Q2 2021 GDS Holdings Ltd Earnings Call
Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd second quarter 2021 earnings conference call.
At this time all participants are in a listen only mode.
After managements prepared remarks, there will be a question and answer session. Today's conference call is being recorded I will now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Welcome to.
<unk> 'twenty earnings conference call of GDS Holdings limited.
Results were issued via Newswire services earlier today and are posted online.
Murray presentation, which we'll refer to during this conference call can be viewed and downloaded.
Right. That's the gist of it just don't call leading today's call is Mr. William Huang GDS founder Chairman and CEO will provide an overview of our business strategy and performance Mr. Dan Human GDS CFO will then review the financial and I'll put them Mr.
MS Jenny Cool I would feel it's also available to answer questions.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S drive is to get the phone act of 1995 forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views.
Dressed today.
Information regarding beef and although this is the seventh is it's included in the company's prospectus as filed with U S. SEC.
The company does not assume any obligation to update any forward looking.
Except as required under applicable law.
Please also note that GDS earnings press release, and this conference call include discussions of unaudited GAAP financial information as well as unaudited 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 over the call to GDS founder Chairman and CEO. William Please go ahead with them.
All right.
Hello, everyone.
Thank you for joining me on today's call.
I'm pleased to report.
Another solid set at all.
With us here today.
So he is 40 inline with expectations.
Our self into Q2 in two one was over 44000 square meters.
Including over 25000 square meters of organic bookings and 19000 square meters from acquisitions.
We have maintained our quarterly run rate since the beginning of last year.
Achieving our full year sales target.
In two to 'twenty one.
One of the Street Hyperscale orders.
Each of which tells a different story about our competitive edge.
<unk>.
He is a 14 megawatt expansion order from <unk>.
Existing customer.
And the edge of town sites in Longhorn, where the customer already has a big presents with us.
As an example of our land and expense.
A lot of our new business fits into this category.
The cycles fast with Joy and planning and then we enter into a cell mou covering multiple multiple phases of COVID-19.
Deployment.
This gave us does give us both GBS and our customers.
High degree of <unk>.
Certainly.
Once the customer has landed there is little or no competition for that expansion orders.
We currently have over 50000 square meters of <unk> commitments.
I'll use which is not yet reflected in our bookings.
<unk> 16 is up 15 megawatts.
Time department by a new cloud customer.
They specifically required the capacity in downtown area of Beijing, whereas with resulting skiffs.
<unk> customer is a relatively new cloud service provider folks that.
Governments and Oes.
We have a great track record with cloud service cloud customers, which is important for winning new business.
We have diversified our cloud customer base and several order and absorbed all of the leading players.
The car market is growing a strong as ever.
We are well positioned across the spectrum.
<unk> two is 34 megawatt first fulltime department by a new large internet customer.
Yes.
That's our challenge to campus in cancel province.
Over the past few years, we have seen an increasing number of opportunities logging base. We had large internet customers started to build their own platforms and also to data center operators.
For orders of this size data apply edge uptown locations with larger scale low cost and low latency connectivity to downtown.
We are well positioned with this edge of com product and it had a lot of success.
With customers.
Despite the recent regulatory developments affecting internet companies.
Our sales pipeline has had has been very stable.
Our backlog is safe and the channel is ink material.
Looking at the Big picture, we solve the whole digital transformation in China, not just a few customers.
The government is strongly committed to sustained economic growth enabled by technology <unk> innovation.
We do not see any change in our long term.
The growth trajectory.
Okay.
The government there has been sacrificed.
And to the data center as the new infrastructure.
The industry receives a stronger government support.
The National Development and Reform Commission together with other central governments agencies <unk>.
Recently published an important policy document setting up an overall fishing for accelerated data center development in China.
This was followed by three year action plan published by the Ministry of industry and information technology.
In these documents the government's on record.
Recognized it recognizes the need for data centers to be physically located located in tier one markets for low latency applications.
And again.
Designated remote areas for non non real time computing.
They want to see a high efficiency datacenters.
Using more renewable energy.
They want to promote data centers, which are more technology colleagues at Gilead.
Advanced.
Reliable and secure.
And we want.
And they want to encourage Chinese data center companies to expand overseas.
From our perspective.
These policies are made sure continuation of the policy direction of the past few years, we feel that a GDS is already very well aligned with the government government's objectives.
At the same time, we think that.
That's the bar has been raised for the industry as a whole.
It's created a much bigger challenge for small players with less <unk> expertise and resources.
We very much welcome Vince policies, which we believe are good for the industry and good for us.
We realized several years ago.
That's as Hyperscale demand took off it cannot be satisfied just in downtown locations.
Supported by our customers.
The first mover in edge Uptown locations, we haven't build good relationships with local governments and established a strong track record.
These are critical success factors, when it's a comps to securing more pipeline.
As at mid 2021 we had a successfully secured over 500000 square meters of capacity held for future development, roughly 90% of which comps with power quarter commitments.
It's far more than any of our peers.
As shown on the slide nine.
In the Shanghai market, we have 28000 square meter how the for future developments development at <unk>.
The downtown citing the sites and are close to 120000 square meter held for future development at three edge of town sites in our sites in Jiangsu Province.
All of which have power quota commitments.
As shown on slide 10, the situation in Beijing market is quite similar we have 14000 square meter held for future development downtown and 133000 square meters of security secured a pipeline in long Fong and at the edge of town locations.
While actually Uptown is driving our volume growth our cups customers still look to look to us for help in securing downtown capacity.
We have posted is a number of different ways.
Including by acquisitions.
During the second quarter with close to our previously announced.
<unk> 15 key <unk>, one and <unk> eight acquisitions.
We also recently completed competed a new deal for over 10000 square meter of capacity capacity and had an urban sites in Beijing, which we call BJ 17, 19, and 37.18.
This came with nearly 4000 square meter of commitments from our new Hyperscale customer.
The acquisition was done on a high single digit multiple.
The data center industry has attracted a number of new entrants.
Mostly local project companies.
They compete.
Entirely different level from us.
They do not have any competitive advantages, sometimes you see announcements, but then they do not move forward with their projects.
You would be surprised how also we are approached about partnerships or.
Physicians.
Investors may see these projects companies as increased competition.
From our perspective.
They are market consolidation opportunities.
Our hyperscale customers use Hong Kong as a launch pad for their overseas business with.
We therefore view Hong Kong as the integral parts of our regionalization strategy.
We are currently developing two purpose built data center in the Pipestone area of Hong Kong, Hong Kong, One HK, one and HP to most of most of the capacity in these data centers has already been allocated to strategic customers.
Pending contracts.
In order to build on this success, we have entered into.
Definitely the definitive.
Agreement to purchase another EMEA by building, which we plan to reap the vessel as eight HK for.
Given the real.
Yes.
If say the challenging challenges in Hong Kong.
It's a great achievement to put together three major projects in such close proximity.
It creates a big are pushing no benefit for our customers.
We also signed a head of agreement for the lease of our building share.
Which will cause it.
Its cage free.
Altogether. This gives us a secure pipeline was nearly 80 megawatt of purpose built capacity through to 2027 and beyond.
Complementing our presents in Hong Kong, we recently entered into a definitive agreement to form a joint venture to acquire brownfield brownfield site in Macau for redevelopment redevelopment as a data center with EMEA.
20 megawatts of capacity.
Real estate is a big challenging challenging in Macau.
And there is very little data center capacity.
Our project is the graph is a groundbreaking move.
What will be the only payer who cover Hong Kong Macau citizens and Guangzhou.
We recently announced.
The first concrete step in our southeast Asia.
Expansion with the acquisition of Greenfield land.
Nasser Jaya Tech Park in Jehovah Malaysian.
With the preferable a capacity of 22500 square meter all 54 megawatts.
The site is ideally located to meet reaching regional demand as it is only a few kilometers kilometres kilometers from the Singapore border.
Furthermore, it's right next door to telecom Malaysian main region really no datacenter, which gives us an opportunity for club cardboard racing.
As well as for leveraging their low latency network into Singapore, and the rest profit but easier.
We received very positive feedback from our leading customers.
This project.
We aim to secure commitments for the first phase within the next couple of quarters.
Beyond your whole we are actively purchased pursuing a number of other opportunities in and around Singapore.
In Cala Rumpole and Jakarta.
In all cases, the larger gains to follow our core market customers.
By extent, extending our interconnected platform.
According the government policy of supporting Chinese companies to go overseas.
We have already identified over 200 megawatts of demand from Chinese customers in southeast Asia within the next five years.
In conclusion.
The market opportunity for GDS in China is intact.
And our bookings are consistent.
We are fully aligned with the governments.
Policy objectives.
New markets regionalization, and consolidations are creating exciting new opportunities for us.
We are not distracted.
Our mission and continue to execute our long term business plan with greater discipline. Thank you.
Now, we'll hand, it over to Dan for the financial and operating review.
Yeah.
Thank you.
Starting on slide 16.
When we strip out the contribution from equipment sales and the effect of FX changes.
<unk> hundred 21 service revenue grew by nine 3%.
Underlying adjusted gross profit grew by eight 5%.
And underlying adjusted EBITDA grew by nine 8% quarter on quarter.
Our underlying adjusted EBITDA margin was 48, 1%.
Turning to slide 17.
Revenue growth is driven mainly by delivery the committed backlog and.
Closing of acquisitions.
Net additional area utilized during Q2 'twenty, one was 29000 square meters.
Including 15000 square meters from the BJ 15 acquisition.
<unk> here, we are where we expected to be in terms of movement.
MSR declined <unk>, 4% quarter on quarter.
<unk> 21 to RMB 2416 per square meter per month.
In the second half of this year, we expect MSR to be relatively flat.
Looking further ahead, we do expect slight decline next year mainly.
Mainly driven by edge of town capacity, where pricing and the costs are both lower.
Turning to slide 18.
Our underlying adjusted gross profit margin.
Was 54%.
For 2021.
A decrease of <unk> four percentage points quarter over quarter.
As a large amount of new capacity came into service.
For the same reason our utilization rate also dropped slightly to 69%.
Our underlying adjusted EBITDA margin was 48, 1% for Q2, 'twenty, one an increase of two percentage points quarter on quarter, mainly due to leverage.
On SG&A.
As you can see on slide 19, we have a lot of data center capacity coming into service in the second half of the year.
As a result, we expect some growth track.
Also expect higher SG&A.
As a result of some of our corporate activities.
Our underlying adjusted EBITDA margin in the second half will be slightly lower but still in line with our guidance.
Turning to slide 20.
Capex for 2021.
Was RMB four 8 billion.
Consisting of RMB, one 9 billion organic Capex and RMB 3 billion acquisition consideration mainly related to P. J <unk>.
And that mid 2021, we had about we had around RMB 1 billion will not balance sheet of deferred and contingent consideration for acquisitions.
Looking at our financing position on slide 21.
We have RMB 12.3 billion.
Or $1.9 billion U S dollars of cash on our balance sheet.
And our net debt to LTM adjusted EBITDA ratio increased to four three times after paying for the Beijing <unk> acquisition in the second quarter.
During Q2 'twenty one we.
We completed debt financings with the total facility amount of $4.7 billion RMB.
We continue to lower our financing costs.
This is best illustrated by looking at the refinancing portion, which accounted for RMB two 7 billion.
As shown on slide 22, the all in cost for the refinancings.
It came down from six 7% for the original facilities.
To four 6% for the new facilities.
At the same time.
We have significantly extended the tenants of these facilities.
Visibly apparent in our improved debt maturity profile.
We have a further RMB two 1 billion of refinancing left to do as part of our plan for this year.
Overall, we are in a good position in terms of the financial resources.
Which we have already secured.
Access to capital gives us competitive advantage.
We are therefore looking at different structures, such as partnerships jv's and funds to further diversify and enhance our access to capital and waves, which are beneficial for all our shareholders.
Turning to slide 23.
Mid 2021, we.
We had a backdrop of close to 198000 square meters.
It gives us high visibility to future growth.
Assuming that we complete the existing projects.
Deliver the backlog.
And set out the remaining inventory.
Our revenue generating area with almost double from today's level.
This is without initiating any new projects.
The cost to complete the existing projects is RMB 10, 7 billion, which.
Which is less than the cash on our balance sheet.
As Willy mentioned at the beginning our first half performance is in line with our expectations we.
We are therefore, confirming our original guidance with respect to revenue adjusted EBITDA and Capex.
We would now like to open the call to questions operator.
As a reminder to ask a question you will need to press star one on your telephone.
To withdraw your question press, the pound or hash scheme.
The benefit of all participants in today's call. Please limit yourself to one question. If you have more questions. Please re enter the queue.
Once again, its star and the number one on your telephone keypad.
Your first question comes from the line of.
Goldman Sachs. Please ask your question.
Hi, Thank you for your time management. So my question is regarding the Jiangsu a supply situation. So what is the current situation there in terms of the supply demand.
Are you seeing similar cases as what happened before and what is the current pricing and return trends in Jiangsu also is this potential supply.
Oversupply happening.
Thank you.
Okay. Thank you for your question I'd say this is the question why I tried to address.
When we talk about again, so we are talking.
The Shanghai market, it's a global tier one data center market one of the largest in the world.
As you are well aware supply in urban parts of Shanghai is limited.
Therefore, the market has moved to the edge of town, we see some very big deal opportunities in Jiangsu with Hyperscale customers we.
We have secured ironic 250 megawatts of supply it is far more than any of our competitors.
We would all love to have that.
With a high barrier to entry for new project approval and a quarter secured a surprise very valuable.
Our supply is after the campus locations.
There are three other data center pay us in the same general area each of which has one campus location.
Nobody.
<unk> aspect.
There are no empty data centers already there.
Everybody views based on customer commitments.
We are the only platform player in China, we have by far greater market that presents.
We have customer relationships set of spent multiple data centers.
When there is a new business opportunity.
We can choose whether or not go for four.
We do not have to win every piece of business because it is our it is our only opportunity.
We target returns across our portfolio and the profitability across customer relationships and it would it be would it be meeting meeting less to talk about the pricing for one particular deal.
Our position is.
Is lung function in longhorn is even stronger than in Jiangsu.
We do not see any major player in this same general area as well.
We have won business from multiple hyperscale customers, which means that we have already landed them in lung function.
Dan do you want to add something.
70 more.
Yes, I mean, if we if we talk more generally on a like for like basis.
Returns have been quite will sustain.
Yes.
Commentary.
A number of times before.
Transparency.
With our Hyperscale customers.
Give them a reasonable price.
And we make a reasonable return they know.
<unk> has been this way for.
Several years already it works well, it's a good dynamic.
Yes.
Sure.
Next question.
Your next question comes from the line of Yang Liu of Morgan Stanley. Please ask your question.
Thanks for the opportunity.
I just have one question.
And related with a different.
Protocol that location in Shanghai.
And those of our GDS together with several other <unk>.
The three leading player.
No.
Could you please share what's your thoughts behind the governments.
Appropriate allocation logic.
Are they theory.
And the new entrants or wherever or pay more tax locally wherever.
Could you what type of issue or the repeated.
Auto market. Thank you.
Okay. Thanks Riyadh.
I think I may have said at the end of the question you used to managing right.
I had the chance to answer your question directly.
So the Shanghai government has taken the approach of annual quota allocation for the past three years.
It's not a new development.
Shanghai approach has not been adopted anywhere else in China.
The government to allocate arrow is small quarter to different players.
As a result, there are no big winners.
We do not believe that the Shanghai government is trying to engineer in EMEA.
And in that landscape.
The allocation approach results in <unk>.
Smaller data centers.
Our fragment basket and recommend a fragmented market and.
Unproven operators.
Which does not reflect to what many of our logic customers are looking for.
We have small saw that most of the demand would go to edge of town, we put ourselves in a great position with our continuous secure the supply in edge of town areas.
The downtown piece is an add on we look at a different way of generate generating some downtown supply.
Increasing partnering and the acquisitions.
One way or other we deal with the challenge.
Thank you.
Yeah.
Thank you.
Your next question comes from the line of James Wang of UBS. Please ask your question.
Good evening management. Thank you for your time today, just a really quick one from me.
<unk> is the one the recent cyber security review by the <unk>.
The ministration of China.
The regulation, specifically targets companies, which are listed overseas.
The U S listed company using a <unk> structure.
Is that going to affect you in house. Thank you.
Okay.
Yeah sure go ahead.
Let me maybe.
<unk> be absolutely clear, what we're talking about.
The cyber security administration of China recently issued a draft new regulations.
Sure.
This is regulation are applicable to.
What a core operations.
Critical.
Information infrastructure.
<unk> operators as well as other companies, who revolted processing data.
Yes.
We have faced as a company such as GDS has a ci operator remains to be determined by the relevant government.
Sources.
If it is determined.
GDS is a C. III operator, then we would need to comply with.
A set of requirements to ensure data security.
For us this is it.
No no.
Third not a concern.
As part of our DNA to operate to the highest standards of security and reliability, we've we've implemented already.
Higher standards.
Physical and information security business is about business continuity.
And.
We commit to SMB is around many of these factors.
These things which are.
Important aspect.
<unk>.
The cyber security review.
Our everyday business.
So far as we are aware of that.
No.
The developments regarding <unk>, so I think this.
<unk> and cyber security I think it kind of gets mixed up maybe because.
Most of the Internet companies.
But the situation in our industry, a little bit different from Ian Smith with foreign ownership is not prohibited.
Foreign ownership in our industry.
Restricted to 50%.
I've been there has been.
Some movement.
Recently.
To further open up.
Since the industry to a higher level of foreign ownership.
And very specific zones.
Meanwhile, there is no foreign ownership restrictions on real estate.
Foreign ownership restrictions on plants and equipment. So if you look at our corporate structure, we have around.
90% of our assets.
Held directly by GTS.
Not true.
So I think this is.
Setup in terms of ASP.
Asset codes and all this is actually quite quite common in our industry globally.
Once again I'd just emphasize.
This is quite a different situation from internet companies are.
Not we don't look like an Internet company.
Yes.
Your next question comes from the line of Hamzah <unk>.
Please ask your question.
And then can you give guidance.
Any color on the moving pace, Florida Southern half, Okay, Yeah I'm Andrew.
Now moving from the downstream consumers, especially awesome public Carlson.
The impacted by Bezeq.
The regulation from all that and application.
Thank you.
What's the question.
Okay.
Hum.
We don't.
Have any education customers.
Labor.
We are not aware.
<unk>.
Our customers being impacted.
Impacted by.
Regulatory developments in the Internet sector.
I mean, there are always operational factors, which can lead to fast to move a little slower.
That's.
That's true that's true.
At any time.
As we said.
The movement in the first half of this year was fully up to our expectations.
Expectations.
A lot of data center capacity came into service in the second quarter a little more.
She is coming into service in the third quarter and if you follow that logic. This creates.
This creates the conditions for higher level of move it although that does tend to be.
A time lag of a couple of quarters because not much happens immediately after a new data center.
It comes into service.
High level of move and this is what we.
What we are expecting.
In the second half of the year.
You said that we are yes, yes, we've said that we are on track.
With our guidance.
Our guidance is a range that covers.
Potential variances.
I mean more than that it's just too early to say yet.
In general we still confirm.
Our guidance.
No doubt.
Your next question comes from the line of Colby <unk>.
Colin Please ask your question.
Great. Thank you.
I guess I had two you had talked previously about.
Taking ownership of your JV with I think GIC I'm, just curious if theres an update on.
What youre thinking is there and then you talked about various financing.
Opportunities you talked about.
Partnerships JV and so forth I'm just wondering if.
If you can give us some.
Additional color on.
What types of regions are you anticipating users are those in the tier one or edge markets are those in the more.
Rural type areas or those or even overseas just trying to get a sense of.
We're intending to potentially do some of those things. Thank you.
Yes sure.
Thank you Colby.
Sure.
The first question.
We have.
Just about.
The agreement with our joint venture partner for the change in shareholding.
We were looking for.
In relation to specific specific to those.
Projects.
I know, it's been a long wait, but we will.
Very likely disclose that in Opex.
Third call.
Yes that will that will result in those projects being consolidated and.
The balance of our investments in fee income will be will be.
Different from how we originally envisaged.
Uh huh.
Yes.
Sure.
Very acceptable to us.
Regardless of the current.
Stances.
Your second question.
As you can imagine there's quite a number of discussions going on now so our comp.
To more specifically.
But I can comment domestically and say that.
We are looking to do.
Is to introduce private capital.
Tax.
A lower level.
It could be.
Fund through intermediate holding company.
To be direct.
Projects.
And it could be.
Several different structures.
With.
With different partners.
Some of it will be.
Sure.
In tier one markets.
This is not a customer approach for POC projects like we've talked about before this is a way of leveraging our capital.
With partners capital in such a way that we're able to make our Capex will go further.
And in.
Enhance the return on our capital.
Bye.
Trading overall growth for the opportunity to.
Feeds.
Eventually we may look at doing this.
For special types of projects, we look for doing this overseas as well.
But initially we're going to focus on doing this for our core business and in China.
So that we can open up a channel to a very deep pool of capital, possibly at a lower cost.
And when we could achieve.
Achieve in the public equity markets, even in even in the best of times.
Okay.
Your next question comes from the line of Edison Lee of Jefferies. Please ask your question.
Oh, Hi, William and Dan. Thank you very much differently.
Giving me the chance to ask questions.
Number one is simply on Capex I think you stick to the 12 billion RMB capex guidance for the full year.
And in the first half you did an acquisition in Beijing, and the Capex for the firm.
First half was I think 3 billion roughly 3 billion. According to your slides.
Just wanted to know.
How much of the 12, three and for the full year will be spent on acquisition based on your current estimate.
So that's the first question and second question very quickly is about M&A opportunities in the market.
Have you seen any change in the air.
M&A market over the past.
I would say <unk> versus <unk> or versus last year, given the internet regulation that given.
I think the macroeconomic situation.
Okay.
Yes, Thanks Edison.
I think if you look at our.
Capex in the first half.
And you take.
Our organic capex in the first half and double it.
Turnaround.
Pillar, which was our <unk>.
Full year Capex guidance.
We have announced today.
But we did.
Another acquisition.
Which in fact has already closed during the current quarter cumulative during the third quarter.
The consideration.
For that with a few hundred million RMB. So you can.
Take that as being included in the original and the original guidance.
Uh huh.
We're up about about.
The acquisition.
Sin.
You have.
Two different kinds of deals we're talking about.
Single site deal.
Which is happening all the time.
Sure.
And good pipeline.
And then there is potentially larger deals and cooler platform deals, where they're kind of middle class people to yields.
Compared with us.
What we were intimating in the prepared remarks is that.
We do get a sense.
Owners think the.
Time is coming.
In market consolidation.
And of course GDS is positioned to be.
The consolidator.
Yes.
If you could talk about multiples with talk about competition.
Situation specific.
Most of the deals single site deals that we're doing.
There is limited competition.
We're doing it on.
Single digit multiples and mid to high single digit multiples.
But the.
There are a few where.
Where there is more competition.
Uh huh.
But we are disciplined.
On the whole, we have been able to carry on doing business with.
Our paying multiples.
For the hydro.
Then we typically did in the past.
Yes, yes, maybe I can add some color I mean, we.
We did we do see some of the peso per year, we now have the call their platform their multi asics.
Multi asset a payer now considered too.
They've had a lot of the as I just mentioned that there is a lot of them are very frequently recently agreed to receive a lot of our approach.
To talk to partner with us.
Are you with us.
Sell to US I think it is this is this is something new.
Again before so.
So I think given the time that means this is a huge big opportunity for us. So consolidated market I think we will see.
We are very open to talk to them and <unk>.
If everything goes well and the timing is good.
The price is good but we definitely we take action.
Okay.
Your next question comes from the line of <unk> Hari Herin of Jpmorgan. Please ask your question.
Yeah, Hi, Hi, Bill Hi.
Dan.
Taking the question could you talk a little bit more.
In detail about how the competitive landscape has been all the economics are meaningful.
The large hyperscale orders that you won in the last quarter, roughly about 24 gigawatt meter and a fair bit of pulp.
Our capacity committed as well how does the pricing look and how does the competitive landscape look like a big project. If you could talk a little bit in detail.
Hmm mm.
Within one year.
Yes go ahead.
Goodbye.
We talked about the three.
Hyperscale orders, which we won.
I think we provided.
More commentary than we normally do and I'm happy to do that in future I mean, the intention was to.
It was to give investors.
A flavor for what the kind of opportunity you see and how we how we come to win them.
The first one with a land and expand meaning that we won.
If that deal in effect quite.
Quite some time ago, when a customer first made a commitment to.
To deploy a availabilities over I believe is in.
And our LIFO income that's when that was.
Tom.
An explicit plan reflected new salesmen random.
Two to expand in multiple phases in future years and that business does not go out and you don't see it going through the market you will hear about it from our competitors.
And.
You'd be surprised how much of our business is in is like that.
We mentioned that we're sitting on.
Mmm use.
Rich.
Future plans deployments with over 50000 square meters.
Which is not yet contracted so we don't disclose it.
Yes that is.
Rising.
Piety assured.
To happen.
That number by the way it could go up quite a bit between now and the year end because there are some new opportunities coming with yellow, which are in that kind of land and expand.
Cross Creek, so thats, one part of our business well of course the initial.
Deployment can be competitive.
Tendencies for customers to work very collaboratively on these because these were very strategic deployments for our customers. It's not just a question about publishing a request for proposal.
Inducting attend.
A tender it's much more.
And complex.
Was that on the second deal.
Jim talked about was a downtown Beijing deal.
As the cloud service provider I think we have a.
Tremendous edge.
Sure.
In server and cloud service providers.
We are a significant supplier I think to all of you.
Leading cloud service providers in China, and there is an advantage to cloud service providers to work with us because they benefit to being in close proximity.
To each other so happened that customer's requirement was very location specific.
And there was not much.
Twice.
That kind of.
Gil.
Obviously, it's also very competitive and I guess again.
What I try to say like I guess.
So E crop right.
Cynthia more appreciate UBS.
Our capability and.
Yes.
Our track.
Track record and a service level commitment.
Capability, So I think it is.
This is David.
Given the go to go outside or ask for a lot of <unk>.
So this deal is very good and.
Our.
Profile GDS.
Operator, our profile fully hit.
Sure So I think EMEA.
Competition.
Very lab, and we win very very straightforward and get very good price.
Yeah.
So to deal with.
The large deal that was very strategic.
Business.
Yes.
<unk>.
Our offering is.
Sandy differentiated from any other data center companies because of our platform our market presents a continuous supply.
Our customers appreciate that.
They start maybe with a requirement which is quite straightforward.
But we've seen it again and again their requirement gets more complicated complex more challenging over time and start straightforward.
And increasingly plays two plays to our strength. So that's a cycle we've been through very many times and that's really how we look at those.
And target those opportunities because we nevertheless.
Because we can drove prudently.
Relationship.
Yes.
Okay.
Your next question comes from the line of Frank losing of Raymond James Please ask your question.
Great. Thank you with the government's new stance on it.
There have you seen any shift in their allocation space and power can you give me any other evidence of some some tangible benefits of that policy beginning to did benefit your business or to see it.
Evidence of the of the market market growing or anything like that that's more of just a more tangible benefit to the GDS.
I think it's coming.
Yeah.
We and investors.
Take care.
Great.
I think more than confident.
Have a very positive thing about is that is very clear.
<unk> recognizes the importance of the data center industry.
It's one of the seven categories.
New infrastructure, which is.
Essential to facilitate digital transformation.
And on the back of that.
There's been a series of policy documents at the national level at the local level set.
Setting out how the government will approach.
The allocation of resources to ensure a very healthy industry.
Sure.
In these recent policy documents.
There is a very I think clearly expressed.
<unk>.
In terms of what the governments.
<unk>.
What date.
Want to see.
Yeah, we feel.
Yes, I'd use expression again plays to play to our strengths because the government wants to see.
More technologically advanced data centers more reliable more secure more green.
<unk>.
Yes.
More power more power efficient.
Better integrated with the supply chain.
We'll technological.
Innovation.
Government is not trying to engineer the kind of competitive landscape.
That's not part of that.
Part of that.
Thinking.
But I think.
They will do is ensure that sufficient resources allocated expenses to enable data centers in tier one markets and.
And in other locations.
And order fulfillment.
With digital transformation.
There is sufficient capacity to support.
Ambitious targets for digital transformation.
Your next question comes from the line of Joe O'dea Yang of Nomura. Please ask your question.
Thank you for the opportunity.
I have one question about you know the policy, particularly concerning the risks are.
But since operating posture minds.
I'm not going to ask you actually can goodbye.
You know kind of a new industry regulation for data center.
Could it potentially in that from government or are there any aspects that government has blackout and potentially concerning for that industry.
Okay. Thank you.
I will answer your question.
Yes.
As you you guys knows carrier neutral data center industry in China has been around for almost 25 years.
The industry is regulated as part of telecom that value added service.
Glen regulation is very well developed.
And the effective <unk>.
<unk> has been fully compliant as I mentioned.
Just and Dan mentioned right. So this situation is not like some of the vertical which emerged in recent years and where the regulation is catching up. So this is this is it.
Kind of a situation.
Okay.
Okay.
Yeah.
Your next question comes from the line.
Uh huh.
Goldman Sachs. Please ask your question.
Hi, Thank you very much for a second round. So I have a few follow up questions. The first one is that in terms of demand do management still maintaining your sales guidance of around 120 square meter of sales for the next three years.
Yeah.
Yeah.
Yes, okay, great. Thank you, yes, yes.
Yes, here's the reason why I think because.
The whole.
Digitalization is a global trend and I have also.
Central government as a strategy to drive.
Economic growth right. This is not this.
Never change and on other hand <unk>.
No no we didn't see any regulation impacts that.
Market demand all of that ahead of GDS already well positioned our because we have the.
Largest ah.
Installed base customer cover the hole.
Industry vertical so we are well positioned to.
Catch up of the <unk>.
<unk> growth. So again I would say we have confidence to maintain this.
Uh huh.
Growth in the next three even five years right.
Right. Thank you very much.
Okay.
Did the time limit I'd like to now turn the call back over to the company for closing remarks.
Oh, Thank you offered I forget the JV.
If you have further questions. Please feel free to contact GDS investor relations through without contact informational website <unk> group Investor Relations.
See you next time.
This concludes today's conference call you may now disconnect your lines. Thank you.
Okay.
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Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd second quarter 2021 earnings Conference call.
This time all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded I will now turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.
Thank you.
Everyone.
Welcome <unk>.
<unk> 'twenty earnings conference call of GDS Holdings limited.
Results were issued via Newswire services earlier today and are posted online a summary presentation, which we'll refer to the agenda conference call can be.
Hello there.
And that's the GDS services Dotcom, leading today's call is Mr. William Huang GDS founder Chairman and CEO will provide an overview of our business strategy and performance Mr. Dan Human GDS CFO will then review the financial and operating income.
Ms. Jenny <unk>, our COO is also available to answer questions.
Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provisions of the U S Private Securities reform.
Film Act of 1995 forward looking statements involve inherent risks and uncertainties as such the company's results may be materially different from the views expressed today.
Information regarding these and other this uncertainty is included in the company's prospectus as filed with U S. SEC.
The company does not assume any obligation to update any forward.
Except as required under applicable law. Please also note that Gds's earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures GDS press release contains a reconciliation of the unaudited non-GAAP measures.
What are the most directly comparable GAAP measures.
I'll now turn over the call to GDS founder Chairman and CEO. William Please go ahead William.
Thank you Laura.
Hello, everyone. This is William Thank you for joining me on today's call I'm pleased to report another solid set of results with year to date performance is 40 in line with expectations.
Our cells in <unk> 'twenty, one was over 44000 square meters.
Including over 25000 square meters of organic bookings and 19000 square meters from acquisitions.
We have maintained our quarterly run rate since the beginning of last year.
We are confident of achieving our full year sales target.
In <unk> 'twenty, one we won three Hyperscale orders.
Each of which tells a different story about our competitive edge.
<unk> 13.
Is a 14 megawatt expansion order from <unk>.
Existing customer.
It's an edge of town sites in longhorn, where the customer already has a big presents with us.
This is an example of land and I expect.
A lot of our new business fits into this category.
The cycle starts with Joy and planning and then we enter into a sales mou covering multiple multiple phases of deployment.
This gave us this gives both GBS and our customers.
High degree of certainty.
Once the customer has landed there is little or no competition for that expansion orders. We currently have over 50000 square meters of planted commitments in mou's, which is not yet reflected in our bookings.
<unk> 16 is up 15 megawatts first time department by a new cloud customer.
They specifically require capacity in downtown area of Beijing, where risk result is scarce.
That customer is a relatively new cloud service provider focused on government and Oes.
We have a great track record with cloud services cloud customers, which is important for winning new business.
We have diversified our cloud customer base and the several quarters.
And absorb all the leading players.
The car market is growing a stronger as ever and we are well positioned across that spectrum.
<unk> two is 34 megawatt first of all time department by a new large internet customer.
If it's our challenge to campus in Jiangsu Province over.
Over the past few years, we have seen an increasing number of opportunities lagging Miss we had large internet customers started to build their own platforms and also to data center operators.
For orders of this size data apply edge uptown locations with larger scale low cost and low latency connectivity to downtown.
We are well positioned with this edge of com product and had a lot of success with.
With customers.
Despite the recent regulatory developments affecting internet companies.
Our sales pipeline has had has been very stable.
Our backlog is safe and a chunk is in material.
Looking at the Big picture, we solved the whole digital transformation in China, not just a few customers.
The government is strongly committed to sustained economic growth enabled by technology <unk> innovation.
We do not see any change in our long term.
Gross trajectory.
Okay.
The government has been sacrificed.
Is it going into the data center as the new infrastructure.
The industry receives a stronger government support.
The National Development and Reform Commission together with other central governments agencies <unk>.
Recently published an important policy document setting us and the overall vision for accelerated data center development in China.
This was followed by three year action plan published by the Ministry of industry and information technology.
In these documents the government's on record.
Recognize that recognizes the need for data centers to be physically locate located in tier one markets for low latency applications.
And again.
Designated at remote areas for now non real time computing.
Want to see a high efficiency datacenters using more renewable energy.
They want to promote data centers, which are more technology colli at depth.
<unk> reliable and secure.
And we want.
And they want to encourage Chinese data center companies to expand overseas.
Yes.
From our perspective. These policies are made sure continuation of the policy direction of the past few years.
We feel that the GDS is already better well aligned with the government government's objectives.
And at the same time, we think that that's the bar has been raised for the industry as a whole.
Created in <unk>.
The bigger challenge for small players with less <unk> expertise and resources.
We very much welcome these policies, which we believe are good for the industry and good for us.
We have realized several years ago.
That said as Hyperscale demand took off it cannot be satisfied just in downtown locations.
According to by our customers.
We were the first mover in edge Uptown locations.
We haven't built a good relationships with local governments and established a strong track record.
These are critical success factors, when it's a comps to securing more pipeline.
As at mid 2021, we had a successfully secured over 500000 square meters of capacity held for future development, roughly 90% of which comps with power quarter commitments.
It's far more than any of our peers.
As shown on the slide nine in the Shanghai market, we have 28000 square meter how the for future developments developments at <unk>.
Downtown site the sites and are close to 120000 square meter held for future development at three edge of town sites in our sites in Jiangsu Province.
All of which have power quota commitments.
As shown on slide 10, the situation in Beijing market is quite similar we have 14000 square meter held for future development downtown and 133000 square meters of security secured a pipeline in long haul and at the edge of town locations.
Well actually upfront is driving our volume growth our caps customers still look to look to us for help in securing downtown capacity. We have posted is a number of different ways.
Including by acquisitions.
During the second quarter with close to our previously announced Beijing 15 key kinchen, one <unk> eight acquisitions.
We also recently completed competed a new deal for over 10000 square meter of capacity capacity.
Robin sites in Beijing, which we call Pega 17, 19, and 18.18 into 19.
This came with nearly 4000 square meter of commitments from our new Hyperscale customer.
The acquisition was done.
High single digit multiple.
The data center industry has attracted a number of new entrants.
Mostly local project companies.
They compete.
Entirely different level from us.
They do not have any competitive advantages, sometimes you see announcements, but then they do not move forward with their projects.
You would be surprised how often we are approached about partnerships or acquisitions.
Investors may see these projects companies as increased competition.
From our perspective.
They are market consolidation opportunities.
Yeah.
Our hyperscale customers use Hong Kong as sudden launch pad for their overseas business with.
We therefore view Hong Kong as the integral parts of our regionalization strategy.
We are currently developing.
Being two purpose built data center in the Pipestone area of Hong Kong, Hong Kong, one HK, one and HP to.
Most of most of the capacity in these data centers has already been allocated to strategic customers.
Pending contracts.
In order to build on this success, we have entered into the into us.
Definitely the definitive.
Agreement to purchase another EMEA by building, which we plan to reap the vessel as a HK for.
Given the real.
If the real estate challenging challenges in Hong Kong.
It's a great acumen to put together three major projects in such close proximity.
It creates a big appreciating no benefit for our customers.
We also signed a head of agreement for the lease of our building share.
Which will cost.
K Street.
Altogether. This gives us a secure pipeline with nearly 80 megawatt of purpose built capacity through 2027 and beyond.
Complementing our presents in Hong Kong, we recently entered into a definitive agreement to form a joint venture to acquire brownfield brownfield site in backhaul for grid pattern.
The government as a data center with nearly 20 megawatts of capacity.
Real estate is a big challenge challenging in Macau.
And there is very little data center capacity.
Our project is the graph is a ground breaking move.
What will be the only payer who cover Hong Kong Macau citizens and Guangzhou.
We recently announced.
The first concrete step in our southeast Asia.
Expansion with the acquisition of Greenfield land.
No <unk> Tech Park in Malaysia.
With separable a capacity of 22500 square meter all 54 megawatts.
The site is ideally located to meet reaching regional demand as it is only a few kilometers kilometer kilometers from the Singapore border.
Furthermore, it's right next door to telecom Malaysian main region really know data center, which gives us an opportunity for collaboration.
As well as for leveraging their low latency network into Singapore, and the rest of the Malaysian.
We received very positive feedback from our leading customers.
This project, we aim to secure commitments for the first phase within the next couple of quarters.
Beyond your whole we are actively purchased are pursuing a number of other opportunities in and around.
Iran Singapore.
And call out run coal and in Jakarta.
In all cases, the larger gains to follow our core market customers.
By <unk> <unk>.
Extending our interconnected platform.
Echoing the government policy of supporting Chinese companies to go overseas.
We have already identified over 200 megawatts of demand from Chinese customers in southeast Asia within the next five years.
Yes.
In conclusion.
The market opportunity for GDS in China is intact and our bookings are consistent.
We are fully aligned with the government's policy objectives.
New markets regionalization, and consolidations are creating exciting new opportunities for us.
We are not distracted from our mission and continue to execute our long term business plan with greater discipline.
<unk>.
Now I'll hand, it over to Dan.
Financial and operating review.
Thank you.
Starting on slide 16.
When we strip out the contribution from equipment sales and the effect of FX changes.
In <unk> 'twenty, one our service revenue grew by nine 3%.
Underlying adjusted gross profit grew by eight 5%.
And underlying adjusted EBITDA grew by nine 8% quarter on quarter.
Our underlying adjusted EBITDA margin was 48, 1%.
Turning to slide 17.
Revenue growth is driven mainly by delivery the committed backlog and.
Closing of acquisitions.
Net additional area utilized.
During Q2, 'twenty, one was 29000 square meters.
Including 15000 square meters from the BJ 15 acquisition.
Midyear, we are where we expect it to be in terms of movement.
MSR declined <unk>, 4% quarter on quarter.
<unk> 21 to RMB 2416 per square meter per month.
In the second half of this year, we expect MSR to be relatively flat.
Looking further ahead, we do expect slight decline next year mainly.
Mainly driven by edge of town capacity, where pricing and development costs are both lower.
Turning to slide 18.
Our underlying adjusted gross profit margin.
Was 54%.
<unk> hundred 21.
The decrease was <unk> four percentage points quarter over quarter.
As a large amount of new capacity came into service.
For the same reason our utilization rate also dropped slightly to 69%.
Our underlying adjusted EBITDA margin was 48, 1% for Q2, 'twenty, one an increase of <unk> two percentage points quarter on quarter, mainly due to leverage.
On SG&A.
As you can see on slide 19, we have a lot of data center capacity coming into service in the second half of the year.
As a result, we expect some growth track.
Also expect higher SG&A as a result of some of our corporate activities.
Our underlying adjusted EBITDA margin in the second half will be slightly lower but still in line with our guidance.
Turning to slide 20.
Capex for 2021.
Was RMB four 8 billion.
Consisting of RMB, one 9 billion organic capex at RMB 3 billion acquisition consideration mainly related to P. J <unk>.
And that mid 2021, we had about we had around RMB 1 billion on our balance sheet of deferred and contingent consideration for acquisitions.
Looking at our financing position on slide 21.
We have RMB 12.3 billion.
Or $1.9 billion U S dollars of cash on our balance sheet.
And our net debt to LTM adjusted EBITDA ratio increased to four three times after paying for the Beijing <unk> acquisition in the second quarter.
Yeah.
During Q2, 'twenty, one we completed debt financings with the total facility amount of $4.7 billion RMB.
We continue to lower our financing costs.
This is best illustrated by looking at the refinancing portion, which accounted for RMB two 7 billion.
As shown on slide 22.
The all in cost for the refinancings came.
Came down from six 7% for the original facilities.
To four 6% for the new surgeons.
At the same time.
We have significantly extended the tenants these facilities.
Which is visibly apparent now improved debt maturity profile.
We have a further RMB two 1 billion of refinancing left to do as part of our plan for this year.
Overall, we are in a good position in terms of the financial resources, which we have already secured.
Access to capital gives us competitive advantage.
We are therefore looking at different structures, such as partnerships jv's and funds to further diversify and enhance our access to capital in ways, which are beneficial for all our shareholders.
Turning to slide 23.
Mid 2021, we.
We had a backdrop of close to 198000 square meters.
It gives us high visibility to future growth.
Assuming that we complete the existing projects.
Deliver the backlog.
And set out the remaining inventory.
Our revenue generating area with almost double from today's level.
This is without initiating any new projects.
The cost to complete the existing projects.
RMB 10, 7 billion, which is less than the cash on our balance sheet.
As we mentioned at the beginning our first half performance is in line with our expectations.
Therefore, confirming our original guidance with respect to revenue adjusted EBITDA and Capex.
We would now like to open the call to questions operator.
As a reminder to ask a question you will need to press star one on your pillar two.
To withdraw your question press, the pound or hash key words.
The benefit of all participants in today's call. Please limit yourself to one question. If you have more questions. Please reenter the queue.
Once again, its star and the number one on your telephone keypad.
Your first question comes from the line of Dana <unk> of Goldman Sachs. Please ask your question.
Hi, Thank you for your time management. So my question is regarding R&D jumps to a.
Supply situations. So what is the current situation there in terms of the supply demand.
Also are you seeing similar cases as what happened before and what is the current pricing and return trends in Jiangsu also is this potential supply.
Oversupply happening anywhere else. Thank you.
Okay. Thank you for your question I'd say this is the question why I tried to address.
When we talk about again, so we're talking the <unk>.
Hi, Mark.
As a global tier one data center market one of the largest in the world.
As you are well aware supply in urban parts of Shanghai is limited there.
Therefore, the market has moved to the edge of town, we see some very big deal opportunities in Jiangsu with Hyperscale customers.
We have secured ironic 250 megawatts.
Is far more than any of our competitors.
They would all love to have that.
With a high barrier to entry for new project approval in a quarter.
<unk> very valuable.
Our supply is after the campus locations.
There are three other data center pay us in the same general area each of which has one campus location.
Nobody builds aspect.
There are no empty data centers already there.
Everybody views based on customer commitments.
We are the only platform player in China, we have by far greater market that presents.
We have customer relationships set the span multiple data centers.
When there.
As a new business opportunity.
We can choose whether or not go for <unk>.
We do not have to win every piece of business because it is our it is our only opportunity.
We target returns across our portfolio and profitability across customer relationships and it would it be would it be meaning meaning less to talk about the pricing for one particular deal.
Our position is.
His long haul longhorn is even stronger than in Jiangsu.
We do not see any major player in this same general area as well.
We have won business from multiple hyperscale customers, which means that we have already landed them in lung function, Dan do you want to add something.
70 more.
Yes, I mean, if we if we talk more generally.
Like for like basis.
Returns have been quite will sustain.
As we are.
Commentary.
A number of times before.
Transparency.
With our Hyperscale customers, we give them a reasonable price.
And we make a reasonable return they know.
<unk> has been this way for.
Several years already it works well, it's a good dynamic.
Yes.
Next question.
Your next question comes from the line of Yang Liu of Morgan Stanley. Please ask your question.
Thanks for the opportunity.
I just have one question.
Related with a different protocol that location in Shanghai.
GDS and together with several other.
Industry leading player.
Uh huh.
Could you please share what your thoughts behind the governments are.
Appropriate allocation logic.
Are they a theory.
If everything you entrance or feeling wherever pay more tax locally or whatever.
Could you what type of issue.
Repeated.
Auto market. Thank you.
Okay. Thanks Riyadh.
So at the end of the question you used to managing right. So long I had the chance to answer your question directly.
So the Shanghai government has taken the approach of annual quota allocation for the past three years.
It's not a new development.
<unk> approach has not been adopted anywhere else in China.
The government to allocate the arrow has small quarter to different players as a result, there are no big winners.
We do not believe that the Shanghai government is trying to engineer and EMEA.
Competitive landscape.
The allocation approach results in.
Smaller data centers.
A fragmented market and recommend a fragmented market and.
Unproven operators, which does not reflect what many of our logic customers are looking for.
We foresaw that most of the demand would go to edge of pumps, we put ourselves in a great position with our continuous secure the surprise in edge of town areas.
The downtown piece is an add on we look at the different waves of generate generating some downtown supply in creating partnering and the acquisitions.
One way or other we deal with the challenging.
Thank you.
Thank you.
Okay.
Your next question comes from the line of James Wang of UBS. Please ask your question.
Good evening management. Thank you for your time today, just a really quick one for me.
My one the one the recent cyber security review by the <unk>.
The regulator in China.
Space administration of China.
The regulation, specifically targets companies, which are listed other fees.
U S listed company using a <unk> structure is that going to affect you in house. Thank you.
Okay.
Yes sure Yes go ahead.
Let me see.
EMEA be absolutely clear, what we're talking about.
The cyber security administration of China recently issued a draft of new regulations.
Cyber security review for public comments.
This is regulation are applicable to.
What they call operations.
Critical.
Information infrastructure C C.
Operators as well as other companies, who revolted processing data.
Yes.
Based on the company such as GDS is a C. III operator remains to be determined by the relevant government.
Sources.
If it is determined.
GDS is a C. III operator, then we would need to comply with SEC.
<unk> requirements to ensure data security.
For us.
No.
Concern not a concern.
As part of our DNA to operate to the highest standards of security and.
Our ability we've we've implemented already the highest standards with physical and information security business is about business continuity and.
We commit to smbs around many of these factors cause these things which are.
Important aspect so the requirements.
But the cyber security review.
Our everyday business.
<unk>.
So far as we're aware.
No.
Recent developments regarding <unk> I think.
<unk> cyber security I think kind of gets mixed up maybe because.
Most of the Internet companies.
But the situation in our industry is a little bit different from Ian Smith was foreign ownership is prohibited.
Foreign ownership in our industry, it's just.
With 50% to 50%.
Has been there has been.
Some movement.
Recently.
To further open up.
Data center.
Industry to a higher level of foreign ownership.
Justin and very specific zones.
Meanwhile, there is no foreign ownership restrictions on real estate no foreign ownership restrictions on plants and equipment.
We look at our corporate structure, we have around.
90% of our assets.
Held directly by.
By GTS.
Uh huh.
Not through <unk>. So I think there is.
Setup in terms of.
Asset curves and all this is actually quite quite common in our industry globally.
Once again I'd just emphasize.
This is quite a different situation.
Internet companies.
We don't look like an Internet company.
Your next question comes from the line of Hamzah <unk> CIC.
Ask your question.
Management.
Can you give any color on the moving pace, Florida southern half, Okay, Yeah, and you want it to go.
Now moving from the downstream customers, especially.
In public cloud some business may be impacted by the regulation from I'll, let Matt to patient anything thank you.
What's the question.
Okay.
Uh huh.
Okay.
We don't.
Have any education customers.
We're.
Were not aware.
Hum.
Of our customers being impacted.
Impacted by.
Regulatory developments in the Internet sector.
I mean, there are always operational factors, which can lead to fast to move a little slower.
That's.
That's true that's true.
At any time.
As we said.
The movement in the first half of this year was fully up to our expectations.
Expectations.
A lot of data center capacity came into service in the second quarter a little more.
She is coming into service in the third quarter and if you follow that logic. This creates.
This creates the conditions for a higher level of those move it although that does tend to be.
A time lag of a couple of quarters not much happens immediately after a new data center.
It comes into service.
High level of move and this is what we.
Is what we are expecting.
In the second half of the year.
You said that we are.
Yes, Yes, we've said that we are on track.
With our guidance.
Our guidance is a range that covers.
Potential viruses.
I mean more than that it's just too early to say yes.
In general we still confirm.
Our guidance.
No doubt.
Your next question comes from the line of Colby <unk>.
Cowen Please ask your question.
Great. Thank you.
I guess I have two you'd talked previously about.
So they're taking ownership of your JV with I think GIC I'm, just curious if theres an update on.
What youre thinking is there and then you talked about various financing.
Opportunities you've talked about.
Partnerships JV and so forth I'm just wondering.
If you can give us some.
Additional color on.
What types of regions are you anticipating doing those are those in the tier one or edge markets are those in the more.
Rural type areas or those who are even overseas just trying to get a sense of.
We're intending to potentially do some of those things. Thank you.
Yes sure.
Thank you Colby.
Sure.
The first question.
We have.
Just about.
This agreement with our joint venture partner for the changing shareholdings.
We were looking for.
In relation to specific specific to those.
<unk> projects.
I know, it's been a long wait, but we will.
Very likely disclose that economics.
Next earnings call.
Yes that will that will.
In those projects being consolidated and.
The balance of our investments in fee income will be will be.
Different from how we originally envisaged.
Uh huh.
Yes.
Sure.
Very acceptable to us.
Carl.
Circumstances.
Hum.
Your second question.
As you can imagine there's quite a number of discussions going on now so our comp.
More specifically.
But I can comment domestically and say that.
We're looking to do.
Is to introduce private capital.
Hi.
A lower level.
It could be through a fund or through intermediate holding company to be directly into.
<unk> projects.
And it could be.
Several different structures.
With different partners.
Some of it will be.
In tier one markets.
This is not a customer approach for POC projects like <unk> talked about before this is a way of leveraging our capital.
With partners capital in such a way that we're able to make our capital will go further.
And.
Enhance the return on our capital.
Bye bye.
Trading overall gross for the opportunity to.
Two fields.
Eventually we may look at doing this.
So special types of projects, we look to doing this overseas as well.
But initially we are going to focus on doing this for our core business and in China.
So that we can open up a channel too.
A very deep pool of capital, possibly at a lower cost.
We could.
Achieved in the public equity markets, even in even in the best of times.
Okay.
Your next question comes from the line of Edison Lee of Jefferies. Please ask your question.
Oh, Hi, William and Dan Thank you very much.
Given the chance to ask questions.
Number one is simply on Capex I think you stick to the 12 billion RMB capex guidance for the full year.
In the first half you did an acquisition in Beijing, and the Capex for the first half one.
3 billion, roughly 3 billion according to your slides.
So I just wanted to know Uh huh.
How much of the 12, three and for the full year will be spent on acquisition based on your current estimate.
So that's the first question the second question very quickly.
But the opportunities in the market have you seen any change in the M&A market over the past.
I would say to Q versus <unk> or versus last year, given the internet regulation that given.
I think the macroeconomic situations.
Okay.
Yes, Thanks Edison.
I think if you look at all.
Capex in the first half.
When you take a.
Our organic capex in the first half and double it.
To around $12 billion, which was our.
Full year Capex guidance.
We have announced today.
That we did.
Another acquisition.
Which in fact has already closed during during the current quarter cumulative in the third quarter.
The consideration.
For that with a few hundred million RMB. So you can.
Uh huh.
That is being included in the original and the original guidance.
Uh huh.
Uh huh.
About the.
The acquisition.
Sin.
You have to.
A different card with <unk>.
Deals, we're talking about the single site deal.
Which is happening all the time.
And good pipeline.
And then there is potentially larger deals quarter platform deals, but they're kind of mini platform <unk>.
Compared with us.
What we were intimating.
My remarks is that.
We do get a sense of that.
Owners think.
The time is coming for.
In market consolidation.
And of course, GDS is positioned to be yeah.
The consolidator.
If you could talk about multiples, we talk about competition, it's situation specific.
Most of the deals single site deals that we're doing.
There's limited competition and we're doing it on.
Single digit multiples and mid to high single digit multiples.
There are a few where there is more competition.
Uh huh.
But we are disciplined and on the whole we have been able to carry on doing this business without paying multiples.
Hi.
Yes.
You did in the past.
Yes, maybe I can add some color on that we did we do see some of the past couple of years, we now have the call there.
For <unk> the multi assets.
I'm, Matt multi asset a behavior.
Now considered too.
They've had a lot of the as I just mentioned that Theres a lot of you are very frequently recently agreed to receive a lot of our approach.
Talk to partner with us or merge with us for a sell to US I think this is a this is something new.
Again before yeah. So.
So I think that given the time it that means this is a huge big opportunity for us to consolidated market I think we will see.
We are very open to talk to them and FDA.
FDA everything goes well and the timing is good.
The price is good but we definitely we take action.
Okay.
Your next question comes from the line of <unk> <unk> of Jpmorgan. Please ask your question.
Yeah, Hi, Hi.
Hi, Thanks.
Thanks for taking the question could you talk a little bit more in.
In detail about how the competitive landscape has been how the economics are meaningful.
The large hyperscale or does that you won in the last quarter, roughly about 24 gig quad meter and I've had bit of a bump.
What capacity committed as well how does the pricing look and how does the competitive landscape look like a big project. If you could talk a little bit in detail.
Hmm mm.
<unk>.
Linda.
Yes go ahead.
Goodbye.
We talked about the three <unk>.
Hyperscale orders, which we won.
I think we provided.
More commentary than we normally do happy to do that in future I mean, the intention was to.
It was to give investors a flavor for what the kind of opportunities are you seeing and how we how we come to Wyndham.
The first one was allowed and expand meaning that we won.
If that deal in effect.
Some time ago when custom.
Customer first made a commitment.
To deploy a availabilities over I believe is.
And a longtime campus when that was done it was with an explicit plan reflected in the salesman random.
Two to expand in multiple phases in future years and that business does not go out to tender, yes, you don't see it going through the market you will hear about it from our competitors.
You'd be surprised how much without business is like that.
We've mentioned that we're sitting on.
Mou.
Rich.
Future.
Future plans deployments with over 50000 square meters.
Which is not yet contracted so we don't disclose its part about bookings, but it's.
Hi, Lee.
Piety assured.
To happen.
No that number by the way it could go up quite a bit between now and the year end because there are some new opportunities coming with yellow, which are in that kind of land and expand.
Cross Creek, so thats, one part of our business where of course the initial.
Deployment can be competitive.
Tendencies for customers to work very collaboratively on these because these were very strategic deployments for our customers. It's not just a question about publishing a request for proposal is conducting a tender.
<unk>, it's much more intimate and at <unk>.
Complex.
Does that mean.
The second deal with.
William talked about.
To put it downtown Beijing deal.
As the cloud service provider I think we have.
I see a tremendous edge.
And serving cloud service providers.
We are a significant supplier I think to all of us.
Leading cloud service providers in China.
As an advantage to cloud service providers to work with us because they benefit from being in close proximity.
To each other.
What happened.
Customers' requirements was very location specific.
And there was not much.
Choice.
That kind of.
<unk>.
Obviously, it's also very competitive and I guess again, what I tried to say like I guess so.
Crop right.
Dan Moore I appreciate UBS.
Our capability and <unk> and <unk>.
Track record and a service level commitment.
Capabilities. So I think it's the data did not take the hit.
And the goal was to go outside of App for a lot of.
No.
<unk> is very good and our outlook.
Profile GDS.
Operator, our profile fully hit their patch here, so I think EMEA competitions.
Competition is very low and we win very very straightforward and they're getting very good price.
I mean, the third deal was.
The large deal that was very strategic.
Our business.
Yes.
We are.
Our offering is.
Sandy differentiated from any other data center companies because of our platform our market presence our continuous supply.
<unk>.
Customers appreciate that.
If they start maybe with the requirement which is quite straightforward.
But we've seen again and again their requirement gets more complicated.
Plex more challenging over time.
Stock straightforward and then increasingly plays two plays to our strength.
Thats a cycle, we've been through very many times not.
Really how we look at those those target those opportunities because we know that.
Beacon drove probably a third of the relationship.
Yes.
Okay.
Okay.
Your next question comes from the line of Frank Lubin of Raymond James Please ask your question.
Great. Thank you with the government's new stance on it.
There have you seen any shift in their allocation space and power and can you give me any other evidence of some some tangible benefits of that policy beginning to to benefit your business or to see.
Evidence of the of the market market growing or anything like that that's more of just a more tangible benefit to to GDS.
And I think it's Tom.
Something that you know.
We and investors can.
Take.
Okay great.
Let's say more than comfort.
Have a very positive feeling about is that it is very clear.
Government recognizes the importance of the data center industry.
It's one of the seven categories.
With new infrastructure, which is.
Essential to facilitate digital transformation.
And on the back of that.
There's been a series of policy documents at the national level at the local level set.
Setting out how the government will approach.
The allocation of resources to ensure a very healthy industry.
Sure.
In these recent policy documents.
There is a very I think clearly expressed.
<unk>.
Yeah.
What the governments.
<unk>.
What they what they want to see.
We feel that.
I would use expression again place to play to our strengths because the Gulf.
<unk> wants to see.
More technologically advanced data centers more reliable and more secure more green.
Uh huh.
Well.
More power more power efficient.
Better integrated with the supply chain.
Technological.
Innovation.
Government is not trying to engineer to the competitive landscape.
Yeah, that's not part of that.
Part of that.
That thinking.
At all.
But I think.
But they will do is ensure that sufficient resource allocation and to enable data centers in tier one markets and.
And in other locations.
Our loan portfolio.
With digital transformation.
There is sufficient capacity to support.
Ambitious targets with digital transformation.
Your next question comes from the line of Joe O'dea Yang of Nomura. Please ask your question.
Thank you for the opportunity.
And then I have one question about you know the policy, particularly concerning the risks are.
Even though the same operating posture.
I'm not going to ask you about shrinking goodbye.
You know kind of a new industrial acquisitions for data center.
Could it potentially from government or are there any aspects that government has blackout and potentially concerning for the industry.
Okay. Thank you.
Ask your question.
Yes, I mean.
You guys knows carrier neutral data center industry in China has been around for almost 25 years.
The industry is regulated as part of telecom that value added service.
Glen regulation is very well developed.
And the effective she got has been fully compliant as I mentioned.
And as Dan mentioned right. So this situation is not like some of the vertical which emerged in recent years and where the regulation is catching up. So this is this is it.
Kind of a situation.
Okay.
Okay.
Yeah.
Your next question comes from the line.
Uh huh.
With Goldman Sachs. Please ask your question.
Hi, Thank you very much for a second round so.
So I have a few follow up questions. The first one is that in terms of demand.
Management still maintaining your sales guidance of around 120 square meter.
A lot of sales for the next three years.
Yeah.
Yes, okay, great. Thank you, yes, yes.
Here's the reason why I think because.
The whole.
Digitalization is a global trend and they are also.
Central government as a strategy to drive.
Economic growth right till knowledge.
Never change and on other hand, or I mean that.
No no we didn't see any regulation impacts that are in the <unk>.
Market demand all of that ahead of GDS already well positioned our because we have the.
Largest ah.
Installed base customer cover the hole.
Industry vertical so we are well positioned to.
Catch up for the future growth. So again I would say we have confidence to maintain this.
Uh huh.
Growth in the next three even five years right.
Right. Thank you very much.
Due to time limit I'd like to now turn the call back over to the company for closing remarks.
Oh, Thank you offered.
If you have further questions. Please feel free to contact GDS Investor relations through our contact information of website <unk> group Investor Relations.
See you next time.
This concludes today's conference call you may now disconnect your lines. Thank you.