
Shanghai
US$
Sichuan
US$
Beijing
US$
Hainan
US$
Hunan
US$
Shaanxi
US$
United
States
US$
Guangdong
US$
Hubei
US$
Liaoning
US$
Property
Management
US$
Others
US$
Consolidated
US$
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
1,382,533,759 275,120,959 279,731,401 85,189,227 126,540,125 43,820,016 157,938,663
6,917,948
750,000
9,738,197
— 18,621,886
—
129,387 2,387,031,568
Net real estate
sales
Real estate lease
income
Real estate
management
services income
Other revenue
Total revenue
Cost of real estate
sales
Cost of real estate
lease income
Cost of real estate
management
services
Other costs
Total cost of
revenue
Gross profit
Operating
expenses
Operating
income/(loss)
Interest income
Interest expense
Net realized gain
on short-term
investments
Share of
(loss)/gain in an
equity investee
Loss on
extinguishment of
debt
Exchange
gains/(loss)
Unrealized loss
on short-term
investments
Other
income/(loss)
Income/(loss)
before income
taxes
Income tax
(expense)/benefit
6,630,994
321,819
2,920,280
728,016
657,451
—
135,279
3,301,027
893,982
7,578,862
151,102
—
700,044
—
823,150
—
1,063,557
—
3,269,965
—
—
—
583,737
2,783,091
—
—
296,091
—
—
—
—
—
—
—
483,944
55,979
16,128,771
— 57,126,216
1,187,948
—
—
3,908,710
67,488,169
11,984,304
—
4,094,076 2,482,632,812
1,396,894,717 276,142,822 283,474,831 86,980,800 130,467,541 43,820,016 158,657,679 13,002,066
1,940,073
9,738,197
— 18,621,886 58,798,108
(1,082,472,232) (220,925,677) (201,704,497) (81,765,082) (92,849,397) (31,764,435) (110,346,111)
(6,510,485)
(1,444,563)
(6,821,557)
(23,397) (13,440,458)
—
(1,751,402) (1,851,819,293)
(2,348,963)
(561,264)
(2,565,142)
(799,359)
(481,276
—
(1,693,085)
(2,913,152)
(1,348,218)
(4,716,112)
(2,449,683)
—
(1,267,950)
—
—
—
(3,672)
—
(4,794,719)
—
(2,192)
—
(362,009)
(561,329)
—
—
—
—
—
—
—
—
—
—
—
(46,792)
(12,757,251)
— (35,611,790)
(1,124,118)
—
—
(6,853,073)
(40,889,231)
(16,857,416)
—
(1,091,986,990) (222,754,891) (204,269,639) (82,568,113) (98,125,392) (31,766,627) (112,401,205)
46,256,474
304,907,727 53,387,931 79,205,192
4,412,687 32,342,149 12,053,389
(9,984,966)
3,017,100
(2,792,781)
(852,708)
(6,821,557)
2,916,640
(23,397) (13,440,458) (36,735,908)
5,181,428 22,062,200
(23,397)
(8,651,267) (1,922,323,191)
560,309,621
(4,557,191)
(70,839,873) (14,770,303) (18,080,374)
(8,011,273) (73,333,124)
(2,514,263)
(3,991,323)
(5,808,638)
(9,414,601)
(1,966,796)
(3,429,583)
(2,801,220)
(7,076,960)
(28,409,288)
(250,447,619)
—
234,067,854 38,617,628 61,124,818
306,228
42,379,712
(1,066,270)
(14,805,529)
436,165
(3,061,587)
(3,598,586) (40,990,975)
2,241,516
(7,385,692)
493,469
—
9,539,126
3,208
(11,507)
42,265,151
182,529
—
(2,791,538) (10,267,309)
48,285
(3,472,559)
12,795
(138,107)
949,844
13,533
—
(3,452,980)
1,695
—
2,380,208 14,985,240
681,464
—
13,240
—
(32,966,479)
4,679,756
(83,834,109)
309,862,002
51,493,595
(113,775,360)
183,450
—
—
(1,370,440)
(922,281)
(613,155)
(8,044,499)
12,524,863
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,903,841)
—
—
—
—
—
—
4,536,260
866
47,762
246,927
909,298
156,235
(17,844)
(199,670)
—
(289,485)
—
—
—
—
—
—
—
—
2,891,564
3,075,014
—
(630,775)
1,024,021
(5,416,471)
—
—
(536,011)
(8,580,510)
—
(236,736)
(19,664,136)
(7,376,009)
—
—
(1,623,814)
(1,623,814)
64,155
124,295
269,928
5,848,727
269,471,671 35,070,791 59,799,383
(2,858,190) (45,225,853)
9,687,062
42,429,836
(3,116,520) (13,691,583)
(2,229,949)
(3,451,285)
2,457,603 14,923,488 (129,759,280)
233,507,174
(69,803,421) (23,020,472) (28,043,624)
(2,864,732)
(9,456,395)
(4,643,587)
(16,123,072)
2,210,548
2,921,151
(1,017,315)
704,284
(717,299)
(241,601)
(382,837)
(150,478,372)
Net income/(loss)
199,668,250 12,050,319 31,755,759
(5,722,922) (54,682,248)
5,043,475
26,306,764
(905,972) (10,770,432)
(3,247,264)
(2,747,001)
1,740,304 14,681,887 (130,142,117)
83,028,802
—
Depreciation and
amortization
Capital
expenditure
Real estate
properties
development
completed
Real estate
properties under
development
Real estate
properties held
for lease
Total long-lived
assets
Total assets
5,553,392
433,948
2,622,483
635,494
2,732,083
29,414
1,668,279
1,873,910
1,665,384
41,616
46,012
16,987
189,503
75,938
17,584,443
6,263,956
64,816
2,579
26,254
1,142,809
3,712
44,058
16,761
3,579,071
—
4,821
25,188
352,073
119,575
11,645,673
133,572,883 34,351,045 106,796,363 64,327,235 60,683,848
6,627,299
7,540,854 43,103,208
1,201,783
—
—
—
—
—
458,204,518
886,160,682 359,079,121 123,381,923 619,020,458 266,984,229
—
6,433,260 162,947,850
230,860,737 372,170,620 141,707,492 58,153,297
—
27,488,080 3,254,387,749
109,809,942
6,954,550 40,675,960 34,515,933
7,520,601
888,150
60,967,850 91,474,049
162,599,274
—
—
—
—
462,599
515,868,908
524,367,010 509,819,916 183,400,846 44,244,900 61,281,191
62,686,470 100,419,560
2,882,024,764 573,869,426 752,136,052 897,210,854 470,434,500 27,393,755 107,134,983 338,107,052
6,664,536
F-76
176,115,157 18,237,255
79,010,347 1,776,601,324
1,084,510
439,770,834 414,319,137 148,165,478 73,223,300 106,315,123 191,559,175 7,421,664,433
8,335,524
934,102
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
22.
Commitments and contingencies
Other commitments
As of December 31, 2019, the Group had outstanding commitments with respect to non-cancellable construction contracts for real estate development and land use rights purchases as follows:
2020
2021
2022
2023
2024 and thereafter
Total
Contingencies
Amount
US$
559,280,163
662,777,841
116,494,755
28,682,333
4,829,879
1,372,064,971
As of December 31, 2019, the Group provided guarantees of US$2,617,194,854 (2018: US$1,988,632,540), in favor of its customers in respect of mortgage loans granted by banks to such customers for
their purchases of the Group's properties where the underlying real estate ownership certificates can only be provided to the banks on a time delay manner due to administrative procedures in the PRC.
Pursuant to the terms of the guarantees, upon default in mortgage payments by these purchasers, the Group is responsible to repay the outstanding mortgage principal together with the accrued interest
and penalty owed by the defaulted purchasers to the bank and the Group is entitled to take over the legal titles and possession of the related properties. The Group's guarantee period starts from the date
of grant of the relevant mortgage loan and ends upon issuance of real estate ownership certificate which will generally be available within six to twelve months after the purchaser takes possession of the
relevant property. The Group paid US$788,644, US$1,659,652, and US$1,782,038 to satisfy guarantee obligations related to customer defaults for the years ended December 2017, 2018 and 2019,
respectively.
The fair value of the guarantees is not significantly different than the net realizable value of the properties and management considers that in case of default in payments, the net realizable value of the
related properties can cover the repayment of the outstanding mortgage principal together with the accrued interest and penalty and therefore no provision has been made for the guarantees.
In May 2019, an authorized entity of local government (the “Government Entity”) sued Beijing Huiju, the original controlling and existing shareholder of one of the Group’s equity method investee,
Qingdao Huiju, for disputes in construction contract entered into between the Government Entity and Beijing Huiju. The Government Entity also claimed that Qingdao Huiju is jointly liable for the
aforementioned construction contract and a commitment letter issued by Beijing Huiju, and sued both Beijing Huiju and Qingdao Huiju to be jointly and severally liable to a liquidated damage of
US$230.9 million stipulated in the commitment letter. Qingdao Huiju received the local court verdict of the first instance in April 2020 which held that Qingdao Huiju shall be jointly and severally
liable to the liquidated damages of US$230.9 million, and court cost of US$1,167,369. Qingdao Huiju appealed to the verdict in April 2020. Management believes that the Government Entity’s claims
against Qingdao Huiju are without merit and intends to contest vigorously against such claims because the commitment letter was unilaterally issued by Beijing Huiju without any signature or
confirmation by Qingdao Huiju. At this stage of the appeal proceedings, Qingdao Huiju cannot predict the outcome of this lawsuit or a judgment against Qingdao Huiju, whether in whole or in part,
may result in a loss, if any. An estimate for the reasonably possible loss or a range of reasonably possible losses cannot be made at this time.
F-77
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
At December 31, 2019, the Group provided financial guarantees for bank loans of two of its equity method investees. The Group could incur losses in the event of defaults under or foreclosure of these
loans and its maximum exposure to credit losses is US$202,115,765 (2018: US$280,189,999). The fair value of the guarantees is not significant and the Group considers that in case of default in
payments, the net realizable value of the related properties can cover the repayment of the outstanding bank loans together with the accrued interest and penalty and therefore, no provision has been
made for the guarantees in the consolidated financial statements.
In December 2016, 421 Kent Development LLC ("421 Kent"), the property company for the Group's Oosten project, terminated its contract with its general contractor. The general contractor and
various subcontractors have filed lawsuits against 421 Kent and the Company for approximately US$22.0 million, in aggregate, plus punitive damages. In addition, the general contractor filed
mechanic's liens against 421 Kent and the Company for approximately US$8.0 million. 421 Kent has answered the claims and believes the contractors' claims and liens are without merit and intends to
contest vigorously such claims. At this stage of the proceedings, 421 Kent cannot predict the outcome of this lawsuit or a judgment against 421 Kent, whether in whole or in part, may result in a loss, if
any. An estimate for the reasonably possible loss or a range of reasonably possible losses cannot be made at this time.
In May 2015, XIN Development Management East, LLC ("XDME") filed an arbitration claim for not less than US$10.0 million which was subsequently reduced for the purpose of a prior mediation to
US$8 million against Wanks Adams Slavin Associates LLP ("WASA"), the design company for the Group's Oosten project. WASA has asserted a total of approximately US$2.0 million in
counterclaims. XDME believes WASA's counterclaims are without merit and intends to contest vigorously such claims. On November 26, 2018, XDME reconciled with the design company WASA and
settled the claim.
23.
Concentration of risk
The Group's operations are conducted mainly in the PRC. Starting in 2012, a relatively smaller portion of the Group's operations is conducted in the United States. Accordingly, the Group's business,
financial condition and results of operations is primarily influenced by the political, economic and legal environments in the PRC and by the general state of the PRC economy.
The Group's operations in the PRC are subject to special considerations and significant risks. These include risks associated with, among others, the political, economic and legal environments and
foreign currency exchange. The Group's results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and
regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
The Group transacts most of its business in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the PBOC or other banks authorized
to buy and sell foreign currencies at the exchange rates quoted by the PBOC. Approval of foreign currency payments by the PBOC or other institutions requires submitting a payment application form
together with suppliers' invoices, shipping documents and signed contracts.
On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the US$. Under the new policy, the RMB is permitted to fluctuate within a narrow and
managed band against a basket of certain foreign currencies. This change in policy has resulted in a 15.7% appreciation of the RMB against the US$ from July 21, 2005 to December 31, 2019.
To the extent that the Company needs to convert US$ into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against US$ would have an adverse
effect on the RMB amount the Company would receive from the conversion. Conversely, if the Company decides to convert RMB into US$ for the purpose of making payments for dividends on
ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of US$ against RMB would have a negative effect on the US$ amount available to the Company. In
addition, a significant depreciation of the RMB against the US$ may significantly reduce the US$ equivalent of the Company's earnings or losses.
F-78
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The Group offers certain homebuyers seller-financing arrangements. All the homebuyers that entered into such arrangements were subject to credit verification procedures. In addition, accounts
receivable balances are unsecured, but monitored on an ongoing basis via the Group's management reporting procedures. The Group provides longer payment terms to particular home buyers after
applying strict credit requirements based on the Group's credit policy. As of December 31, 2018 and 2019, there is no concentration of credit risk with respect to receivables and the Group does not have
a significant exposure to any individual debtor.
In 2013, PRC banks tightened the conditions on which mortgage loans are extended to homebuyers. Therefore, mortgage loans for homebuyers have been subject to longer processing periods or even
denied by the banks. The Group monitors its homebuyers' outstanding mortgage loans on an ongoing basis via the Group's management reporting procedures and took the position that contracts with
underlying mortgage loans with processing periods exceeding one year shall not be considered when recognizing revenue on an over time basis (Note 2(h) for further detail). As a result, sales contracts
of 280 apartments were excluded when determining revenue to be recognized in 2019.
In addition, no single customer or supplier accounted for more than 10% of revenue or project expenditures for the years ended December 31, 2017, 2018 and 2019.
24.
Non-controlling interests
As of December 31, 2018, the non-controlling interests consisted of the following:
Shaanxi Zhongmao Economy Development Co., Ltd.
Taicang Pengchi Real Estate Co., Limited. (Note 18 (a))
Suzhou Xinyuan Wanzhuo Real Estate Co., Ltd. (Note 18 (a.b))
Henan Renxin Real Estate Co., Ltd.
Suzhou Yefang Real Estate Co., Limited. (Note 18(a.b))
Others
Total
As of December 31, 2019, the non-controlling interests consisted of the following:
Shaanxi Zhongmao Economy Development Co., Ltd.
Xinyuan Property Management Service (Cayman) Ltd.
Taicang Pengchi Real Estate Co., Limited. (Note 18 (a))
Suzhou Xinyuan Wanzhuo Real Estate Co., Ltd. (Note 18 (a.b))
Henan Renxin Real Estate Co., Ltd.
Suzhou Yefang Real Estate Co., Limited. (Note 18(a.b))
Others
Total
F-79
Ownership
December 31,
2018
US$
34.02%
83.00%
80.00%
49.00%
79.99%
3,264,319
(25,096,542)
(27,912,339)
—
(11,652,185)
(3,877,921)
(65,274,668)
Ownership
December 31,
2019
US$
34.02%
32.50%
83.00%
80.00%
49.00%
79.99%
6,285,895
(28,398,921)
(31,228,046)
(34,280,307)
—
(11,463,297)
(2,565,707)
(101,650,383)
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
25.
Subsequent events
Since January 2020, the coronavirus pandemic (“the COVID-19”) has spread across China and other countries, governments have implemented a series of measures including travel restrictions and
quarantines to contain COVID-19, which adversely affected the real estate industry where the Group operates. We currently believe our first quarter results of operations will be negatively impacted by
these developments. The development and evolution of the COVID-19 in China and globally still has great uncertainty in the duration and severity, which may further amplify and delay the impact on
the recovery of the real estate industry. Given the uncertainty about the situation, the Group currently cannot estimate the impact to the 2020 financial performance and cash flows.
26.
Condensed financial information of the Company
The condensed financial statements of Xinyuan Real Estate Co., Ltd. have been prepared in accordance with U.S. GAAP. Under the PRC laws and regulations, the Company's PRC subsidiaries are
restricted in their ability to transfer certain of their net assets to the Company in the form of dividend payments, loans or advances. The amounts restricted include paid-in capital and statutory reserves,
as determined pursuant to PRC generally accepted accounting principles, totaling US$879,070,803 as of December 31, 2019 (2018: US$777,376,696).
F-80
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Condensed Balance Sheets
ASSETS
Current assets
Cash and cash equivalents
Other receivables
Other current assets
Due from subsidiaries
Due from related parties
Total current assets
Investments in subsidiaries
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term bank loan
PRC income tax payable
PRC other tax payable
Other payable and accrued liabilities
Current portion of long-term bank loan and other debt
Payroll and welfare payables
Total current liabilities
Long term bank loan
Other long-term debt
Total liabilities
Shareholders' equity
Common shares, $0.0001 par value:
Authorized-500,000,000 shares, issued and outstanding- 107,875,468 shares for 2019 (2018: 119,805,636 shares)
Treasury shares
Additional paid-in capital
Retained earnings
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
F-81
Year ended December 31
2018
US$
2019
US$
93,606,791
665,428
250,569
667,811,964
348,076
762,682,828
28,591,381
10,928
77,649
455,222,231
—
483,902,189
1,142,335,163
1,338,730,125
1,905,017,991
1,822,632,314
—
13,388
902,190
24,090,605
397,039,358
2,817,136
424,862,677
3,178,000
796,606,833
19,900,000
13,388
902,190
27,612,109
423,131,157
2,220,113
473,778,957
100,440,000
558,111,718
1,224,647,510
1,132,330,675
16,399
(87,639,088)
532,117,479
235,875,691
16,410
(113,719,964)
543,290,577
260,714,616
680,370,481
690,301,639
1,905,017,991
1,822,632,314
Condensed Statements of Comprehensive Income
General and administrative expenses
Operating loss
Interest expense
Interest income
Net (loss)/gain on debt extinguishment
Gain on short-term investments
Other expenses/(income)
Equity in profit of subsidiaries, net
Income from operations before income taxes
Income taxes
Net income attributable to common shareholders
Other comprehensive income/(loss), net of tax of nil
Foreign currency translation adjustments
Comprehensive income attributable to shareholders
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
2017
US$
Year ended December 31
2018
US$
2019
US$
(13,781,596)
(9,877,059)
(9,509,893)
(13,781,596)
(65,387,198)
3,200,520
(15,879,702)
—
1,114,517
154,361,010
63,627,551
—
63,627,551
63,908,624
127,536,175
(9,877,059)
(105,990,420)
1,221,465
3,267,457
—
(11,135,488)
195,548,594
73,034,549
—
73,034,549
(9,509,893)
(107,382,764)
1,682,189
536,011
27,099
(20,106,250)
203,098,135
68,344,527
—
68,344,527
(59,347,915)
(20,044,827)
13,686,634
48,299,700
F-82
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
Condensed Statements of Cash Flows
Cash flows from operating activities:
Net income
Adjustment to reconcile net income to net cash used in operating activities:
Equity in profit of subsidiaries, net
Stock based compensation expense
Amortization of deferred charges
Loss on extinguishment of debt
Other receivables
Other current assets
Other payable and accrued liabilities
Payroll and welfare payables
Amount due from related parties
Net cash used in operating activities
Cash flows from financing activities:
Changes in due from subsidiaries
Proceeds from short-term bank loans
Repayments of long-term bank loans
Proceeds from long-term bank loans
Proceeds from other long-term debts
Repayment of other long-term debts
Purchase of treasury shares
Dividends to shareholders
Payment of financing cost
Purchase of shares under RSU plan
Proceeds from exercise of stock options
Net cash provided by financing activities
Net (decrease)/ increase in cash and cash equivalents
Cash and cash equivalents, at the beginning of the year
Cash and cash equivalents, at end of the period
(a) Basis of presentation
2017
US$
Year ended December 31
2018
US$
2019
US$
63,627,551
73,034,549
68,344,527
(154,361,010)
4,266,373
4,036,412
15,879,702
—
(2,214)
4,874,134
2,893,230
(561,872)
(195,548,594)
3,152,908
7,415,821
(3,267,457)
(665,428)
(203,789)
7,342,974
(590,356)
213,796
(203,098,135)
3,782,307
7,445,276
(536,011)
654,500
172,920
(291,915)
(597,023)
348,076
(59,347,694)
(109,115,576)
(123,775,478)
(326,904,897)
24,294,636
—
—
603,179,617
(201,002,731)
(14,058,280)
(26,090,734)
(26,952,084)
—
6,111,912
53,143,354
—
(13,250,000)
3,178,000
200,000,000
—
(19,846,720)
(25,739,147)
(4,082,815)
(7,797,949)
1,390,666
38,577,439
186,995,389
(20,770,255)
36,497,233
15,726,978
77,879,813
15,726,978
93,606,791
212,589,733
19,900,000
(110,311,908)
100,440,000
300,000,000
(413,300,000)
(26,080,876)
(19,647,356)
(2,075,789)
(2,920,216)
166,480
58,760,068
(65,015,410)
93,606,791
28,591,381
In the company-only financial statements, the Company's investment in subsidiaries is stated at cost plus its equity interest in undistributed earnings of subsidiaries since inception. The company-only
financial statements should be read in conjunction with the Company's consolidated financial statements.
The Company records its investment in its subsidiaries under the equity method of accounting as prescribed in ASC 323, Investment-Equity Method and Joint Ventures. Such investment is presented on
the balance sheet as "Investments in subsidiaries" and share of the subsidiaries' profit or loss as "Equity in profit of subsidiaries, net" on the condensed statements of comprehensive income.
F-83
XINYUAN REAL ESTATE CO., LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts stated in US$, except for number of shares data)
The subsidiaries did not pay any dividends to the Company for the periods presented.
(b) Related party transactions
As of December 31, 2018 and 2019, the Company had US$551,155,875 and US$338,566,142 due from its wholly-owned subsidiaries. These amounts mainly reflect intercompany loans from the
Company to Xinyuan Real Estate, Ltd. While intercompany loans have no fixed payments terms, the Company has a legal enforceable right to demand payment at any time, and Xinyuan Real Estate,
Ltd. has the ability to repay the outstanding balance on demand.
In 2013, the Company also entered into a separate loan facility agreement with XIN Development Group International Inc. Pursuant to the agreement, the Company will provide a loan facility to XIN
Development for the period from July 1, 2013 to January 18, 2018 amounting to US$50,000,000 at 17.5% per annum. As of December 31, 2019, the Company has US$116,656,089 (2018:
US$116,656,089) including accrued interest of US$67,554,210 (2018: US$67,554,210), due from XIN Development under this loan facility.
(c) Commitments
Except for those disclosed in the Company’s condensed financial information, the Company does not have significant commitments or long-term obligations as of the period end presented.
F-84
DESCRIPTION OF SHARE CAPITAL
Exhibit 2.19
We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association, as amended and restated, and the Companies Law (2007 Revision) of the
Cayman Islands ("Companies Law").
Our authorized share capital consists of 500,000,000 common shares, with a par value of US$0.0001. The material provisions of our amended and restated memorandum and articles of
association and the Companies Law relating to the material terms of our common shares are summarized below.
Common shares
General. All of our outstanding common shares are fully paid and non-assessable. Certificates representing the common shares are issued in registered form. Our shareholders who are
nonresidents of the Cayman Islands may freely hold and vote their shares.
Dividends. The holders of our common shares are entitled to such dividends as may be declared by our shareholders or board of directors subject to the Companies Law. All dividends or
distributions will be paid out of our realized or unrealized profits, or out of the share premium account or others permitted by the Companies Law.
Voting Rights. Each common share is entitled to one vote on all matters upon which the common shares are entitled to vote. Voting at any meeting of shareholders is by a show of hands
unless a poll is demanded or required by the rules of the designated stock exchange. A poll may be demanded by the chairman of the meeting or a shareholder or shareholders present in person or, in the
case of a shareholder being a corporation, by its duly authorized representative or by proxy, and holding not less than one-tenth of the issued share capital of our voting shares.
The quorum required for a meeting of shareholders consists of two or more shareholders being present in person or by proxy or, if a corporation or other non-natural person, by its duly
authorized representative, representing not less than fifty per cent of the total voting rights of common shares entitled to vote at a general meeting. Shareholders’ meetings are held annually and may be
convened by our board of directors on its own initiative. Advance notice of at least twenty days is required for the convening of a general meeting.
Any business transacted at a general meeting must be specified in a notice given at the direction of, or otherwise properly brought before the annual meeting by, our board of directors or is
properly brought by a shareholder who provides advance notice, in accordance with our memorandum and articles of association, as amended and restated, describing the business desired to be
conducted at the general meeting.
In order to be passed by the shareholders, an ordinary resolution requires the affirmative vote of a simple majority of the votes attached to the common shares cast in a general meeting, while
a special resolution requires the affirmative vote of no less than two-thirds of those votes cast. A special resolution is required for important matters such as a change of name or an amendment to our
memorandum or articles of association.
Transfer of Shares. Subject to the restrictions of our articles of association, as more fully described below, any of our shareholders may transfer all or any of their common shares if
approved by the board in writing, and the name of the transferee is entered into the register of shareholders in order for the transfer to become effective.
If a shareholder dies, the legal representative of the deceased shareholder is the only person recognized as having title to his share interest. Any person entitled to a share interest as a result of
death or bankruptcy or liquidation or dissolution of a shareholder (or in any other way than by transfer) may, upon providing evidence of such right, elect to become the holder of the share interest or
nominate someone as the transferee. In either case, our directors have the same right to decline or suspend registration as they would have in the case of a transfer of the share interest by the shareholder
before his death or bankruptcy, unless the transferee is an immediate family member of the shareholder or a trust for their benefit. If notice from such person to either elect to be registered himself or to
transfer the share interest is not received within ninety days, our directors may withhold payment of all dividends, bonuses or other payouts related to the share interest until the requirements of the
notice have been satisfied.
Liquidation. On a return of capital on winding-up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of common
shares will be distributed among the holders of the common shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be
distributed so that the losses are borne by our shareholders proportionately.
1
Redemption of Shares. Subject to the provisions of the Companies Law and our memorandum and articles of association, as amended and restated, and to any special rights conferred on the
holders of any shares or class of shares, we may issue shares on the terms that they are subject to redemption at our option or at the option of the holders, according to such terms and in such manner as
may be determined by special resolution, determined before the issue of the shares.
Variations of Rights of Shares. Subject to the provisions of the Companies Law, the rights attached to any class of shares maybe varied with the consent of the majority of shareholders with
voting rights of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.
Inspection of Books and Records. Holders of our common shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate
records.
Designations and classes of shares. All of our issued shares are common shares. Our articles provide that our authorized unissued shares shall be at the disposal of our board of directors,
which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration and upon such terms and conditions as our board may in its absolute
discretion determine. In particular, our board of directors is empowered to redesignate from time to time authorized and unissued common shares as other classes or series of shares, to authorize from
time to time the issuance of one or more series of preferred shares and to fix the designations, powers, preferences and relative, participating, optional and other rights, if any, and the qualifications,
limitations and restrictions thereof, if any, including without limitation, the number of shares constituting each such class or series, dividend rights, conversion rights, redemption privileges, voting
powers and liquidation preferences, and to increase or decrease the size of any such class or series.
American Depositary Receipts
DESCRIPTION OF AMERICAN DEPOSITARY SHARES
JPMorgan Chase Bank, N.A., as depositary, issues American Depositary Shares ("ADSs") which are registered under Section 12(b) of the Exchange Act and traded on the New York Stock
Exchange. Each ADS represent an ownership interest in two common shares deposited with the custodian, as agent of the depositary, under the deposit agreement among ourselves, the depositary and
American Depositary Receipt ("ADR") holders. Each ADS will also represent any securities, cash or other property deposited with the depositary but which have not distributed directly to the ADR
holder. Unless specifically requested by the ADR holder, all ADSs will be issued on the books of our depositary in book-entry form and periodic statements will be mailed to the ADR holders which
reflect their ownership interest in such ADSs.
ADSs may be held either directly or indirectly through a broker or other financial institution. ADSs are held directly by having an ADS registered in the name of the ADR holder on the books
of the depositary.
An ADR holder is not a shareholder and does not have any shareholder rights. Cayman Island law governs shareholder rights. Because the depositary or its nominee is the shareholder of
record for the shares represented by all outstanding ADSs, shareholder rights rest with such record holder. Instead, an ADR holder has rights derived from the terms of the deposit agreement entered into
among us, the depositary and all registered holders from time to time of ADSs issued thereunder. The obligations of the depositary and its agents are also set out in the deposit agreement. Because the
depositary or its nominee is actually the registered owner of the shares, an ADR holder must rely on it to exercise the rights of a shareholder on an ADR holder's behalf. The deposit agreement and the
ADSs are governed by New York law.
The following is a summary of the material terms of the deposit agreement.
Share Dividends and Other Distributions
We may make various types of distributions with respect to our securities. The depositary has agreed to pay to ADR holders the cash dividends or other distributions it or the custodian
receives on shares or other deposited securities, after converting any cash received into U.S. dollars and, in all cases, making any necessary deductions provided for in the deposit agreement. An ADR
holder will receive these distributions in proportion to the number of underlying securities that their ADSs represent.
2
Except as stated below, to the extent the depositary is legally permitted and to the extent practicable, the depositary will deliver such distributions to ADR holders in proportion to their
interests in the following manner:
•
Cash. The depositary distributes any U.S. dollars available to it resulting from a cash dividend or other cash distribution or the net proceeds of sales of any other distribution or
portion thereof (to the extent applicable), on an averaged or other practicable basis, subject to (i) appropriate adjustments for taxes withheld, (ii) such distribution being
impermissible or impracticable with respect to certain registered holders and (iii) deduction of the depositary’s expenses in (1) converting any foreign currency to U.S. dollars to
the extent that it determines that such conversion may be made on a reasonable basis, (2) transferring foreign currency or U.S. dollars to the United States by such means as the
depositary may determine to the extent that it determines that such transfer may be made on a reasonable basis, (3) obtaining any approval or license of any governmental authority
required for such conversion or transfer, which is obtainable at a reasonable cost and within a reasonable time, and (4) making any sale by public or private means in any
commercially reasonable manner.
•
•
Shares. In the case of a distribution in shares, the depositary will issue additional ADRs to evidence the number of ADSs representing such shares. Only whole ADSs will be
issued. Any shares which would result in fractional ADSs will be sold and the net proceeds will be distributed in the same manner as cash to the ADR holders entitled thereto.
Rights to receive additional shares. In the case of a distribution of rights to subscribe for additional shares or other rights, if we timely provide satisfactory evidence that the
depositary may lawfully distribute such rights, the depositary will distribute warrants or other instruments representing such rights. However, if we do not furnish such evidence,
the depositary may:
• sell such rights if practicable and distribute the net proceeds as cash; or
• if it is not practicable to sell such rights, do nothing and allow such rights to lapse, in which case ADR holders will receive nothing.
We have no obligation to file a registration statement under the Securities Act in order to make any rights available to ADR holders.
•
Other Distributions. In the case of a distribution of securities or property other than those described above, the depositary may either (i) distribute such securities or property in
any manner it deems equitable and practicable or (ii) to the extent the depositary deems distribution of such securities or property not to be equitable and practicable, sell such
securities or property and distribute any net proceeds in the same way it distributes cash.
If the depositary determines that any distribution described above is not practicable with respect to any specific ADR holder, the depositary may choose any practicable method of distribution
for such ADR holder, including the distribution of foreign currency, securities or property, or it may retain such items, without paying interest on or investing them, on behalf of the ADR holder as
deposited securities, in which case the ADSs will also represent the retained items.
Any U.S. dollars are distributed by checks drawn on a bank in the United States for whole dollars and cents. Fractional cents will be withheld without liability for interest thereon and dealt
with by the depositary in accordance with its then current practices.
The depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders.
Deposit, Withdrawal and Cancellation
The depositary issues ADSs if an ADR holder or their broker deposits shares or evidence of rights to receive shares with the custodian and pays the fees and expenses owing to the depositary
in connection with such issuance.
Shares deposited in the future with the custodian must be accompanied by certain delivery documentation, including instruments showing that such shares have been properly transferred or
endorsed to the person on whose behalf the deposit is being made.
The custodian holds all deposited shares for the account of the depositary. ADR holders thus have no direct ownership interest in the shares and only have such rights as are contained in the
deposit agreement. The custodian will also hold any additional securities, property and cash received on or in substitution for the deposited shares. The deposited shares and any such additional items
are referred to as “deposited securities.”
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Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of
the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs in the name or upon the order of the person entitled thereto evidencing the number of ADSs to
which such person is entitled.
When an ADR holder turns in their ADSs at the depositary’s office, or when an ADR holder provides proper instructions and documentation in the case of direct registration ADSs, the
depositary will, upon payment of certain applicable fees, charges and taxes, deliver the underlying shares at the custodian’s office or effect delivery by such other means as the depositary deems
practicable, including transfer to an account of an accredited financial institution on their behalf. At an ADR holder's risk, expense and request, the depositary may deliver deposited securities at such
other place as they may request.
The depositary may only restrict the withdrawal of deposited securities in connection with:
•
•
•
temporary delays caused by closing our transfer books or those of the depositary or the deposit of shares in connection with voting at a shareholders’ meeting, or the payment of
dividends;
the payment of fees, taxes and similar charges; or
compliance with any U.S. or foreign laws or governmental regulations relating to the ADRs or to the withdrawal of deposited securities.
This right of withdrawal may not be limited by any other provision of the deposit agreement.
Record Dates
The depositary may fix record dates for the determination of the ADR holders who will be entitled (or obligated, as the case may be):
•
•
•
•
to receive any distribution on or in respect of shares,
to give instructions for the exercise of voting rights at a meeting of holders of shares,
for the determination of the registered holders who shall be responsible for the fee assessed by the depositary for administration of the ADR program and for any expenses as
provided for in the ADR, or
to receive any notice or to act in respect of other matters,
all subject to the provisions of the deposit agreement.
Voting Rights
An ADR holder may instruct the depositary how to exercise the voting rights for the shares which underlie their ADSs if the depositary asks the ADR holder to provide it with voting
instructions. After receiving voting materials from us, the depositary will notify the ADR holders of any shareholder meeting or solicitation of consents or proxies. This notice will state such
information as is contained in the voting materials and describe how an ADR holder may instruct the depositary to exercise the voting rights for the shares which underlie their ADSs and will include
instructions for giving a discretionary proxy to a person designated by us. For instructions to be valid, the depositary must receive them in the manner and on or before the date specified. The depositary
will try, as far as is practical, subject to the provisions of and governing the underlying shares or other deposited securities, to vote or to have its agents vote the shares or other deposited securities as the
ADR holder instructs. The depositary will only vote or attempt to vote as the ADR holder instructs. The depositary will not itself exercise any voting discretion. Furthermore, neither the depositary nor
its agents are responsible for any failure to carry out any voting instructions, for the manner in which any vote is cast or for the effect of any vote.
There is no guarantee that an ADR holder will receive voting materials in time to instruct the depositary to vote and it is possible that an ADR holder, or persons who hold their ADSs through
brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.
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If the depositary does not receive voting instructions from the ADR holder by the specified date, it will consider the ADR holder to have authorized and directed it to give a discretionary
proxy to a person designated by us to vote the number of deposit securities represented by their ADSs. The depositary will give a discretionary proxy in those circumstances to vote on all questions to be
voted upon unless we notify the depositary that:
•
•
•
we do not wish to receive a discretionary proxy;
we think there is substantial shareholder opposition to the particular question; or
we think the particular question would materially affect the rights of our shareholders.
Reports and Other Communications
The depositary will make available for inspection by ADR holders any written communications from us which are both received by the custodian or its nominee as a holder of deposited
securities and made generally available to the holders of deposited securities. We will furnish these communications in English when so required by any rules or regulations of the Securities and
Exchange Commission.
Additionally, if we make any written communications generally available to holders of our shares, including the depositary or the custodian, and we request the depositary to provide them to
ADR holders, the depositary will mail copies of them, or, at its option, English translations or summaries of them to ADR holders.
Fees and Expenses
The depositary may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances in respect of share distributions, rights and
other distributions, issuances pursuant to a stock dividend or stock split declared by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or
deposited securities, and each person surrendering ADSs for withdrawal of deposited securities in any manner permitted by the deposit agreement, US$5.00 for each 100 ADSs (or any portion thereof)
issued, delivered, reduced, cancelled or surrendered, as the case may be. The depositary may sell (by public or private sale) sufficient securities and property received in respect of a share distribution,
rights and/or other distribution prior to such deposit to pay such charge.
The following additional charges shall be incurred by the ADR holders, by any party depositing or withdrawing shares or by any party surrendering ADRs or to whom ADRs are issued
(including, without limitation, issuance pursuant to a stock dividend or stock split declared by our company or an exchange of stock regarding the ADRs or the deposited securities or a distribution of
ADRs), whichever is applicable:
•
•
•
•
•
•
•
a fee of US$1.50 per ADR or ADRs for transfers of certificated or direct registration ADRs, unless prohibited by the NYSE;
a fee of US$0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the deposit agreement;
an aggregate fee of up to US$0.05 per ADS (or portion thereof) per calendar year for services performed by the depositary in administering our ADR program (which fee may be
charged on a periodic basis during each calendar year and shall be assessed against holders of ADRs as of the record date or record dates set by the depositary during each calendar
year and shall be payable in the manner described in the next succeeding provision);
any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection
with the servicing of our shares or other deposited securities (which charge shall be assessed against registered holders of our ADRs as of the record date or dates set by the
depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash
distributions);
a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of
ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds
from the sale thereof are instead distributed by the depositary to those holders entitled thereto;
stock transfer or other taxes and other governmental charges;
cable, telex and facsimile transmission and delivery charges incurred at an ADR holder's request;
5
•
•
•
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities;
expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and
such fees and expenses as are incurred by the depositary (including without limitation expenses incurred in connection with compliance with foreign exchange control regulations
or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with
applicable laws, rules or regulations.
We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary.
The fees described above may be amended from time to time.
The depositary may generally refuse to provide services to any holder until the fees and expenses owing by such holder for those services or otherwise are paid.
Payment of Taxes
ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADR holder owes any
tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities and deduct the amount owing from the net proceeds of
such sale. In either case the ADR holder remains liable for any shortfall. Additionally, if any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration
of transfer, split-up or combination of deposited securities or withdrawal of deposited securities (except under limited circumstances mandated by securities regulations). If any tax or governmental
charge is required to be withheld on any non-cash distribution, the depositary may sell the distributed property or securities to pay such taxes and distribute any remaining net proceeds to the ADR
holders entitled thereto.
By holding an ADR or an interest therein, an ADR holder will be agreeing to indemnify us, the depositary, its custodian and any of our or their respective directors, employees, agents and
affiliates against, and hold each of them harmless from, any claims by any governmental authority with respect to taxes, additions to tax, penalties or interest arising out of any refund of taxes, reduced
rate of withholding at source or other tax benefit obtained in respect of or arising out of, an ADR holder's ADSs.
Reclassifications, Recapitalizations and Mergers
If we take certain actions that affect the deposited securities, including (i) any change in par value, split-up, consolidation, cancellation or other reclassification of deposited securities or
(ii) any recapitalization, reorganization, merger, consolidation, liquidation, receivership, bankruptcy or sale of all or substantially all of our assets, then the depositary may choose to:
(1) amend the form of ADR;
(2) distribute additional or amended ADRs;
(3) distribute cash, securities or other property it has received in connection with such actions;
(4) sell any securities or property received and distribute the proceeds as cash; or
(5) none of the above.
If the depositary does not choose any of the above options, any of the cash, securities or other property it receives will constitute part of the deposited securities and each ADS will then
represent a proportionate interest in such property.
Amendment; Termination and Resignation
Amendment. We may agree with the depositary to amend the deposit agreement and the ADSs without an ADR holder's consent for any reason. ADR holders must be given at least 30 days'
notice of any amendment that imposes or increases any fees or charges (other than stock transfer or other taxes and other governmental charges, transfer or registration fees, cable, telex or facsimile
transmission costs, delivery costs or other such expenses), or prejudices any substantial existing right of ADR holders. If an ADR holder continues to hold an ADR or ADRs after being so notified, such
ADR holder is deemed to agree to such amendment. Notwithstanding the foregoing, if any governmental body or regulatory body should adopt new laws, rules or regulations which would require
amendment or supplement of the deposit agreement or the form of ADR to ensure compliance therewith, we and the depositary may amend or supplement the deposit agreement and the ADR at any
time in accordance with such changed laws, rules or regulations, which amendment or supplement may take effect before a notice is given or an ADR holder otherwise receives notice. No amendment,
however, will impair an ADR holder's right to surrender their ADSs and receive the underlying securities, except in order to comply with mandatory provisions of applicable law.
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Termination. The depositary may, and shall at our written direction, terminate the deposit agreement and the ADR by mailing notice of such termination to the registered holders of ADRs at
least 30 days prior to the date fixed in such notice for such termination; provided, however, if the depositary shall have (i) resigned as depositary under the deposit agreement, notice of such termination
by the depositary shall not be provided to registered holders unless a successor depositary shall not be operating hereunder within 45 days of the date of such resignation, and (ii) been removed as
depositary under the deposit agreement, notice of such termination by the depositary shall not be provided to registered holders of ADRs unless a successor depositary shall not be operating hereunder
on the 60th day after our notice of removal was first provided to the depositary. After the date so fixed for termination, (a) all direct registration ADRs will cease to be eligible for the direct registration
system and will be considered ADRs issued on the ADR register and (b) the depositary will use its reasonable efforts to ensure that the ADSs cease to be DTC eligible so that neither DTC nor any of its
nominees will thereafter be a Holder. The depositary will (a) instruct its custodian to deliver deposited securities to us along with a general stock power that refers to the names set forth on the ADR
register and (b) provide us Company with a copy of such ADR Register. Upon receipt of such deposited securities and the ADR register, we will use our best efforts to issue to each holder a share
certificate representing the shares represented by the ADSs reflected on the ADR register in such holder's name and to deliver such share certificate to the holder at the address set forth on the register.
After providing such instruction to the custodian and delivering a copy of the ADR register to us, the depositary and its agents may perform no further acts under the deposit agreement and will cease to
have any obligations under the deposit agreement.
Resignation. The depositary may resign as depositary by written notice of its election so to do delivered to us, such resignation to take effect upon the appointment of a successor depositary
and its acceptance of such appointment as provided in the deposit agreement. The depositary may at any time be removed by us by no less than 60 days’ prior written notice of such removal, to become
effective upon the later of (i) the 60th day after delivery of the notice to the depositary and (ii) the appointment of a successor depositary and its acceptance of such appointment as provided in the
deposit agreement.
Limitations on Obligations and Liability to ADR holders
Prior to the issue, registration, registration of transfer, split-up, combination, or cancellation of any ADRs, or the delivery of any distribution in respect thereof, we, the depositary and its
custodian may require an ADR holder to pay, provide or deliver:
•
•
•
payment with respect thereto of (i) any stock transfer or other tax or other governmental charge, (ii) any stock transfer or registration fees in effect for the registration of transfers of
shares or other deposited securities upon any applicable register and (iii) any applicable fees and expenses described in the deposit agreement;
the production of proof satisfactory to the depositary and/or its custodian of (i) the identity of any signatory and genuineness of any signature and (ii) such other information,
including without limitation, information as to citizenship, residence, exchange control approval, beneficial ownership of any securities, compliance with applicable law,
regulations, provisions of or governing shares and terms of the deposit agreement and the ADRs, as it may deem necessary or proper; and
compliance with such regulations as the depositary may establish consistent with the deposit agreement.
The issuance of ADRs, the acceptance of deposits of shares, the registration, registration of transfer, split-up or combination of ADRs or the withdrawal of shares, generally or in particular
instances, may be suspended when the ADR register or any register for shares is closed or when any such action is deemed advisable by the depositary.
The deposit agreement expressly limits the obligations and liability of the depositary, ourselves and our respective agents. Neither we nor the depositary nor any such agent will be liable if:
•
present or future law, rule or regulation of the United States, the Cayman Islands, the People’s Republic of China or any other country, or of any governmental or regulatory
authority or securities exchange or market or automated quotation system, the provisions of or governing any deposited securities, any present or future provision of our charter,
any act of God, war, terrorism or other circumstance beyond our, the depositary’s or our respective agents’ control shall prevent, delay or subject to any civil or criminal penalty
any act which the deposit agreement or the ADRs provide shall be done or performed by us, the depositary or our respective agents (including, without limitation, voting);
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•
•
•
•
it exercises or fails to exercise discretion under the deposit agreement or the ADR;
it performs its obligations without gross negligence or bad faith;
it takes any action or refrains from taking any action in reliance upon the advice of or information from legal counsel, accountants, any person presenting shares for deposit, any
registered holder of ADRs or any other person believed by it to be competent to give such advice or information; or
it relies upon any written notice, request, direction or other document believed by it to be genuine and to have been signed or presented by the proper party or parties.
Neither the depositary nor its agents have any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs. We and our
agents shall only be obligated to appear in, prosecute or defend any action, suit or other proceeding in respect of any deposited securities or the ADRs, which in our opinion may involve us in expense or
liability, if indemnity satisfactory to us against all expense (including fees and disbursements of counsel) and liability is furnished as often as may be required. The depositary and its agents may fully
respond to any and all demands or requests for information maintained by or on its behalf in connection with the deposit agreement, any registered holder or holders of ADRs, any ADSs or otherwise to
the extent such information is requested or required by or pursuant to any lawful authority, including without limitation laws, rules, regulations, administrative or judicial process, banking, securities or
other regulators.
The depositary will not be responsible for failing to carry out instructions to vote the deposited securities or for the manner in which the deposited securities are voted or the effect of the vote.
In no event shall we, the depositary or any of our respective agents be liable to holders of ADSs or interests therein for any indirect, special, punitive or consequential damages.
The depositary may own and deal in deposited securities and in ADSs.
Disclosure of Interest in ADSs
To the extent that the provisions of or governing any deposited securities may require disclosure of or impose limits on beneficial or other ownership of deposited securities, other shares and
other securities and may provide for blocking transfer, voting or other rights to enforce such disclosure or limits, an ADR holder agrees to comply with all such disclosure requirements and ownership
limitations and to comply with any reasonable instructions we may provide in respect thereof. We reserve the right to request an ADR holder to deliver their ADSs for cancellation and withdrawal of the
deposited securities so as to permit us to deal with them directly as a holder of deposited securities and, by holding an ADS or an interest therein, they will be agreeing to comply with such instructions.
Books of Depositary
The depositary or its agent will maintain a register for the registration, registration of transfer, combination and split-up of ADRs, which register shall include the depositary’s direct
registration system. The depositary will maintain facilities to record and process the issuance, cancellation, combination, split-up and transfer of ADRs. These facilities may be closed from time to time,
to the extent not prohibited by law.
Pre-release of ADSs
The depositary may issue ADSs prior to the deposit with the custodian of shares (or rights to receive shares). This is called a pre-release of the ADSs. A pre-release is closed out as soon as the
underlying shares (or rights to receive shares from us or from any registrar, transfer agent or other entity recording share ownership or transactions) are delivered to the depositary. The depositary may
pre-release ADSs only if:
•
the depositary has received collateral for the full market value of the pre-released ADSs (marked to market daily); and
8
•
each recipient of pre-released ADSs agrees in writing that he or she
• owns the underlying shares,
• assigns all rights in such shares to the depositary,
• holds such shares for the account of the depositary and
• will deliver such shares to the custodian as soon as practicable, and promptly if the depositary so demands.
In general, the number of pre-released ADSs will not evidence more than 30% of all ADSs outstanding at any given time (excluding those evidenced by pre-released ADSs) and pre-released
ADSs are terminable on not more than five(5) business days' notice. However, the depositary may change or disregard such limit from time to time as it deems appropriate. The depositary may retain for
its own account any earnings on collateral for pre-released ADSs and its charges for issuance thereof.
Appointment
In the deposit agreement, each holder and each person holding an interest in ADSs, upon acceptance of any ADSs (or any interest therein) issued in accordance with the terms and conditions
of the deposit agreement will be deemed for all purposes to:
•
•
be a party to and bound by the terms of the deposit agreement and the applicable ADR or ADRs, and
appoint the depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all actions contemplated in the deposit agreement and the applicable
ADR or ADRs, to adopt any and all procedures necessary to comply with applicable laws and to take such action as the depositary in its sole discretion may deem necessary or
appropriate to carry out the purposes of the deposit agreement and the applicable ADR and ADRs, the taking of such actions to be the conclusive determinant of the necessity and
appropriateness thereof.
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Company Name
Jurisdiction of Incorporation
Xinyuan Real Estate Co., Ltd.
List of Subsidiaries as of December 31, 2019
Exhibit 8.1
Xinyuan International Property Investment Co., Ltd.
Xinyuan International (HK) Property Investment Co., Limited
XIN Development Group International Inc.
Xinyuan Real Estate, Ltd.
XIN Development Management East, LLC
XIN NY Holding, LLC
421 Kent Development, LLC
Xinyuan Sailing Co., Ltd.
AWAN Plasma Sdn Bhd
XIN Eco Marine Group Properties Sdn Bhd
Zhengzhou Jiasheng Real Estate Co., Ltd.
Xinyuan (China) Real Estate, Ltd.
Henan Xinyuan Real Estate Co., Ltd.
Qingdao Xinyuan Xiangrui Real Estate Co., Ltd.
Shandong Xinyuan Real Estate Co., Ltd.
Xinyuan Property Management Service (Cayman) Ltd.
Xinyuan Property Management Service (BVI) Ltd.
Xinyuan Property Management Services (HK) Limited
Xinyuan Science and Technology Service Group Co., Ltd.
Mingyuan Landscape Engineering Co., Ltd.
Henan Xinyuan Wanzhuo Real Estate Co., Ltd.
Suzhou Xinyuan Real Estate Development Co., Ltd.
Anhui Xinyuan Real Estate Co., Ltd.
Kunshan Xinyuan Real Estate Co., Ltd.
Xinyuan Real Estate (Chengdu) Co., Ltd.
Xuzhou Xinyuan Real Estate Co., Ltd.
Henan Xinyuan Jiye Real Estate Co., Ltd.
Beijing Xinyuan Wanzhong Real Estate Co., Ltd.
Xinyuan Renju (Beijing) Asset Management Co., Ltd.
Beijing Xinyuan Priority Real Estate Consulting Co., Ltd.
Henan Xinyuan Priority Commercial Management Co., Ltd.
Suzhou Xinyuan Wanzhuo Real Estate Co., Ltd.
Jiangsu Jiajing Real Estate Co., Ltd.
Xingyang Xinyuan Real Estate Co., Ltd.
Jinan Xinyuan Wanzhuo Real Estate Co., Ltd.
Sanya Beida Science and Technology Park Industrial Development Co., Ltd.
Chengdu Xinyuan Wanzhuo Real Estate Co., Ltd.
Tianjin Xinyuan Real Estate Co., Ltd.
Xi’an Yinghuai Commerce and Trade Co., Ltd.
Changsha Xinyuan Wanzhuo Real Estate Co., Ltd.
Shanghai Junxin Real Estate Co., Ltd.
Beijing Yinghuai Commerce and Trade Co., Ltd.
Beijing Xinhe Investment Development Co., Ltd.
Henan Yinghuai Commerce and Trade Co., Ltd.
Henan Xinyuan Guangsheng Real Estate Co., Ltd.
Shanghai Hexinli Property Management Center. (Limited partnership)
Cayman Islands
Hong Kong
United States
Cayman Islands
United States
United States
United States
Hong Kong
Malaysia
Malaysia
China
China
China
China
China
Cayman Islands
British Virgin Islands
Hong Kong
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
1
Shandong Xinyuan Renju Real Estate Co., Ltd.
Shaanxi Zhongmao Economy Development Co., Ltd.
Xinyuan Science Technology Service Group Co., Ltd.
421 Kent Holding Co, Ltd.
Hudson 888 Owner LLC
XIN Manhattan Holding LLC
Hudson 888 Holding LLC
Shenzhen Xinchuang Investment Consulting Co., Ltd.
Henan Xinyuan Quansheng Real Estate Co., Ltd.
Zhengzhou Shengdao Real Estate Co., Ltd.
Henan Xinyuan Shunsheng Real Estate Co., Ltd.
Hunan Erli Real Estate Co., Ltd.
XIN Queens Holding LLC
Queens Theatre Holdco LLC
Queens Theatre Owner LLC
Zhengzhou Xinnan Real Estate Co., Ltd.
Xinyan Investment Management Co., Limited.
Hunan Xintian Real Estate Co., Ltd.
Zhengzhou Hangmei Technology Development Co., Ltd.
Zhengzhou Hangmei Zhengxing Technology Co., Ltd.
Xi’an Dingrun Real Estate Co., Ltd.
Zhengzhou Kangshengboda Real Estate Co., Ltd.
Xinjiang Xinyuan Renju Equity Investment., Ltd.
Zhuhai Prince Real Estate Co., Ltd.
Henan Renxin Real Estate Co., Ltd.
Xinchuang Technology Co., Ltd.
Hangzhou Huiyuan Investment Management Partnership Enterprise. (Limited partnership)
Guangdong Xinyuan Real Estate Co., Ltd.
Taicang Pengchi Real Estate Co., Limited.
Khorgos XinYan Enterprise Management Consulting Co., Ltd.
Hunan Huaiwei Business Management Co., Ltd.
Xi'an Jinbian Shunsheng Real Estate Co., Ltd.
Jinan Xinyuan Quansheng Real Estate Co., Ltd.
Suzhou Yuxi Real Estate Co., Limited.
Xinchuang Sailing (Dalian) Healthy Investment Co., Ltd.
Dalian Xinyi Renju Industrial Co., Ltd.
Jiangxi Xinkai Renju Management Consulting Service Co. Ltd.
Beijing Xinyuan Huicheng Technology Development Co., Limited.
Suzhou Yefang Real Estate Co., Limited.
Chengdu Xinyuan Renju Enterprise Management Co., Ltd.
Chengdu Guohongteng Real Estate Co., Ltd.
Qingdao Keda Real Estate Co., Ltd.
Wuhan Yinghexin Real Estate Co., Ltd.
Henan Xinyuan Property Management Co., Ltd.
Wuhu Xinyansuifeng NO.1 Investment Center (Limited partnership)
Zhuhai Xinyuan Real Estate Co., Ltd.
Jinan Renju Building Material Co., Ltd.
Dalian Xinyi Yaju Real Estate Co., Ltd.
Guangdong Xinchuang Kechuangzhigu Development Co., Ltd.
Jiangxi Xinyuan Heju Enterprise Management Consulting Service Co., Ltd.
Beijing I-Journey Science and Technology Development Co., Ltd.
Beijing Ruizhuo Xichuang Technology Development Co., Ltd.
Beijing Ruizhuo Xitou Development Co., Ltd.
Beijing Future Xinzhihui Technology Development Center (Limited Partnership)
Beijing Future Xinhujin Technology Development Center (Limited Partnership)
China
China
China
United States
United States
United States
United States
China
China
China
China
China
United States
United States
United States
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
China
2
Beijing Future Xinruifeng Technology Development Center (Limited Partnership)
Beijing Ruihao Rongtong Real Estate Co., Ltd.
Beijing Yuzhouyun Technology Development Center (Limited partnership)
Beijing Juzhouyun Technology Development Co., Ltd.
China
China
China
China
*The list does not include various new entities created by Xinyuan Real Estate Co., Ltd. that are being held for future ventures.
3
EXHIBIT 12.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yong Zhang, certify that:
1. I have reviewed this Annual Report on Form 20-F of Xinyuan Real Estate Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
EXHIBIT 12.1
Date:
April 29, 2020
/s/ Yong Zhang
Name:
Title:
Yong Zhang
Chairman and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 12.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Yu (Brian) Chen, certify that:
1. I have reviewed this Annual Report on Form 20-F of Xinyuan Real Estate Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the company as of, and for, the periods presented in this report;
4. The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information
relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and
5. The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit
committee of the company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting.
EXHIBIT 12.2
Date:
April 29, 2020
/s/ Yu (Brian) Chen
Name:
Title:
Yu (Brian) Chen
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.1
Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. § 1350, the undersigned officer of Xinyuan Real Estate Co., Ltd. (the
“Company”), hereby certifies that the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 (the “Report”) complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Yong Zhang
Yong Zhang
Chairman and Chief Executive Officer
(Principal Executive Officer)
April 29, 2020
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C § 1350 and will not be deemed “filed” for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that section.
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 13.2
Pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and 18 U.S.C. § 1350, the undersigned officer of Xinyuan Real Estate Co., Ltd. (the
“Company”), hereby certifies that the Company’s Annual Report on Form 20-F for the year ended December 31, 2019 (the “Report”) complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Exchange Act and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Yu (Brian) Chen
Yu (Brian) Chen
Chief Financial Officer
(Principal Financial Officer)
April 29, 2020
The foregoing certification is being furnished solely pursuant to Rule 13a-14(b) under the Exchange Act and 18 U.S.C § 1350 and will not be deemed “filed” for purposes of Section 18 of the
Exchange Act, or otherwise subject to the liability of that section.
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-152637) pertaining to Xinyuan Real Estate Co., Ltd. 2007 Equity Incentive Plan and 2007 Long Term Incentive Plan,
(2) Registration Statement (Form S-8 No. 333-198525) pertaining to Xinyuan Real Estate Co., Ltd. 2014 Restricted Stock Unit Plan, and
(3) Registration Statement (Form S-8 No. 333-205371) pertaining to Xinyuan Real Estate Co., Ltd. 2015 Stock Option Plan;
of our reports dated April 29, 2020, with respect to the consolidated financial statements of Xinyuan Real Estate Co., Ltd. and the effectiveness of internal control over financial reporting of Xinyuan
Real Estate Co., Ltd. included in this Annual Report (Form 20-F) of Xinyuan Real Estate Co., Ltd. for the year ended December 31, 2019.
Exhibit 23.1
/s/ Ernst & Young Hua Ming LLP
Beijing, People’s Republic of China
April 29, 2020