Q3 2019 Earnings Call
[noise], when making gentlemen, thank you for sending body.
<unk> G D S openings limited third quarter 2019 earnings conference call. At this time, all participants are walking in listen only mode. After managements prepared remarks, there will be a question on some section todays conference call is being recorded.
I'll turn the call wed see your host Ms., let Sean head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Everyone welcome to the frequency earnings Conference call GDS Holdings limited the company's results were issued via Newswire services earlier today and our posted online.
In summary presentation, which we will refer to during this conference call can be viewed and download it from a a website at <unk> invested GDS services Dot com.
Leading todays call is Mr., William Wong GDS, founder, Chairman and CEO , who will provide an overview, although business strategy and woman.
Mr. Then human G.S.G.S. CFO , who will then review the financial and operating results.
Well. We continued please note that today's discussion will will contain forward looking statements made under the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Well, it's looking statements involve inherent risks and uncertainties as such the compass results may be materially different from the views expressed today.
Further information regarding these and other listens doesn't says it's included in the Companys prospective as filed with the U.S. SBC.
The company does not assume any obligation to update any forward looking statements, except as required under applicable law.
Please also note that tedious earnings press release, and this conference call include discussions of UN audited GAAP financial information as well as UN audited non-GAAP financial measures GDS press release contains a reconciliation of the unaudited non-GAAP measures to the audited most.
Directly comparable GAAP measures.
I'll now turn the call the GDS founder Chairman and CEO Mr. William Paul. Please go ahead with him.
Thank you.
Hello, everyone.
Then people join us on todays call.
A couple of weeks ago, we passed the treaty is evident misery about why people.
Life is lifted the company has been exciting.
Sometimes it's exciting.
But it has made us considerable remedy stronger.
Today, we're reporting revenue and adjusted EBITDA, which is a stream times and a six times what do we reported a full treat Q1 6.
Oh total area committee that is almost double what we focused at IPO.
It's be and all the standing for years in terms of both.
However, we firmly believe set as a bad it's difficult to call.
As I go through all results I will highlight our students just begun progress in key areas.
[noise] during the sort of corridor, we signed up customer for over 21 saw them spend so neither of them. That's additional area Committee.
Oh, the 57 megawatts of Archie Pablo.
We shouldn't generate over $90 million on annual recurring revenue when fully delivered.
We haven't been free water autos for over 10 megawatt from existing customers I.
Assigned that's all the sites is getting bigger.
We also won a nine megawatts order from a new internet customer.
A market leader in short video streaming.
Anything else Street corridor.
Thank you.
We reached.
58 seldom script square meter next at four year to date.
Today, we haven't done in terms of meeting our full year sales talking about 80000 square meter.
In the past few months.
Customer sentiment has become a little more positive.
Cloud adoption continues.
Steve I will pass.
With market leaders reporting 65%, 200% gross.
[noise] Fiveg deployment is sobbing to drive another wave of demand.
Oh by the whole Gus is all next year end of the 2010 T cells pop huh.
Very promising.
We haven't talked on prior calls about of the diversification of our customer base.
After the end of 2016, we had is free hikes hyperscale customers.
Now we have so team.
And in the parents told US we signed a new hyperscale customer.
A prestigious global technology company with consumer focus.
The combination of a sustained demand from establish the customers plus new high girls accounts has enabled us to deliver 20000 square meters nets added per quarter.
There are still new customers and the markets for us to penetrate.
With all we are very aware, we're well positioned us for high higher level of sales over the next few years.
[noise] can do you saw the square meter Upsells mean stocking three to four new data center projects each quarter for us to do this we need our largest development pipeline.
As you know it is difficult to these days to get approval for new data centers in downtown areas.
We continue to have some success organically and a separate them and [noise].
Our capacity with the acquisitions.
However, it is not.
There's not enough in nearly enough to satisfy our customer demand.
We have we have therefore in both our study strategy cooking quoted logic edge upon site.
Our first to move first a major move what's the long fall on the edge up 18.
He is already proving upgrade success.
Within a couple of quarters, we have committed we have commitments from street different hyperscale customer.
But the most 400% uptake the street data centers.
Lump on one two industry.
While we still have inventory of land and power in long haul we are moving rapidly to secure even more so resource.
We aim to repeated this success in other tier one markets.
He's yonhap, we got approval today for new downtown capacity.
Additionally, we are purchasing more land near I'll walk you establish the edge of Tom site in consent.
We have also obtained.
The statue power capacity for another edge Uptown site in chunks function.
The power costs led at diseased locations will support a rather than 90000 square meter of new capacity.
In the Green Bay area, we have power cost led as a location near falling so.
We haven't Lisa.
I hope you duties at as true other locations near to our existing data centers and.
And we also have to Hong Kong to acquisition, which I will talk about the next.
Altogether, we have along the 230000 square meter of different dependable capacity in these key tier one markets and we are not stopping.
It is very studies strategic resource and it positions us to respond to higher level of demand.
[noise], we established operations in Hong Kong over five years ago.
Relying on third party data centers to so just a few of our many Chinese financial institution customers.
We took the first step to upgrade our present us with the purchase of of the Hong Kong one property in Shriek you 18.
The sites is now cleaned and we will start construction often new beauty.
The redevelopment Tom front frame is for years.
Hi, guys the gateway for the most of the international bandwidth connect in China.
Our hyperscale and a high gross customers use Hong Kong as a launch pad for their international service.
They are pushing us to further increase our present in the market.
Although our strategy is to always go where our customer some critical mass of demand.
We have therefore taken a significant step with the purchase above second the building for redevelopment.
How about two is located only 150 meters from Hong Kong one.
Enabling us to realized investment and the operational synergies.
We view Hong Kong as an integral to our tier one market platform.
With a proven demand from our China.
Hyperscale customers and at the present of more than 200 of our Chinese financial.
Institution Customising Hong Kong, we believe that sort of success of our projects is I should.
We announced the last quarter, but in the four met formation of apartment ship with GE I see for remote build to suit projects for Hyperscale customers.
Initial focus is on several projects, which we have committed to get better and the offering for one customer as free off their cup campuses.
We have almost a completed the first the project.
And I expect that to sell a 90% equity interest to to GE IC early next year.
We have started to work on two more project [noise].
[noise] the beauty of this partnership is that enable us to fulfill the broader refinements of our strategic customer all side of tier one markets.
We see these as I'm real opportunities to strengthen our fight franchise gain scale and upgrades additional value.
We have therefore formed our group within GDS to focus on remote build to suit projects as they seem to be distinct that product.
The several projects committed to date to date, we're required to around a $150 million of equity.
It's a relatively small by GE I see standards and they have given us the bear backing to scale up this partnership in a material with.
We are already in discussion with a couple of other customers.
It's going to take time as these deals are complex.
But I'm hopeful that over the next few quarters, we'll have some more wins.
With that I, we have over to Dan for the financial and operating review.
[noise]. Thank you William.
Starting on slide 13, where we strip out the contribution from equipment sales and the effect of FX changes.
In Threeq you 19 net service revenue grew by 7.5%.
Underlying adjusted anyway grew by 9.2%.
An underlying adjusted EBITDA grew by 11.4% and consecutive quarters.
The underlying adjusted anyone margin reached 53.8%.
No underlying adjusted EBITDA margin hit 45.9%.
Which is 7.9 percentage points higher than a year ago, and 1.6 percentage points higher than the prior quarter.
Turning to slide 14.
Service revenue growth was driven mainly by customers moving into space, which they previously committed.
Moving during Threeq, you 19 was over 10000 square meters.
We're expecting a similar level of move in during 14 19.
On top of which we will have around 7000 square meters of additional revenue generating space.
Paging, knowing when the acquisition closes the ended the year.
Oh MSR has been pretty much flat over the past few quarters.
However, we expect to small drop in for Q1 9.
Slide 15 shows quarterly trend in margins.
29 team has been a great year for margin improvement.
But with over 17000 square meters coming into service in Threeq you 19.
Plus another 13000 square meters in for Q1 9, including the GE said six acquisition, which just closed.
We expect to end the year with margins at a similar level.
Turning to slide 18.
Now cabot's picked up in three to 19.
Due to a higher level of ongoing construction.
In Fourq you know entering the initial consideration is due for the GE said six and BJ nine acquisitions.
For the purchase of the Hong Kong to property.
Bringing total capex for 2019 to a level of our original full year guidance, namely 4.5 to 5 billion RMB.
At the end of the year, we will have around 1 billion RMB remaining balance of purchase consideration trial acquisitions to date.
[noise] up to the end of three to nine team, we have incurred over 300 million RMB.
Paid 170 million RMB for Capex related to remote build to suit projects.
We've included a page in the appendix showing how we account for GE I see joint venture projects pre and post sale.
On slide 19 currently the debt capital market environment in China remains supportive for us and we're taking advantage to get longer tenor and cheaper facilities.
In three to nine team, we completed financing costs for new projects and refinancing of three existing projects totaling 1.4 billion RMB.
We are considering a number of options to financing, our Hong Kong projects, including a sale leaseback of the redevelop properties or joint venture.
We've had a number of approaches for existing and new partners and the keeping an open mind.
Turning to slide 20.
Our backlog consists of binding commitments from customers. This has increased over 104000 square meters, representing 76% of our current utilize capacity.
Provides high visibility to our future growth.
Our backlog is almost entirely made up of large orders from hyperscale customers.
They're all high quality Counterparties handheld household names.
58% of the backlog or 60000 square meters.
Relates to data centers, which are currently under construction.
The remaining 42% or 44000 square meters relates to data centers, which are already in service.
This part is moving in the rate of about 10000 square meters per quarter.
To finish on slide 21.
After nine months, our revenues tracking towards the top end of the revised guidance range, which we provided last quarter.
For adjusted EBITDA, we are tracking above the top end of the revised guidance range.
Well, we are therefore, once again raising EBITDA guidance range.
To 1.8 to 1.82 billion RMB.
With regard to Capex will keep the original range.
With that I'll end the for part of our presentation and we'd now like to open the call two questions operator.
Thank you Sir Thank you, Sir ladies and gentlemen, great multibillion, but probably will not be et cetera.
If you'd like us like asked the question one back on telecom.
And Refuelings unannounced.
Okay.
We have the first question from Jonathan.
From RBC capital markets. Please.
Please ask your question.
Thanks very much.
I was wondering I.
I see that the pre commitment rate has been the pre commitment rate has been steadily increasing.
Right that that your business continues to scale.
At a higher rate and I wonder.
With that says about the competitive environment, you mentioned deals are getting bigger, but any any comments from your perspective about competitive supply in in general and then second question I had relates to Shanghai I think you said you did get some approval just today.
Hey, about downtown development, and how many how many square meters or megawatts or cabinets are we talking about in terms of the ability to develop municipal Shanghai. Thank you.
So John asking the first question is when I say from the competitive point a perspective I think the.
Our.
Resource.
Inventory, let's let's say, Brazil for help held for development.
If compared with this market share.
Our percentage I think it's a very significant more than our currency.
Uh huh.
Revenue share so that means in the future our support as much higher.
Number than our competitors.
The second question is there about the recent allocation for.
Our capacity in Shanghai.
We got it actually we thought of the approval for.
Target racks.
It's a let's see.
Lets captured a 2.5 square meter per rack.
That means more in 13000 square meters roughly the rough roughly right. So but Asia had there there's a there's a bit. Despite this our pool of quite a diversified orders a local player gather some small piece of that we had a will not the largest one to get approval.
So, but this is not can definitely cannot satisfy our customer future Tibet profile.
They want a larger scale much more larger scale than what we get in achieving market is number one.
Number two do you want to they want a.
Campus type, which high visibility for the for future expansion. So that's why we will continue to get back to edge tons side.
To make sure satisfy our customer.
Future demand.
But what we can tell is our future.
Our strategic customer future demand looks like it.
Looks like or did number will be accelerates in the next few years.
Yes, that's all.
Okay. Thank you and then maybe just lastly on on the new the new Hyperscale logo. The nine megawatt order a is that at a single location or is it across multiple metros.
Yeah, So single location John .
Great. Thank you very much.
We have the next question from the line that's a colby.
Nice job from Cowen and company.
Please ask your question great. Thank you.
Two questions. If I may the first one just given all the organic build that you're doing and intend to do a as we've gone to 2020.
That's what sounds like some interest in some bigger M&A to help satisfied the demand just can you remind us where what you're thinking in terms of potential equity raises or how you plan to finance. These.
Various projects.
Good to get some color on that and then I guess secondly, you noted that you're already 80000 square meters.
For 2019 this initial thoughts on 2020.
The extent you can share as it relates to revenue EBITDA.
Bookings et cetera. Thank you.
[noise] koby, Okay I'll go first.
Let me comment first of all of the kind of M&A environment, because we're very busy with organic build with still very focused on strategic M&A.
Opportunities.
They're all throughout platforms out there for us to core there aren't many tds is.
There are single sites.
To date, we've done several acquisitions, one one to close the each acquisition has been one data center on a site.
There are some opportunities where there are several data centers on a fights and maybe some expansion capacity. So that's what constitutes bigger opportunities.
The last three and half years, we've done yes.
Seven acquisitions.
Run rate of about two per annum and.
And that's been part of the 80000 square meters net adds is.
Provided us mainly with capacity to support the sales. So that's been part of that kind of.
Base case.
Got it organics and semi automatic.
But if we were to do what are what I just referred to as those larger acquisitions, that's going to be additive is going to be on on top of in addition to to that.
To bring it back to your question about capital raise we raised.
$600 million.
Earlier this year in March.
And if we leverage that 60 40 debt to equity. It means that we will have 1.5 billion U.S. dollar to financial resources to invest in.
In RMB, that's 10 billion RMB.
Our.
Top end about Capex guidance range. This year is 5 billion.
So you can't say in simple way that we raised enough equity capital.
This year to support.
Two years old investments.
Glenn Krevlin, which corresponds to an 80000 square meters net add.
Business plan.
No I didn't know when we did that capital raise that it was not sufficient if we were growing at a fast rate.
It was not sufficient if we were to do outside the ordinary M&A.
So both the neither of those of certain including will make a comment about granted a fast rates.
These are there's a certain but it's clear that.
If we work to do something than we would need to consider the financing whether it be.
The capital market, whether it be through the.
It up one of our partnerships.
But it would be.
Linked to a.
Reduction or links to demonstrated a level of sales.
Yes.
We are doing a comment on.
The possibility of potentiality for higher level of sales.
Mr. Cope results can fuel early thoughts about that.
It looks like a fantastic and data we are more confidence.
Maintain the 80000 square square meter that's for sure I think.
No doubt about that.
For the.
A lot about what we did given recent a couple of months where part two.
Our customer.
A couple times looks like at their tier next few years plan is.
Looks like.
We'll accelerates.
So.
Dead as I just to talk.
In a very early this year.
The sentiment is not good the now is totally.
Shipped everybody very.
Very very positive.
So a lot of D. it does start to execute the original plan.
And the even based on the Fiveg coming.
The except south looks like.
They will more aggressive.
But we will see we hope we can do more hey, but it's not right timing to commit more.
Yeah, I mean, it seems like your biggest issue is not the demand it simply finding the space.
And then ultimately financing and it sounds like.
Other than Beijing is still like in Shanghai intends and are looking for those bigger edge of Citi type developments in the seems like accenture able to get those.
We could see greater than 80000 square meters in some of the outer years did that that sound right.
It is right to koby, there, obviously, there's always going to be a lot of things going on which has not yet reached the stage where can be disclosed.
What weve showing nothing for the first time.
And our earnings presentation is.
Essentially the yes to both will area area held for future development and very roughly.
The corresponds to three years sales growth concurrent run rate.
But we would like to have.
Suitably modem that we'd like to had double.
We have no upper limit and our minds the amount that we've had to invest to secure this resource is really quite small a budget for land bank in China. This year was 500 million RMB lesnar onto between us and we will not spent all that but by by any means.
It's very valuable.
So we're going to keep on going.
We are very well positioned in Shanghai, you said, we still had lots to do.
The site that will end referred to in Changshu.
The unallocated several hundred megawatts of the power capacity.
But once again, we're still looking to add more.
Great. Thank you.
[noise] [noise], we have the next question from the line of Frank Louthan from Raymond James Please ask your question.
Great. Thank you can you comment on the situation in Hong Kong. The unrest there is that impacting your business in any thoughts on how it might impact your ability to develop an insight.
And then how many how many sites do you think that you will develop with the JV.
Of course.
Thanks.
Yeah.
Yes.
Yes.
Trends asking whether there's anything any short term impact.
Maybe impact our view Hong Kong, Yeah, I think will.
Our our logic is a follow up our customer that's our strategy to.
To do the location expansion.
So Hong Kong is become their.
A very important Apollo for all of our cost install base, so expansions with a terrific international market. That's always there for stat as I mentioned that just now I mean that they had ordered a lot of the hour hyperscale customer plus.
More than 200.
Financial institution.
Mainly China base.
They have to fair very clear demand in the next few years in Hong Kong. So we got we our view is that the certainty is given the pie that I was given the bide our customer.
Now the.
Any situation.
So we're very confident.
The demand is a very very.
Strong in Hong Kong from our order in store based customers.
Probably the second part of your question I can't give a precise answer too because we're not far far enough along.
For me to be able to quantify how many.
New remote build to suit projects, we will take home.
The income regarding the customer who with 37 projects for definitely there will be.
More more projects.
Would it by then.
And then.
So now we just identified a couple of other customers.
Could be interested in working with us in a similar way.
I'd say.
From seven today, let's take a two year view, we could be double or triple.
Yes.
Okay, great. Thank you very much.
We have the next question from the line of Roberts Gutman from a condominium.
Partners. Please ask your question.
Yeah. Thanks for taking my question.
Just a couple of things just a little bit about changes in expansion table it looks like Beijing.
It was pushed out to next year from the second half of this year's wondering the color on that.
Offer the moving pieces you mentioned.
You said, it's looking like about 10000 per quarter.
I just want verify that looks like a little acceleration from past couple of quarters, just want to verify that and just more broadly there's a lot of talk about.
A macroeconomic level about China's GDP growth and I was wondering if you could you could just tell me that little more specifically to the digital economy in China, Russia and expectations for the.
Overall economy, whether that's accelerating compared to the rest of economy.
Okay.
Yeah. We're also proposed first question you are you picked up the us sometimes we revise the ready to service period for particular project clay.
Remotely I mean, we're up to like 45 projects now that I've been here.
From from to number one.
All this fall.
A complete.
On timing within budget.
Inevitably there can be sometimes a delay a few months saw acceleration few months normally it's got nothing to do with US is out of our control. It may be to do with wind power infrastructure is in store or activated so.
That's that's that's that's was really nothing too.
Yes.
Hey, good mix mix of ourself.
Moving pace.
Yes, the moving pace.
Yes, Hello, Yes. This this year's being.
Slightly slower than last year, the last year was slightly faster than the normal.
I know given the macro that people are going to associate slightly slower with some.
Slowdown in terms of our customers.
Business, but that do tend to be careful about how we analyze this because there's many factors that can affect the you know the move in rates.
It can be.
Yes, M&A can affect that statistic.
How early customers could commit.
Development timeframe.
And also within the flexibility, which our costs, which are coke contracts get the customer whether they choose to deploy a little bit foster a little bit slower.
When we when we review.
The contracts, which are actually in delivery right now.
Upon stealth is like 44000 square meters.
But commitments, which relate to data centers already in service. So when we reviewed.
What were those contracts rat concerns of move in relative to the.
The minimum commitment in the contract.
Almost all moved far ahead of the minimum commitment.
I've got interfaces.
As a healthy situation.
The some specific reasons, sometimes why particular customer may move into fall through a little slower, but nothing we can generalize I can't generalize and say there was a slowdown or there was an acceleration.
Okay.
The loss.
The second question.
Last question was about the the macro situation okay.
I think everybody Takaful to China.
GDP as close to 6%, although the 6% still very big Big number.
But what I tried to say recently I, just a better a report having the Ennis reports.
China, New the economy.
Thats, meaning.
Say the digital economy.
Represent a 15, 60% of the China.
China GDP and the did this growth rate is around the 8.5% to 9% fast means new economy.
Clearly.
Is already being a new engine or driver.
In China GDP.
Economy. So we're lucky we are in this space not in the traditional space.
So I think this this is good for.
Good for us to CAD competencies gross our business in next few years.
Great. Thank you.
We have the next question from a line of Gokul Hariharan from JP Morgan. Please ask your question.
Hi, I agreed with so thanks for taking my questions.
My first question is.
I think a unister did that.
Number of hyper scale, they both have gone up significantly over the last two three years.
No.
Because the markets to roughly about 50% of your committed and by multiple data can that's probably about high teens number of need hinders each as we add a lot of newly both especially the last couple of years or could we have a.
<unk> review two to three years out is that talk to a customer a number of 50 plus percent they do come it they're going to come down meaningfully.
Ben you think about the next two three years of Oh, Yeah commuter revenue. That's my first question.
[noise] because your your observations correct the talk to customers. If you aggregate them when you look over several quarters, you'll see that.
The.
Two to three years.
The absolute amounts of new business that we have.
One from them.
As being very will sustain.
So there's been no sense of any lessening from from from them and we believe it will be sustained if a higher going forward.
In terms of the overall mix, we don't have any quotas, we don't fit any any limits.
But we do targets.
Adds more record high gross accounts.
And the progress in that respect has far exceeded our own.
Expectations. This heico's accounts, they may not be the kind of companies who placed an order every quarter. They may placed an order book once every 12 months. So once every 18 months.
So as you look at the growth rates of their businesses they're capable.
Doubling or tripling the size of the commitment with us.
I will just have to hazard a guess about what the top two would represent in two or three years timeline.
Well I'd say.
40% to 50% so not fall below where it is now.
Susan that means that we have a very solid underpinning pro for our business.
Understood. Thank you HM.
There's a bit about you mentioned oh setting up a separate team to look at the remote type projects and as you mentioned.
The seven projects could go to to rack that creates a fab.
There was about how much resources are kind of take a in form of sourcing and people its meaning sidra and given that now you have brought on board right.
There are some degree of Martin that promote.
Let me look at the next 12 to 18 month and.
How do we think about I think about moving that out.
Yes, good Cocos, asking how we execute on remote.
Build to suit projects for the.
How about resource it takes whether we have the capacity to do that number one I think in another every remote project we will.
Yes.
[noise] pickup.
I think the we have quite a picky right number one for few our delivered.
Ability because we're still focused on achieving market, we always say, we focus our cable market.
And the two I think here.
Since the.
The design center.
Very simple remote project.
As standard and the the accretion effort is.
Much less than that.
Multitenant data center.
Tier one market.
So.
We developed a lot of the tools to support our approach.
So I think it from that deliver point of view, it's more simple then.
Several market. So we still believe we can take more a project so far.
Okay got it.
Hi, good after very quick questions, Dan Dan could you talk a little bit about what are you focusing on EBITDA margin in the next couple of quarters in a pretty strong a increase in the last two quarters. I mean, you talked about Q4 being in the same range given a lot of new capacity and new movement, but could you talk a little bit about are beginning to be.
Same range over the next will be quarter, given that we have another.
New capacity coming on.
Yes, good glut of being on the low side in terms of my in.
Forecaster margin over this year, which is yeah.
Pleasant surprise.
Looking at next year.
Very roughly I think we can still.
Realize operating leverage at the data center that will be cool is the adjusted anyone margin.
Maybe one percentage point, that's not true that order of magnitude.
And then the S DNA level.
Yeah, I think it would also could be about 1% it could be more but.
We ask ourselves, whether we are actually underspending unless you know whether that's a bad thing.
Given the way the company is prone here, we need to scale up and re standards and so on.
And we are doing so in terms of people were hiring and term.
Our focus on a on production and and 19 and yes.
So.
I think one percentage point on yesterday, and one percentage point to the data center that level would be two percentage points over the next year. This is just a very rough indication.
Got it thank you.
We have the next question from the line that's a Colin Mccallum from Credit Suisse. Please ask your question.
Yeah, Thanks, and congrats on a from number I just one question you've alluded a couple of time earlier.
Coworkers and.
Our commitment and I just want to check some kind of your market noises by limit.
However, constrain group.
And.
This would be very surprised it's yes.
To building a data center in an area where.
We have.
Who commit to recovery not datacenter imagine, it's an integral part of the design business. So.
Turning to the one of the thing that the market talks, but the way that you manage your business.
Okay. It's not it's no tax second screen for your business or is it something that you just not to do the hard work getting married with the.
The rail and scaled enterprises in advance before you signaled the commitments and to the construction any color on that.
Thank you.
This call and I'll go first.
Yeah fight finding the right kind of real estate industrial property in downtown area or land for.
Zone for industrial use as a town.
Which qualifies for data center and isn't location, which is going to.
Work for our customers.
Ah that's difficult.
But as long as difficult as then getting sufficient power to be able to.
Operator data center utilize the for profit ratio.
And so on.
Yeah.
That's what I was getting power there's really.
There's really two parts to it.
One part is having agreement with the palace player quit the grid.
For the supply a couple capacity.
That is relatively straightforward, but there can be significant.
Economic issues, because we have to bear the cost to power infrastructure and the.
The distance from the site to sub station or the numbers and valuable Substations and so on kind of economics the project quite materially.
The second portion.
Obtaining power.
Is really critical and difficult part which is.
Yeah, obtaining approval from the government for the use of that you can put a carbon quota.
Some other.
Some other terminology.
In the.
Downtown areas Beijing, Shenzhen Shanghai.
It has become very restrictive.
For the fourth still being approved we've had some success.
We have mentioned just recently, we received an allocation.
In downtown Shanghai.
But we can now I think.
The other day this into service providers realize.
In order to obtain power we needed to go outside.
For further out find locations where.
How is available where the government is willing to allocated.
And that's why put so much emphasis in todays presentation on the pipeline in coal this.
Lined with power for it is developable capacity means it's land real estates and power.
That's what makes it very valuable.
We didn't do not anything.
Lets it to the added.
Mr. William satisfied wells.
[laughter] does.
I'm satisfied as well I mean that [laughter].
Good.
Reducing and effectively you're saying, we would become real pipeline land.
If you have right, you're not going to put yourself in a situation where you buy land Scott.
No no no our lives.
As you call. It is the other way round menu.
Most of the last a long list the line just being purchased from the government.
It starts with an agreement to the government allocate the power the last thing because they actually the purchase learned.
I mean, we maybe we chose our works a little carefully and perhaps they will pick up the new on split we mentioned in Changshu that we've been allocated power capacity.
Yes, we now have to dose the final step of actually purchasing plan websites.
Standard process, but the critical part was to contain power capacity. So so Google I think I added one comment.
We will realize the in the tier one market downtime came on market, it's very difficult to cavity at power corridor.
Even you get one as I mentioned, it's nothing significant cannot satisfy our customer so thats why we introduce we evolved our resource strategy from their focus on the downtime.
City to the edges top the city.
So we are the first mover to a tick back to this resource in the edge top of the of the.
Cuba market. So we will maintain this advantage.
Compared with our competitor.
Got it thank you.
We have next question from the line of ER Jonathan Atkin.
From RBC capital markets. Please ask your question.
Thanks, I had just a quick follow up on contract renewals Slide 33, I think that's that's a new a new slide for you and.
You know given the the percentage of.
Commitment that's up for renewal over the next two years I.
I just wanted to get your assessment of the likelihood of.
This revenue renewing or whether there would be any kind of pricing adjustments. Thank you.
[noise] joint concluded that pace, the first time, because investors often opt in Austin.
I think it shows that we have.
Over the next five years, we have roughly.
Small part about total contract portfolio, which is.
Coming up for renewal.
The two.
Denominator is our current every commissions we considered that is great such a high rates. These percentages will actually be Luke will be smaller.
Nominated gross things a lot of this contract renewals enterprise related business, where.
Now turn rates as I like to say is being statistically insignificant.
Within.
These numbers there are a few.
Contracts, which relate to a large into the cloud customers.
Business that we did.
At the end the 2015 on early early 2016.
Those are not very large deployments certainly not fight today stands as they were very big deals at the time, but yes now we just COFINA. So so deals.
But they're in data centers, which have very centrally located.
Unlike in Shenzen in Beijing.
And yes, I think the it.
That that kind of.
Facility is very scarce I very much doubt.
There's large instead of cloud customers going to pull back, but frankly, they did it probably be a oh.
An upside opportunity in terms of began to.
The release.
Yeah, as we used to mention the old our children market parents, our studios have somebody depravity idea.
Onrad already in our dataset, so it's a quite 64 hour.
For all of our customer so we're confident that we knew it will be not not issue.
Great. Thank you very much.
As there are no further questions I would like to turn the call back over to the company for closing remarks.
Thank you once again for joining US today, if you have set of questions. Please feel free to contact Tds industry license or the contact information on the website or the plus on say group Investor Relations. Thank you all.
Thank you. This concludes today's conference call you May now disconnect. Your line. Thank you.
Oh.