Q3 2021 GDS Holdings Ltd Earnings Call

Okay.

Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Limited third quarter 2021 earnings conference call at this time all participants.

Only mode. After management's prepared remarks, there will be a question and answer session.

Today's conference call is being in the garbage I would love to turn the call over.

Yes, Laura Chen head of Investor Relations for the company. Please go ahead Laura.

Thank you Hello, everyone welcome to St. Jude 'twenty, One earnings conference call of GDS Holdings limited.

Company's results were issued via Newswire services earlier today and are posted online.

A summary presentation, which we will we're such a JV conference call can be viewed or downloaded from our IR website.

So GDS services they'll call leading today's call is Mr. William Huang GDS, founder Chairman and CEO, who will provide an overview of our business strategy and Poland. Mr. Dan humans GDS CFO will then review the financial and operating results Ms. Jamie Cool wet seal is also available.

All good 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 Litigation Reform Act of 1995 forward looking statements involve inherent risks and.

As such the company's results may be materially different from the views expressed today further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the 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'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 to the unaudited most directly.

The comparable GAAP measures.

Now I'll 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.

<unk> reported another quarter of solid results.

With revenue and adjusted EBITDA up 35%.

During the third quarter, we made a significant progress in key areas, which underpin our future success.

We sustain our sales momentum.

We further diversified our customer base with another great Hyperscale.

We enhanced our capacity pipeline with.

Vehicle they import into result acquisitions.

We took steps to secure our transition to renewables.

And we've put in place further.

Further foundation for our existing platform expansion in Southeast Asia.

<unk> couldn't do what we booked a 23000 square meter of new organic commitments each of the market.

We remain well on track to hit our sales targets of over 90000 square metre organic bookings for the full year.

As shown on slide five we went five.

Hyperscale all this.

Orders will end up.

Existing multiyear sales framework agreement with a top customer.

Two were from one of China's China, China's largest internet platform, which is our newest hyperscale local spot.

Demonstrating the strength of.

The met demand from Internet.

And a further order with a major Chinese bank, which highlights the growing potential of financial institutions.

Our sustained itself is stronger than ever.

The evidence that customers are not holding back on their medium term and the long term business pets.

For us to offer a cockpit compete.

Solution to our customers, we must to have continuous capacity surprise each tier one market.

Securing this surprised means working with government policy.

Our governments have recognized the importance of data centers to the digital economy.

Government also attach great importance to sustainability.

The pads for the industry.

The month has Doug.

Government has made it clear that they want to see new datacenters, which are larger scale highly efficient spot CPU and this technology globally.

They want data centers in tier one market use predominantly and then today for low latency applications. They want a well integrated of edge hop.

And remote datacenter lately.

And then last but not least they want data centers, which are more green and the leading the way in terms of renewable energy usage.

GDS is well aligned with all of these governments objectives.

Going forward, we expect new project approvals and the energy quota will become even more difficult to a P E tail with market.

In some downtown locations.

<unk> already constrained.

We therefore took the decision.

Accelerate our acquisition of quantified projects in key locations.

Turning to slide nine.

In Beijing, we closed the acquisition.

Beach, Beijing, 17, 1918 and 19.

Which brings US 10700 square meters off the back of it and it's debatable capacity.

In addition, we recently signed an agreement for the acquisition of another 13000 square meter of capacity.

Pricing for data centers on land owned by the project company, which are nearly complete and have not yet committed.

Market as these data centers to financial and enterprise customers.

National headquarters are mostly located in Beijing.

Simpson, we are acquiring a data center with 3600 square meter of capacity, which is nearly complete and the already committed it to our customers.

It won't do we are paying a portfolio of development projects at multiple locations.

The portfolio has a total.

Basketball with net floor area of over 100000 square meters.

I T power capacity of over 250 megawatts.

The projects I E.

Either.

The early stage or held for future development.

Although probably has stated statements.

That's a new application will be extremely limited for the next few years. This acquisition enables enables us to materially stepped up.

Market presents.

With the acquisition of one and two we are entering a new market what how is the economy.

Economic top of Central China, where many hyperscale call and Internet companies set up a at their regional headquarters.

Two data centers have a net floor area of <unk>.

<unk> thousand 400 square meter and the depressed to face is under construction.

With the additional uptake of this acquisition to our secured a pipeline we are well placed in terms of surprise each tier one market.

Turning to slide 11.

In a couple of weeks of time, we will publish our.

And therefore, I E S G, but Paul and set up our sustainability targets false Tempe city.

And as is typical for a data center company is 99% of our carbon emissions come from electricity consumption.

We estimate search for call and the Internet companies a lot of 60 to 70 of their carbon emissions come from data center operations, including in House and also for Datacenters.

It is therefore critical importance to us our customers the government and the other thing holder.

That's why we set.

Targets and I have a few visible physical strategies to reach carbon neutral neutrally.

Where are we today.

FY 'twenty over 20% of our total electricity consumption was great in the current year, we expect the percentage to be over 30% and about 2025.

We should have exceeded 50%.

We are increasing our energy usage in in three main ways.

The first is by direct investment in renewable energy generation.

We start with talking to eat a small weight by in sorry, salt solar worse on some of our datacenter beauties.

Our ultimate objective is to have larger scale integrated developments.

We are working with partners and the government to make this happen, but I think it will take time to realize.

The second I hereby direct the power purchase or a P. P.

Which we are really doing pretty much to the maximum extent possible in Shanghai, Shenzhen, Chengdu and Chongqing as well as for some remote site DPP is currently.

Changing either but it's a bit of ability.

Ability of renewable and killed in the market.

But it's supply will increase increased significantly over the next few years.

The city is by the purchase of renewable energy certificates or rats.

Which in the near to US is the most practical option.

We recently signed a multiyear agreement with C C G and new energy.

States old independent of power Ah.

Producer with them with a weak solar and hydro portfolio too.

To purchase to purchase over 30000 gigawatt of renewable energy certificates to put this into context.

So they saw the saudis.

Gigawatt is all the street seven times, our current annualized electricity consumption. We believe that this is one of the largest renewable deals done by any private industry users in China.

In a further sign of progress some of our data centers in Beijing, where recently allocated it.

Tradable carbon credits.

As a result of our.

Success in lower appealing new drilling.

This GDS datacenters are among the very first to be allowed us to participate in Beijing, Our Fisher.

In Michigan, and Michigan take Katy market.

Now turning to slide 12.

Yesterday, we announced our second the project a commitment in southeast Asia, we are in the process of acquiring.

Our Greenfield land for 28 megawatt data center development in non south digital pop, but term Indonesians.

Especially it.

Economic zoom, which is 25 kilometers.

From Singapore.

This is a new location for data Center development, which you if you can.

Can see from the whole quota in our press announcement has the strongest supported it.

From both in Indonesia, and Singapore governments, we.

Back to obtain renewable energy for this site, which will further enhance its market market ability and the competitive edge.

With this issue we now have strategically location Hyperscale project, both in the north and the south of Singapore with great potential for create crazy unique ecosystems and the Interconnectivity.

And Ireland, Singapore Uh Huh.

I said no sound Guy a tech park each a whole.

Our next door to the to kind of combat Acs, reaching those data centers, we are pleased to.

Pleased to have signed a strategic cooperation agreement with Telekom, Malaysia, Boastful network connectivity and therefore use of medical capacity in their facility, which will enable us to kick start our presents before our own data centers come online.

Our original strategy is driven by the requirements of our whole market customers.

To reinforce this point, we have recently signed a strategic cooperation agreement with a major Chinese call service provider.

Support its international expansion.

The agreement will be prioritized as their data center provider in the region.

The strategic accomplishing extents.

Military charter between us and the customer from China to Southeast Asia.

Providing a strong foundation for the success of our regional strategy.

Now I will hand over to Dan for the financial and accretion revealed thank you.

Thank you William.

Before going through the numbers I'd like to provide an update on our partnership with GIC.

A few years ago.

We started to develop project trials strategic customers in more remote locations using a b O T structure.

We've done 15 to date.

The stations of which is shown on slide 14.

As you May recall, we have.

<unk> partnership with GIC to finance these projects.

Our original intention was.

With GIC.

Under which we will retain a 51% stake.

This higher level of ownership and additional fee income.

We are able to deploy more capital, while earning a reasonable return on investment.

Well the bulk of this new agreement, we have now signed the first sales and purchase contract with GIC.

For the transfer of a 49% stake in <unk>.

One of our existing projects, while I won.

We will work with GIC to transfer a 49% stakes in several more B O T projects over the next few quarters.

Starting on slide 16, where we strip out the contribution from equipment sales and the effect of FX changes.

<unk> 'twenty one no service revenue grew by 10, 6%.

Underlying adjusted gross profit grew by seven 6%.

And underlying adjusted EBITDA grew by seven 7% quarter on quarter.

Our underlying adjusted EBITDA margin was 46, 9%.

Turning to slide 17.

Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions.

Net additional area utilized.

And <unk> 21 was 18678 square meters.

The organic move and excluding acquisitions and B O T projects with 16037 square meters.

This is a step up from the levels seen in the first and second quarters. However, it was still a few thousand square meters.

<unk> original expectations.

We attribute this to a combination of service shortages power of uncertainties and other macro factors, which we believe are transitory.

And for Q2 'twenty, one we expect organic net adds to be at a similar level as in <unk>.

Following the new agreement with GIC.

I'll now include area utilized.

Projects.

MSR calculation for <unk>.

In prior quarters.

On a consistent basis MSR per square meter increased by one 3% quarter on quarter and <unk> 21 to 2361 RMB per square meter per month.

This increase is it is within the normal range of quarterly fluctuations.

The inclusion of who'll be Ot projects brings the MSR number down slightly.

But of course the trend line is essentially the same.

Turning to slide 18.

Underlying adjusted gross profit margin was 52, 5% for <unk> 21 a.

A decrease of one five percentage points quarter over quarter.

And our underlying adjusted EBITDA margin was 46, 9% to <unk> 21 a.

Decrease of one two percentage points quarter over quarter.

The margin decrease was mainly due to higher utility costs.

And three Qs 21, our utility cost was 28, 8% of revenue compared with 26, 9% in the.

Third quarter, an increase of one nine percentage points.

Utility cost was partly a result of seasonally higher power consumption during the summer months.

Partly a result of temporary additional costs for the use of backup power during a period when grid power supply was limited.

And 321, we spent 19 million RMB on backup power.

So the unit cost of backup power is around three times that of grid power.

So far in <unk> 'twenty, one maybe power supply is almost back to normal.

During October the government introduced reforms to further liberalize the power market.

These reforms required thermal power generators to sell all of their output through the wholesale markets and allows the electricity price to float between our regulated base, Paris and a higher ceiling.

When fully implemented over the next year or so.

These reforms will enable us to purchase substantially all about thermal power through direct negotiations with generators.

While this may eventually lead to a lower unit power costs in the short term, we expect thermal power tariffs to go up because of the elevated fuel costs.

We will start to see this during the current quarter.

Accordingly, we estimate that our utility costs as a percentage of revenue.

Similarly for Q2, 'twenty one to levels seen in <unk>.

Around half of our customer contracts in terms of billable revenue at <unk>.

<unk> structures, which allow us to pass on increased power costs.

Turning to slide 20.

Our Capex was <unk> 21, with $3 8 billion renminbi, consisting of $3 2 billion organic Capex and 575 million RMB for acquisition consideration mainly related to Beijing 17, 18 19.

Although at the end of <unk> 'twenty, one we had a liability of around 1 billion renminbi on our balance sheet.

Back to deferred and contingent consideration for past acquisitions.

After nine months of the year.

Total capex stood at 11 billion.

Including $3 6 billion renminbi for acquisitions.

Further there are 8 billion renminbi landbank purchases in China, Hong Kong and Malaysia.

Based on our expectations, but when the acquisitions, which we announced today will close and the amount of total consideration which is payable upfront.

We expect Capex in <unk> 'twenty, one to be around 5 billion renminbi.

Yes.

Looking at our financing position on slide 21.

At the end of <unk> 'twenty, one we had $10 1 billion renminbi or one 6 billion in U S dollars with cash on our balance sheet.

Our net debt to last quarter annualized adjusted EBITDA ratio increased to five one times.

And the first nine months of 2021, we completed $3 6 billion renminbi debt refinancing.

We have a further $1 3 billion renminbi to complete by year end as part of our annual refinancing plan.

You can see on slide 22, we continue to refinance at a significantly lower all in cost.

We are beginning to see the benefits.

Our effective interest rate, which dropped to five 5% during <unk> 21, compared with six 4% a year ago in <unk> 'twenty.

Turning to slide 24.

As a result of the lower than expected moving rates in the second half of 2021 and.

Recent increases in power costs.

We now expect our total revenue and adjusted EBITDA for the full year of 2021 to be in the lower half of the originally provided guidance ranges.

Accordingly, we are narrowing guidance to correspond to the lower half of the original ranges.

The revised guidance is therefore, $7 7 billion to 785 billion renminbi.

Total revenue.

And 366 billion.

So the $3 73 billion renminbi for adjusted EBITDA.

When we gave capex guidance at the beginning of the year.

We explained the number only included the acquisition, which we knew about the that time named.

Namely P J <unk>.

No.

Could be more M&A not included in guidance.

During the year, we made the strategic decision to accelerate our resource acquisition.

Which affect to be bringing forward some future capex.

As a result, we.

And now expect Capex for the full year 2021 to be around 16 billion renminbi.

Compared with the originally provided guidance of around 12 billion renminbi.

Although the 16 billion renminbi, approximately 50% will be organic which is consistent with our original estimates for organic capex.

At the end of the current year, we expect to have around 5 billion renminbi invested in capacity held for future development.

We'd now like to open the call to questions operator.

Yeah.

As a reminder, ladies and gentlemen, it is star followed by one on your telephone keypad. If you wish to ask the question. If you wish to cancel your request has been press the pound don't have ski.

All participants on today's call. Please limit your questions.

But participant if you have more questions. Please reenter the queue.

We have the first question is coming from the line of Jonathan Atkin from RBC capital markets. Please go ahead.

Thanks very much.

So I was interested in the.

The comments about the revised guidance and you talked about kind of a slower pace of move in I wondered how does that affect your growth expectations for 2022, and then the higher utility costs that you've mentioned to.

The fuel.

How does that affect your margin expectations for for next year.

Okay.

Okay.

How are you doing.

You know, we don't providing guidance today for 2022.

And.

I can only make some comments about the fourth quarter and you can form your own view.

The move in.

Third quarter I said it was a few thousand square meters.

Lower than our original expectations.

In the fourth quarter is likely to be another few thousand square meters. So in there.

Respect, we will start the next year, but a few thousand square meters below where we originally expected.

And this year.

I don't have a.

A lot of poor visibility far into the future, but I do believe that at some point, we will see a rebound in move in activity.

Customer contracts give customers the flexibility.

How fast they move in as part of the value of outsourcing.

It's what enables our customers to make commitments in advance. So we always see various surround our estimates because it's not up to us its up to the customers. So we should not be surprised by this.

Once again, we talk about the effect of higher utility costs in.

The third quarter, you saw the utility cost.

As a percentage of revenue was.

Increased by more than.

One percentage point.

Partly it was seasonal part of it was due to the higher cost of backup power.

In the fourth quarter.

Seasonality works the other way.

And we no longer have a serious issue.

So Paul.

Yeah.

Relation to power cuts, but we.

Potentially higher power tariffs as a result of the lip.

Liberalization of thermal power pricing and higher thermal power fuel costs. Therefore, we've assumed in the fourth quarter utility costs will be.

Elevated once again, a similar percentage of revenue as it was in the third quarter. Once again I think you have to form their own view about how long that will last.

Yeah I'm sure. It's transitory, we all know that.

But I can't.

Can't predict.

Electricity price.

Yeah.

Okay.

When I add some color.

Do I think that number was we got an appealing is the market demand is still very strong and a lot of customer want a movie at more quickly, but as Dan mentioned it did the server shipment.

In our in this year.

Impac today moving rates and also there are some that are carbon into the energy shortage.

That is not a lot of customer.

Slow down there will be so we hope that this this this element will be solved.

If that's the case I think D.

It will come to their normal even a catch up of the movie right. So if it's.

Again, it's too early to say our estimate there next year.

Our revenue guidance.

But one thing is that the order of stupid maintained very strong.

Thank you for that perspective, I wanted to ask about the balance sheet you touched on it in the prepared remarks, but can you maybe just kind of recap your thoughts on the future financing needs given the higher capex that you're guiding to you mentioned joint venture activities, but also kind of higher leverage so pretty narrow.

Altogether, how far into the future do you consider yourself funded and what would be some of the financing options.

It is fully funded in terms of.

Capital for what we have committed to what we have.

Hum.

Had $1 6 billion in U S dollars of cash on our balance sheet and as the third quarter. This year, which is adequate pool of things.

We are.

Currently doing.

If we need more capital, we do have the option of increasing leverage.

At the Holdco level, we have a.

Having credit facility therefore three.

<unk> 300 million in U S dollars, which we could potentially upsides.

However, as I mentioned.

Before.

We also think that it's a good strategy to bring in outside equity at the project level like we are doing with GIC for the BRT projects.

You will all very well aware, there's a lot of private capital looking for.

Data center exposure and sometimes private capital comes at a lower cost than the public markets and we do want to have a hybrid approach and we are looking actively at some possibilities to fund type structures, which would give us access to very deep pools of capital.

And potentially some in value add from partners.

So I just want to add.

And potentially some value add from partners.

Yeah.

And then lastly from my side. So slide 39 gives the contract renewals and as a percentage of square meters in service dates between looks like between 10 and 11% between now and year end 'twenty two so what is your.

Bought or expectations around the pricing around those renewals.

Yeah, John most of the renewals.

Downtown.

The centers.

Yes.

The first thing I would note is that.

Customers are holding on to practically all of that capacity when it comes up for renewal will be the turn rates. There has been a fraction of a percent.

We've renewed.

Some contracts collapsed.

You had some down to some to some degree.

As I explained before it's mostly a mark to market exercise.

It is perhaps in the U S.

For us it's a strategic decision.

The context of the overall customer relationship where we agree the renewal.

In the context of <unk>.

All the business that we're doing with that customer. So I don't think you can really look at it as a as a complete a market oriented pricing.

And then John I I didn't thank you.

John I can add some color because in China the difference in market.

Demand and supply situation is different so it.

My view is the next the renew its just that I can do cells, maybe maybe.

It's a market we will keep the frac sand.

Some market maybe will increase.

Increased price, maybe somebody will gifts as our strategic customers in that.

A benefit and so this is a mix of strategy it depends on the a different market.

And as demand situations.

Thank you very much.

Yeah.

Thank you.

Once again, ladies and gentlemen, I'd keep in mind that for the benefit of all participants on today's call. Please limit your questions to two questions per participant you can have more questions.

Thank you.

Do you have the next question is coming from the line of Yang Liu from Morgan Stanley. Please go ahead.

Thanks for the opportunity.

Two questions here the first one is.

In terms of the demand.

I guess this is Tom that's a TD of star two.

Talk with customers, who can come off their demand next year.

Could you please share with us in terms of the outlook from our key customers, especially internet probably called customers about the demand.

For our new data center build outs.

We recently.

Some of your customers' Capex.

Relatively low so I'm not sure if the.

Our demand outlook for next year.

The second question is we noticed that the GDS.

Close a lot of our acquisitions in the past quarter.

Could you please update us in terms of the competition.

Are those deals is it's more intense than before at its core a less intense or how about the valuation trend upward trend or downward trend versus a deal close to several quarters ago. Thank you.

Okay.

Let me answer your first question I think in that in the recent.

Went through.

Uh huh.

Winter, China convicted that a lot of them are key customer in general I think the idea and maintained at the previous plan.

Market stretch it out a little bit shipped some maybe.

Some that are traditional hyperscale customer.

Customer slow down a little bit but in a in a in the same time, which we will have to be we have saw we saw a lot of the news.

Hyperscale customer.

Customer brought more faster than our expectation. So it's that in general I think did it end.

The demand still maintain very strong so what is the market.

A little bit of ships.

To Internet and video company and E. Commerce company. So this is this is that this is a fact based on bi.

Our communication with our key all the key customer so in general the market is still very.

Demand is still there.

Strong.

And the additional week in the busiest practice, we saw a lot of financial institution they aren't they increased their capex.

Tremendously, it's very surprise to us. So this year, we also get a lot of D. A we've got a lot of the financial institution order, even bigger more bigger than before we expect so I think that this can also available still will continue.

So Dan maybe you can answer them.

Our position.

Yes, there's competition for every acquisition.

We have a dedicated team we try to identify opportunities earlier.

Monitor them.

Usually a right time.

To move forward.

And we try to leverage our expertise and track record in doing acquisitions to give counterparty has a high degree of confidence in dealing with with GDS, which can be.

Factor not just not just amount of.

Not just a matter of price.

If you look at the acquisitions, which we've done so far this year and the ones that we've announced today they are predominantly in and around Beijing.

And in Shenzhen.

Guangdong.

Those are the places where.

There is.

Already clearly a constraint on supply.

It is not currently a constraint on supply constraint on.

New project approvals and energy quota allocation I think everyone in the industry recognizes but having developable capacity in those places.

Is going to be very advantageous because there is no organic option.

In the near future practically no organic options in the near future.

Yeah.

That means these kind of opportunities are highly sought after and there are a few other players in in China, mostly.

Private companies.

Who have the capital and appetite to pursue them. So there is a.

Usually the players that we find ourselves in competition with.

As regards multiples I want to take this opportunity to clarify what we mean, when we talk about acquisition multiples because.

Most of the recent acquisition of beam.

Development projects at various stages.

All pre operational.

We evaluate them.

Actually the same way as we evaluate organic projects, but for the purpose of communicating with investors.

The acquisition cost in terms of enterprise value.

The cost to complete on that.

<unk> by the estimated stabilized EBITDA, that's the basis of when we talk about multiples.

And I would say, there's no discernible change in multiples.

As I defined it.

Thank you that's very helpful.

We have the next question is coming from the line of Colby <unk> from Cowen and company. Please go ahead.

Hi, This is Michael on for Colby two questions if I may.

First you noted a few times that its getting more difficult to get power approvals in certain tier one markets, but if you could unpack what's driving this in turn you know what that means for the balance of acquisitions versus organic capex in those markets moving forward and then second.

You recently announced that you're entering or you're doing more in south East Asia and could you just give us some more color on what the next steps are how do you look to expand further into the region. Thank you.

Yeah.

Okay.

Yeah.

Yeah, I think it curious strategy is.

We definitely we will obtain a carbon quota.

Oh itself. This is the main strategy, but even in a in.

At the same time in the last couple of years, we also.

Based on the market demand short term demand, we should we always our fracs bony to apply a lot of risk.

<unk>, because we want to catch up to our customer's demand. So this is we always used a different strategy to a two to fulfill the market demand.

In general we are still suffering we are driven to buying our organic but in the future. We also will maintain.

We maintained a strategy.

Okay.

Oh.

Thank you Sheila.

Okay.

Yeah.

So second question about.

And what are the steps that we're going through in terms of implementing our strategy in South East Asia.

Excuse me.

Yeah.

<unk> focus has been.

On.

The demand in and around.

Singapore as you're aware there is currently a moratorium on.

New data Center project approvals.

In Singapore.

And we found smell home market customers that they have.

Very substantial appetite for increased.

Center capacity in Singapore, but which cannot currently besides.

Besides as site therefore.

We are focused on.

Coming up with a <unk>.

Nearshore solution.

Which can address spillover demand from Singapore and act as.

Uh huh.

Serving the region.

And where we've got to so far is that you may have.

Our acquisition of land.

Parking in Malaysia, which is just seven kilometers from the Singapore border and then yesterday, we announced that we're acquiring land.

On the islands.

On the other side of it.

Singapore from Jabil, which is 25 kilometers from Singapore.

Each of those sites.

Additionally, large.

In terms of what we've acquired and what we've got options over there.

To do Hyperscale developments Hyperscale.

Scale, which cannot conceivably be done in Singapore, given given the natural geographic constraints.

Singapore.

But normally it's not only hyperscale.

We are working to package these.

Our sites together with renewable power supply and multi diverse network connectivity.

Into Singapore and between the sites.

It's very well interconnected hub, we think the culmination of Hyperscale renewable energy multi diverse network connectivity.

Price point, which is substantially below the price point of the Singapore data center market will.

It will be.

The remarkable of course.

We are working on this we're having back to back conversations all the time with our customers.

I mentioned today that we have signed a strategic cooperation agreement with one of our largest Chinese customers, which gives us priority and working with them to international expansion.

A replica of the way that we've been working with them in China for the last 555 or six years.

Where do we go next where we are looking for another site around Singapore.

Do you anticipate there.

Could be.

Relaxation of the moratorium in Singapore.

Although it may not be a very very large and they are speculating.

But it would be very strategic to to be able to establish a presence in.

In Singapore.

And then beyond that.

We would like to connect these sites into KL.

Well, yeah, Chinese customers already have cloud availability zones.

Into Jakarta, where our customers are also already have.

Cloud availability zones.

It would be.

The platform.

We are aiming to get to the kind of space and then of course that would be highly connected into into Hong Kong and China and that's as far as out as our vision extends for the time being we have made very rapid progress and.

Yeah.

Yeah.

Months I would say we get more excited.

About the scale of the opportunity.

So this represents the.

3369 months time.

There'll be plenty more significant developments to report.

Yeah, I wouldn't I would say, it's a super exciting opportunity for us.

Yes.

We are weird push a lot of his salary it would push a lot of a lot of the Oh installed based customer southeast Asia demand to our shareholders.

Shareholder.

And then in the last five years, we saw the opportunity to step by step increase.

And we saw what do we what do we what we.

We saw it and said the potential.

Gil it's much bigger than before.

So that's why we've made the decision to jumping into the market directly. It's the right timing. We think it's it's it's a it's like a startup.

Let's say six years.

Seven years ago, what is happening in China.

And then the scale is much bigger than 60 S N S.

Seven years ago. So I think it's it's a it's a huge opportunity for us because we have that.

A very vague.

Huge than any stronger.

Let's say an advantage in this area because number one we bring all our installed based customer they have the bed in southeast yet East Asia in next three years.

It's very clear very certain isn't.

There's a number one number two GTS.

Not just one product.

We tried to develop a possible to keep them to solve our customers' painful in this region, which make a huge difference in the local player in the Meanwhile, we leverage our scale. We can do very little cost of data center in this region, which we believe.

This is a.

Huge advantage because we have the scale.

Do they have to have a scale advantage so.

Yes, definitely well Super success in this region, which I believe in the next three or five years.

Is it the will new incremental growth. This is not calculated in our previous visit pad five years visit opinion, it's the ambition.

Yeah.

Yes.

Yeah.

Thank you.

Our next question comes from the line or Frank.

From Raymond James.

Great. Thank you two quick questions on on the slower installations any concerns there that that you're losing any contracts or any competitors taking share or is that any any part of that and then I wanted to go back to the renewal question asked that sort of a different way you know looking at that 10% of renewals or any significant.

<unk> customer or industry concentration between now and year end that could could you could add to the risk of the rent roll down Ah that you might be facing.

Oh, sorry, sorry, Frank I'm in a different place from where they are months.

Uh huh.

Just to keep to keep it brief.

Yes, I think the this.

Move in which at which we say is yeah.

Lower than what we originally expected, which means that we will be took nearly.

Nearly 12 months ago about what our customers would be doing in November.

2021.

Yes.

It's a.

A few thousand square meters below.

We don't like to talk about.

Individual customers, but I suspect that.

The reasons for it being slightly slower different from customer.

To customer.

You mentioned competition.

Actually say that it is actually may be the opposite of what you were thinking as.

A result of customers.

Prioritizing moving elsewhere.

Thirdly, we are very fortunate.

And benefit from customers, giving us.

Priority in terms of movement. They may have several data centers.

Now with capacity available to them.

But we.

Because of our relationship.

Often benefit from customers.

Giving us.

The favor of.

But moving 12 facility ahead of moving into another service providers.

The facility.

Again for renewals.

We don't when we mentioned the churn rate because.

I like to say, it's statistically insignificant, but I think it was <unk> 2%.

This quarter so.

Yeah, I think that tells you that there's no movement.

And the customer base.

The data centers, which are coming up for renewal when I say a downtown downtown.

They were.

Amongst.

The first 567 that we built in Shenzhen Shanghai.

Beijing.

And the customers are holding on to that.

Pasty, so it was purely and simply.

Out of a price negotiation William talked about.

Some of the factors that we take take into account, let me, let me put that that negotiation.

Okay, great. Thank you very much.

Okay.

Yeah.

We have the next question from Edison V from Jefferies. Please go ahead.

Yeah.

Alright, Thank you for.

That gives me the opportunity to ask a question I would just stick to one for the time being.

I think on the P. O T projects that you are doing with GIC. So the previous idea was to so 90% stick with GIC and then you called out a management fee of 10%, but right now we want to go up to 51%.

So in terms of in terms of cash flow doesn't mean that you are going to still collect money from GIC.

That's because of political on a higher equity stake in this project and how a change from 10% to 51% change of I R. O a prospect for these projects.

Yeah Yeah.

Correct.

We.

We have not changed.

The economic arrangement.

You know as a provider of management and operating services to these projects.

<unk> receives a fee, which is just so happens it's structured as a as a revenue share we take a certain person.

<unk> of the revenue.

And we cover.

Cover our own cost.

Operating costs directly.

The revenue share that we take cover those costs and give us the margin.

So we are charging the project companies the revenue share originally.

We thought that we would be owning 10% of the project company is now around 51% so in that sense, yes, we're charging.

51% of the management shipping charge, the GDS and 49% to.

To GIC.

Previously.

The way we were looking at this as well.

Yeah, we were trying to maximize management fees and minimize the capital that we invested we thought that we could.

Do these projects just as a kind of a capital light.

Approach.

But then we look at the quantum of the management fees and.

It's not insignificant it's not enormous.

And then we look at the opportunity to deploy capital.

The return on that capital and enhance it with management fees and.

And we simply decided that.

It made more sense for us now better I think proud shareholders for us to take the the latter approach it so happens that.

As we start to.

Look for more different customers with these structures, we do get asked by some customers.

To maintain a majority stake although all the customers very much like the.

The partnership approach and involvement with GIC.

It did come up.

A few times. So so that was another factor for doing it.

Thank you we have our next question coming from the line of Hong Zhang.

Yeah.

Please go ahead.

Hum.

The question is that.

G I, Joe mentioned in presentation that it doesn't work.

And when you look at energy generation.

Solar panels.

So how should we outlets.

<unk>.

Our impact on the margin.

Yeah.

Yeah.

Yes, we did mention that I think that.

Strategically.

The top.

The objective.

Is to be able to invest.

In.

Some renewable power generation on an integrated basis.

With data Center development.

Yeah.

It's that would be highly.

Our highly innovative.

Around tier one markets.

It takes time to put together projects like that.

And time to develop them. So that's an objective, which I think will take several years to to make.

To realize it to make it to make it happen.

In the meantime, it means that.

Most of what we're doing in.

Renewable energy is opex.

Uh huh.

If you look at our if.

If you look at the.

Utility costs.

<unk>.

Tier one market so it averages around.

65 10.

Six five renminbi per kilowatt hour.

For thermal power.

And renewable energy certificates.

Our cost about one to.

The ones too.

On top of 65.

Direct purchases of renewable power.

I can only really happened in places where.

We were able to take delivery of renewable power.

As an end user.

Renewable power.

Yeah, right now I would say the premium is typically around five.

<unk> so on top of.

65.

So that gives you some idea.

The cost.

Cost is in terms of in terms of Opex, we haven't yet made any significant.

Capex allocation.

Investment in enable energy generation.

Yeah, I would I would.

Some of that kind of on that I guess.

Our customer or getting the pressure from a green datacenter, oh carbon neutral right, so displacing them more.

A strong passion so based on this we already talked to our customers. We believe that the cost we will transport customer.

Yeah.

Thank you.

As there are no further questions at this moment I'd like to turn the call back to the company for closing remarks. Please go ahead.

Thank you all once again for joining US today. If you have further questions. Please feel free to contact <unk> Investor relations contact information on our website or the P&C group Investor Relations. Thank you all bye.

This concludes this conference call. Thank.

Thank you all for your participation you may now disconnect your lines.

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Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Ltd third quarter 2021 earnings Conference call at this time all participants.

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 at normal levels.

Laura Chen head of Investor Relations for the company. Please go ahead ma'am.

Thank you Hello, everyone welcome to tweak your 'twenty One earnings conference call of GDS Holdings limited. The company's results were issued today newswire services earlier today and are posted online.

A summary presentation, which we will refer to today's conference call can be downloaded from our IR website at investors.

It's thought GDS services dotcom, leading today's call is Mr. William Huang GDS, founder Chairman and CEO, who will provide an overview of our business strategy and performance.

After Dan Human GDS CFO will then review the financial and operating results Ms. Jamie Cook. Our CFO 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 litigation with.

Act of 1995.

Forward looking statements involve inherent.

Certainties.

The company's results may be materially different from the views expressed today further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the U S. SEC. The company does not assume any obligation to update any forward looking statements except as.

Our clients under applicable law. Please also note that <unk> earnings press release and this conference call include discussions of.

Audited GAAP financial information as well as an OTA.

Non-GAAP financial measures GDS press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures.

I'll now turn over the call to GDS founder Chairman and CEO. William Please go ahead with them.

Hello, everyone.

Tangible JV on today's call.

I'm pleased to report another quarter of solid results.

With revenue and adjusted EBITDA at around a 35%.

During the third quarter, we made a significant progress in key areas, which underpin our future success.

We sustain our sales momentum.

We further diversified our customer base with another great Hyperscale.

We have our capacity pipeline with three strategically important resort acquisitions, we took steps to secure our transition to renewables.

And we've put in place further from.

Further foundations for our existing platform expansion in southeast Asia.

Is <unk> 51, we booked a 23000 square meter of new organic commitments in tier one markets.

We remain well on track to hit our sales target of over 90000 square metre organic bookings for the full year.

As shown on slide five we won five.

Hyperscale order too.

Two orders will end up in.

An existing multiyear sales framework agreement with a top customer.

Two were from one of China's China, China's largest internet platforms.

She is a new hyperscale local.

Demonstrating the strength of demand demand from Internet.

And further order was from a major Chinese bank, which highlights the growing potential of financial institutions.

Our sustained itself is stronger.

Strong evidence that customers are not holding back on that.

Medium term and the long term business pets.

For us to offer a Catholic compete.

Solution to our customers, we must to have continuous capacity supply each tailwind marking.

Securing this supply means working with government policy.

But governments have recognized the importance of data centers to the digital economy.

The government also attach great importance to sustainability.

In the past for the industry.

Government has got government has made it clear that they want to see new datacenters, which are larger scale highly efficient <unk>.

Not cyclical and the technology boldly and event.

They want data centers in tier one market.

Predominant and then today for low latency applications, they want a well integrated edge hop and remote datacenter they laid out.

And then last but not least they want data centers, which are more green and leading the way in terms of renewable energy usage.

GDS is well aligned with all of these governments objectives.

Going forward, we expect new project approvals and the energy quarter will become even more difficult to obtain a tailwind market.

In some downtown locations surprise already constrained.

We therefore took the decision.

Accelerate our acquisition of quantified projects in key locations.

Turning to slide nine.

In Beijing, we closed the acquisition.

Beach, Beijing, 17, 1918 and 19.

Which brings US 10700 square meters off the back of it and the debatable capacity.

In addition, we recently signed an agreement for the acquisition of another 13000 square meter of capacity.

Pricing for data centers on land owned by the project company, which are nearly complete and have not yet committed.

Marketed these data centers to financial and enterprise customers.

National headquarters are mostly located in Beijing.

And since then we are acquiring a datacenter with 3600 square meter of capacity, which is nearing compete and already committed to our customers.

In Guangdong, we are paying a portfolio of development projects at multiple locations.

The portfolio has a total <unk>.

<unk> net floor area of over 100 solid square meters.

It power capacity of over 250 megawatts.

The project.

Either at an early stage or held for future development.

Guangdong Province has stated stated.

That's a new application will be extremely limited for the next few years. This acquisition enabled enables us to materially stepped up.

While market presents.

With acquisition of <unk>.

One and two we are entering a new market, which is the economy.

Economic half of Central China, where many hyperscale cloud and Internet companies set up a day a regional headquarters the two data centers have a net floor area of <unk>.

<unk> thousand 400 square meter ended the first the Feight is under construction.

With the additional of this acquisition to our secured a pipeline we are well placed in terms of supply each tier one market.

Turning to slide 11.

In a couple of weeks of time, we will publish our inaugural ESG report and set up our sustainability targets for Tempe City.

As is typical for a data center companies, 99% of our carbon emissions come from electricity consumption.

We estimate <unk> call and the Internet companies.

60 to 70 of their carbon emissions come from data Center operations.

Really in house and also of the data centers.

It is therefore critical important to us our customers the government and the other thing holder hold it.

We've set.

Targets and have a feasible feasible strategy to reach carbon neutrality.

Where are we today.

Why 20 over 20% of our total electricity consumption was great in the current year, we expect the percentage to be over 30% antibody 2035, we should have exceeded 50%.

We are increasing our green energy usage in in three main ways.

The first thing is by direct investment in renewable energy generation.

We start with talking to in a small way I E sorry, salt salt water on some of our datacenter beauties.

But our ultimate objective is to have large scale integrated development.

We are working with partners and the government to make this happen, but I think it will take time to realize.

The second thing is by direct power purchase or PPP, which we are already doing pretty much to the maximum extent possible in Shanghai, Shenzhen Chengdu and Chongqing.

As well as for some remote site.

DPP is currently kind of changing either.

The ability of renewable in children's market.

But it will.

We'll increase increased significantly over the next few years.

The first is by the purchase of renewable energy certificates or rats.

In the near term is the most practical option.

We recently signed a multiyear agreement with C C G and new energy.

Faith of independent of power.

Reducer with them with a weak solar and hydro portfolio.

To purchase to purchase over 30000 gigawatt of renewable energy certificates to put this into context.

30000, Saudi and solve them.

Gigawatt is almost three seven times, our current annualized electricity consumption. We believe that this is one of the largest renewable deals and buy.

Any private industry users in China.

In a further sign of progress some of our data centers in Beijing, where recently allocated.

Tradable carbon crowded and that is as a result of our success in lower a purely <unk>.

This GDS datacenters are among the very first to be allowed us to participate in Beijing, Our Fisher in Michigan emissions trading market.

Now turning to slide 12.

Yesterday, we announced our second the project a commitment in southeast Asia, we are in the process of acquiring.

Ah firing at Greenfield land for 28 megawatt data center development in non stop digital pop, but tab Indonesians.

Especially it.

Economic zoom, which is 25 kilowatts.

From Singapore.

This is a new location for data Center development, which you can see from the quarter and our press announcement has a strong supporter for.

Both in Indonesia, and Singapore governments.

We expect to obtain renewable energy for this site, which will further enhance its market marketability and the.

Competitive edge.

With this issue we now have strategically location Hyperscale project, both in the north and the south of Singapore with great potential for create creating unique ecosystems and the interconnectivity.

And I'd rather Singapore.

And then those have Guy Hi, Tec.

Tech parking Joel.

Our next door to the.

Telecom Malaysian regional data centers. We are pleased pleased to have signed a strategic cooperation agreement with Telekom Indonesia both.

For network connectivity, and therefore use our medical capacity in that facility, which will enable us to kick start our present before our own data centers come online.

Our regional strategy is driven by the requirements of our home market customers.

To reinforce this point, we have recently signed a strategic cooperation agreement with a major Chinese cloud service provider to support its international expansion.

Under the agreement, we will be prioritized SDF datacenter provider in the region.

Strategic accomplishing extends to mute the military charter between us and the customer from China to Southeast Asia.

Providing a strong foundation for the success of our regional strategy.

Now I will hand over to Dan for the financial and Operation review. Thank you.

Okay.

Thank you William.

Before going through the numbers I'd like to provide an update on our partnership with GIC.

A few years ago, we started to develop projects for our strategic customers in more remote locations using a POC.

Structure.

We've done 15 to date.

The status of which is shown on slide 14.

As you May recall, we have.

Tablets to partnership with GIC to finance these projects.

Our original intention was correct.

With GIC.

Under which we will retain a 51% stake.

This higher level of ownership and additional fee income.

We are able to deploy more capital, while earning a reasonable return on investment.

On the back of this new agreement, we have now signed the first sales and purchase contract with GIC for.

For the transfer of a 49% stake in one of our existing projects highlight one.

We will work with GIC to transfer a 49% stakes in several more PLT projects over the next few quarters.

Starting on slide 16, where we strip out the contribution from equipment sales and the effect of FX changes.

<unk> 21, our service revenue grew by 10, 6%.

Underlying adjusted gross profit grew by seven 6% and.

And underlying adjusted EBITDA grew by seven 7% quarter on quarter.

Our underlying adjusted EBITDA margin was 46, 9%.

Turning to slide 17.

Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions.

Net additional area utilized.

<unk> 21 was 18678 square meters.

The organic move and excluding acquisitions and <unk> projects.

So 16037 square meters.

This is a step up from the levels seen in the first and second quarters. However, it was still a few thousand square meters, let's smell of original expectations.

We attribute this to a combination of service shortages power uncertainties and other macro factors, which we believe are transitory.

And for Q2, 'twenty, one we expect organic net adds to be at a similar level.

In <unk>.

Following the new agreement with GIC.

I'll now include area utilized <unk> projects.

MSR calculation for <unk>.

In prior quarters.

On a consistent basis MSR per square meter increased by one 3% quarter on quarter in <unk> 21 to 2361 RMB per square meter per month.

This increase is it is within the normal range of quarterly fluctuations.

The inclusion of <unk> projects brings the MSR number down slightly.

For the quarterly trend line is essentially the same.

Turning to slide 18.

Underlying adjusted gross profit margin was 52, 5% for <unk> 'twenty one.

The decrease of one five percentage points quarter over quarter.

And our underlying adjusted EBITDA margin was 46, 9% to <unk> 21.

A decrease of one two percentage points quarter over quarter.

The margin decrease was mainly due to higher utility costs.

And <unk> 21, our utility cost was 28, 8% of revenue compared with 26, 9% in the prior quarter, an increase of one nine percentage points.

Higher utility cost was partly a result of seasonally higher power consumption during the summer months.

Partly a result of temporary additional costs for the use of backup power during a period when grid power supply was limited.

And three Q2 'twenty, one we spent 19 million RMB on backup power.

So the unit cost of backup power is around three times that of grid power.

So far in <unk> 'twenty, one mid power supply is almost back to normal.

During October the government introduced reforms to further liberalize the power market.

These reforms required thermal power generators to sell all of their output through the wholesale markets and allowance electricity price to float between a regulation based tariffs and a higher ceiling.

When fully implemented over the next year or so these.

These reforms will enable us to purchase substantially all about thermal power through direct negotiations with generators.

While this may eventually lead to a lower unit power costs in the short term, we expect thermal power tariffs to go up because of elevated fuel costs.

We will start to see this during the current quarter.

Currently we estimate that our utility costs as a percentage of revenue will be similar in <unk> 'twenty one to levels seen in <unk>.

Around half of our customer contracts in terms of billable revenue have pricing structures, which allow us to pass on increased power costs.

Turning to slide 20.

Capex was <unk> 21 was $3 8 billion renminbi.

Single $3 2 billion organic Capex and 575 million RMB for acquisition consideration mainly related to Beijing, 17, 18 19.

Although at the end of <unk> 'twenty, one we had a liability of around 1 billion renminbi on our balance sheet with respect to deferred and contingent consideration for past acquisitions.

After nine months of the year, our total capex stood at 11 billion.

Including $3 6 billion renminbi for acquisitions and a further <unk> 8 billion renminbi landbank purchases in China, Hong Kong and Malaysia.

Based on our expectations for when the acquisitions, which we announced today will close and the amount of total consideration which is payable upfront.

We expect Capex in <unk> 'twenty, one to be around 5 billion renminbi.

Yes.

Looking at our financing position on slide 21.

At the end of <unk> 'twenty, one we had $10 1 billion renminbi or one 6 billion in U S dollars with cash on our balance sheet.

Our net debt to last quarter annualized adjusted EBITDA ratio increased to five one times.

And the first nine months of 2021, we completed $3 6 billion renminbi of debt refinancing.

We have a further $1 3 billion renminbi to complete by year end as part of our annual refinancing plan.

You can see on slide 22, we continue to refinance at a significantly lower all in cost.

We are beginning to see the benefits.

Our effective interest rate, which dropped to five 5% during <unk> 21, compared with six 4% a year ago in <unk> 'twenty.

Turning to slide 24.

As a result of the lower than expected moving rates in the second half of 2021.

And recent increases in power costs.

We now expect our total revenue and adjusted EBITDA for the full year of 2021 to be in the lower half of the originally provided guidance ranges.

Accordingly, we are narrowing guidance to corresponds to the lower half of the original ranges.

The revised guidance is therefore, $7 7 billion to 785 billion renminbi.

Our total revenue.

And 366 billion.

To $3 73 billion renminbi for adjusted EBITDA.

When we gave capex guidance at the beginning of the year.

We explained the number only included the acquisition, which we knew about at that time named.

Namely P J <unk>.

No.

Could be more M&A not included in guidance.

During the year, we made the strategic decision to accelerate our resource acquisition.

Which affect to be bring forward some future capex.

As a result, we now expect Capex for the full year of 2021 to be around 16 billion renminbi.

Compared with the originally provided guidance of around 12 billion renminbi.

Out of the 16 billion renminbi, approximately 50% will be organic which is consistent with our original estimate for organic capex.

At the end of the current year, we expect to have around 5 billion renminbi invested in capacity held for future development.

We'd now like to open the call to questions operator.

As a reminder, ladies and gentlemen, it is star followed by one on your telephone keypad. If you wish to ask a question.

To cancel your request of impressive found perhaps.

While the benefit of all participants on today's call. Please limit your questions.

But participant if you have more questions you entered the queue.

We have the first question is coming from the line of Jonathan Atkin from RBC capital markets. Please go ahead.

Thanks very much.

So I was interested in the.

The comments about the revised guidance.

Talked about kind of a slower pace of move in I wondered how does that affect your growth expectations for 2022.

And then the higher utility costs that you've mentioned.

Two the fuel.

How does that affect your margin expectations for next year.

Okay.

Yeah.

Hi, John.

You know, we don't providing guidance today for 2022.

And.

I can only make some comments about the fourth quarter and you can form your own view.

The move in.

Third quarter I said it was a few thousand square meters.

Lower than our original expectations.

In the fourth quarter is likely to be another few thousand square meters. So in that respect we will start the next year, but a few thousand square meters below where we originally expected to end this year, yes, I don't have.

A lot of bottom up visibility far into the future, but I do believe that at some point, we will see a rebound in moving activity.

Customer contracts give customers the flexibility.

How fast they move in as part of the value of outsourcing.

It's what enables customers to make commitments in advance so we always see various surround our estimates because it's not up to us its up to the customers. So we should not be surprised by this once again, we talk about the effect of higher utility costs.

In the.

The third quarter, you saw the utility cost.

As a percentage of revenue was.

Increased by more than.

One percentage point.

Partly it was seasonal part of it was due to the higher cost of backup power.

In the fourth quarter.

Seasonality works the other way.

And we no longer have a serious issues so far.

Yeah.

Relation to power cuts, but we.

Have potentially higher power tariffs as a result.

The liberalization of thermal power pricing and higher thermal power fuel costs. Therefore, we've assumed in the fourth quarter utility costs will be elevated once again, a similar percentage of revenue as it was in the third quarter. Once again I think you have to.

<unk> in their own view about how long that will last.

Yeah I'm sure. It's transitory, we all know that.

But I cant I cant predict the <unk>.

<unk> price.

Yes.

Hello.

I think that is with them as have my view I think that number one we got the feeling is that the market demand is still very strong and a lot of customer one movie that more quickly, but as Dan mentioned it did the server shipment is a problem in this year, it's a impact today.

And moving rates and also there is some that carbon into the energy shortage.

There's not a lot of customer.

A slow down there will be so we hope to this this this this element will be soft.

Asap if that's the case I think it will come to that a novel even catch up the movie right. So it's again, it's too early to say estimate next year.

Our revenue guidance, but.

But one thing is that the orders are still maintained very strong.

Thank you for that perspective, I wanted to ask about the balance sheet you touched on it in the prepared remarks, but can you maybe just kind of recap your thoughts on the future financing needs given the higher capex that you're guiding to you mentioned joint venture activities, but also kind of higher leverage so putting that all.

Together, how far into the future do you consider yourself funded and what would be some of the financing options.

Yeah.

We're always fully funded in terms of.

Capital for what we have committed to what we've.

<unk>.

We had $1 6 billion in U S dollars of cash on our balance sheet and as the third quarter. This year, which is adequate for all the things that we have.

Currently doing.

If we need more capital, yes, we do have the option of increasing leverage.

At the Holdco level, you know we have a.

Revolving credit facility, therefore, the 300 million U S dollars, which we could potentially upsides.

However, as I mentioned before.

Before.

We also think that it's a good strategy to bring in outside equity at the project level.

Like we're doing with GIC for the <unk> projects.

Yes.

You will all very well aware, there's a lot of private capital looking for.

Data center exposure and sometimes private capital comes at a lower cost in the public markets.

Do want to have a hybrid approach and we are looking actively at some possibilities to fund type structures, which would give us access to very deep pools of capital.

And potentially some in value add from partners.

So I just wanted to add.

And potentially some value add components.

Yes.

And then lastly from my side. So slide 39 gives the contract renewals and as a percentage of the square meters in service dates between looks like between 10 and 11% between now and year end 'twenty two so what is your.

Spot or expectations around the pricing around those renewals.

Yeah, John most of the renewals of.

Downtown.

<unk> sensors.

Yes.

The first thing I would note is that.

Customers are holding on to practically all of that capacity when it comes up for new will be the turn rates as being a fraction of a percent.

We've renewed.

Some contracts collapsed.

You had some down to some to some degree.

As I explained before it's not a mark to market exercise like like like it is perhaps in the U S.

For us it's a strategic decision.

The context of the overall customer relationship where we agree the renewal.

In the context of all the business that we're doing with that that customer. So I don't think you can really look at it as a as a complete a market oriented pricing.

And then John I don't think you are.

John I can add Edison because in China the different market.

Demand and supply situation is different so so.

My view is the next the renew its just that I can do sell maybe maybe.

Some market.

We'll keep the Frac sand.

Some markets maybe will increase.

Increased price, maybe somebody will gifts as our strategic customers in the ER.

A benefit and so this is a mix of strategy it depends on the a different market.

<unk> is the best execution.

Thank you very much.

Yeah.

Thank you.

Once again, ladies and gentlemen, I'd, just remind us what the benefit of all participants on today's call. Please limit your questions to two questions for participants if you have more questions.

Thank you.

We have the next question is coming from the line of Yang Liu from Morgan Stanley. Please go ahead.

Thanks for the opportunity.

Two questions here. The first one is in terms of the demand.

I guess is this is Tom that's a GDS star two.

Talk with customers, who can come off their demand next year could.

Could you please share with us in terms of the outlook from our key customers, especially internet public calls customers about the demand.

For our new data center build outs.

Because we recently observed some of your customers' capex.

Relatively low so I'm not sure if the.

Demand outlook for next year.

The second question is when.

Notice that the GDS.

<unk> closed a lot of our acquisitions.

Acquisitions in the past quarter.

Could you please update us in terms of the.

Competition.

Are those deals is it's more intense than before or a less intense and how about the valuation trend upward trend or downward trend versus a deal close to several quarters ago. Thank you.

Okay.

To answer your first question I think in that unit.

I went through.

Windsor, China convicted that a lot of our key customer in general I think the idea of maintaining that.

And.

But market structure, a little bit shift somewhat maybe some that are traditional hyperscale.

Customer slow down a little bit less in the same time, we will have to be we have saw we saw a lot of the new <unk>.

Hyperscale customer.

Customer brought more faster than our expectation so it's that in general I think data.

The demand still maintain very strong so better than market.

A little bit of shift.

To Internet and video company and E.

E Commerce company. So this is this is this is a fact when based on bi.

Communication with our key all the key customer so in general the market is still very.

Demand is still there.

Our strong and that additional week in the Dcs practice, we saw a lot of financial institution that they increased their capex.

<unk> is very surprise to us. So this year, we also get a lot of D and we got a lot of the financial institution or even bigger more bigger than before we expect so I think that this can also available still will continue.

So Dan maybe you can answer from that acquisition.

Yeah there is.

Competition for every acquisition.

We have a dedicated team we try to identify opportunities earlier.

And monitor them, yeah, there's usually a right time.

To move forward.

And we try to leverage our expertise and track record in doing acquisitions to give counterparty has a high degree of confidence in dealing with with GDS, which can be a factor not just not just amount of.

Not just a matter of price.

If you look at the acquisitions, which we've done so far this year and the ones that we've announced today.

Predominantly in and around Beijing.

And in Shenzhen.

Guangdong.

Those are the places where.

There is.

Already clearly a constraint on supply.

If not currently a constraint on supply constrained on <unk>.

New project approvals and energy quota allocation I think everyone in the industry recognizes but having developable capacity in those places.

Is going to be very advantageous because there is no organic option.

In the near future practically no.

Eric option in the near future.

Yes.

That means these kind of opportunities are highly sought.

After that there are a few other players in in China, mostly.

Private companies.

Who have the capital and appetite to pursue them.

Usually the plans that we find ourselves in competition with.

As regards multiples I want to take this opportunity to clarify what we mean, when we talk about acquisition multiples because.

Most of the recent acquisition of beam.

Development projects at various stages.

Or or pre operational.

We evaluate them in exactly the same way as we evaluate organic projects, but for the purpose of communicating with investors.

The acquisition cost in terms of enterprise value.

Plus the cost to complete.

Divided by the estimated stabilized EBITDA, that's the basis of when we talk about multiples and I will say there is no discernible change in multiples.

As I defined it.

Yeah.

Thank you that's very helpful.

We have the next question is coming from the line of Colby <unk> from Cowen and company. Please go ahead.

Hi, This is Michael on for Colby two questions. If I may 1st you noted a few times that its getting more difficult to get power approvals in certain tier one markets, but if you could unpack what's driving this.

<unk> you know what that means for the balance of acquisitions versus organic capex in those markets moving forward and then second.

You recently announced that you're entering or are you doing more in south East Asia and could you just give us some more color on what the next steps are how do you look to expand further into the region. Thank you.

Yeah.

Yeah.

Yeah.

Yeah.

Okay.

Yeah, I think if your strategy is there.

We definitely we will obtain a common quarter final itself. This is the main strategy, but at.

At the same time in the last couple of years, we also.

Based on the market demand short term demand, we should we always Ah fracs bully to acquire a lot of risk.

Swaps, because we want to catch up to our customer's demand. So this is we always used a different strategy too.

Two to fulfill the market demand.

In general we are still we have software we are driven by our organic but in the future. We also will.

To maintain this strategy.

Yeah.

The source of the issue.

Yeah.

I'll ask the second question about.

What are the steps that we're going through in terms of implementing our strategy in South East Asia.

Excuse me.

Yeah.

<unk> focus has been.

On.

The demand in and around.

Singapore as you're aware there is currently a moratorium on.

New data Center project approvals.

In Singapore.

And we found smell home market customers they have.

Very substantial appetite for increased.

The center capacity in Singapore, but which cannot currently.

Dissatisfied therefore.

We are focused on.

Coming up with a nearshore solution.

Which can address spillover demand from Singapore and act as well.

Our hub for serving the region.

Where we've got to so far is that we made.

The acquisition of land.

Tech parking in <unk>, Malaysia wishes, just seven kilometers from the Singapore border and then yesterday, we announced that we're acquiring land.

That's on the islands.

Other side of this.

Singapore from Juno, which is 25 kilometers from Singapore.

Each of those sites.

Patiently Lodge.

In terms of what we've acquired and what we've got options over to do Hyperscale developments Hyperscale.

On a scale, which cannot conceivably be done in Singapore, given given the natural geographic constraints.

Singapore.

But normally it's not only hyperscale.

Working to package these.

Our sites together with renewable power supply and multi diverse network connectivity.

Into Singapore and between the sites to create a very well.

Interconnected pop we think the culmination of Hyperscale renewable energy multi diverse network connectivity.

Price point, which is substantially below the price point of the Singapore data center market.

We will be.

Very marketable of course.

We are working on this we're having back to back conversations all the time with our customers will have mentioned today that we apply the strategic cooperation agreement with one of our largest Chinese customers, which gives us clarity and working with them to international expansion is a.

A replica of the way that we've been working with them in China for the last 555 or six years.

Where do we go next where we are looking for another site around Singapore.

Do you anticipate there.

Could be.

Relaxation of the moratorium in Singapore.

Although it may not be array right large speculating.

But it would be very strategic to to be able to establish a presence in.

In Singapore.

And then beyond that.

We would like to connect these sites into KL.

Where Chinese.

Chinese customers already have cloud availability zones.

Into Jakarta, where our customers are also already have.

Loud availability zones.

It would be.

The platform.

We are aiming to get to the kind of space and then of course that would be highly connected into into Hong Kong and China and that's as far as our as our vision extends for the time being we have made very rapid progress and.

Yes.

Months I would say, we get more excited about the scale of the opportunity there.

That.

So this represents.

The 3369 months time, I expect there'll be plenty more significant developments to report.

Yes, I would like to say, it's a super exciting opportunity for us because we.

Weird.

Push a lot of his salary it would push a lot of deep regret I love the Oh Aesop is customer southeast Asia demand to our.

Shareholder.

And then in the last five years, we saw the opportunity to step by step increase.

And we saw what do we what do we with.

We saw in CIT.

Cashew.

Deal is much bigger than before.

That's why we've made the decision to jumping to the market directly it's the right timing, we think if it's if it's like a solid like let's say six years or.

Seven years ago, what is happening in China.

And then the scale is.

Much bigger than 60 years.

Seven years ago. So I think it's it's a it's.

As a huge opportunity for us because we have to.

Huge than any.

Stronger.

Let's say an advantage in this area because number one we bring all our protect our installed based customer they have demand in southeast Asia East Asia in next three years.

It's very clear.

Very soon.

This is number one number two GPS.

Not just one product.

<unk> developed a packable to give them to solve our customers' painful in this region, which make a huge difference in the local player in the Meanwhile, we leverage our scale. We can view very low cost of data center in this region, which we believe this is a.

A huge advantage because we have the scale.

<unk> has a scale advantage so.

Yes, definitely well Super success in this region, which I believe in the next three or five years.

This is will new incremental growth. This is not calculated in our previous.

Visit plan five years visit opinion is.

<unk>.

Yeah.

Thank you.

Our next question comes from the line or Frank Bachman from Raymond James.

Great. Thank you.

Two quick questions on on the slower installations any concerns there that that you're losing any contracts or new competitors, taking share or is that any any part of that and then I wanted to go back to the renewal question asset through a different way you know looking at that 10% of renewals or any significant customer or industry concentration.

Between now and year end that could could you could add to the risk of the rent roll down.

That you might be facing.

Oh, sorry, sorry, Frank different place from where they are run.

I will answer it.

To keep it brief.

Yes, I think so.

The.

Move in which at which we say is yeah.

Lower than what we originally expected which means that we will.

We took.

Nearly 12 months ago about what our customers would be doing in November.

2021.

Yes.

It's a.

A few thousand square meters.

We don't like to talk about.

Individual customers, but I suspect that.

The reasons for it being slightly slower different from customer.

To customer.

You mentioned competition.

You say that it is actually may be the opposite of what you were thinking it is not a result of customers.

Prioritizing moving elsewhere.

We are very fortunate.

And benefit from customers, giving us the priority in terms of move and they may have several data centers.

Now with capacity available to them.

Yeah.

<unk>.

Because of our relationship.

Often benefit from customers.

Giving us.

The favor of.

Moving to our facility ahead of moving into another service providers.

The facility.

Again for renewals.

We don't when we mentioned the churn rate because.

As I like to say, it's statistically insignificant, but I think it was nine 2% last quarter. So.

Yeah, I think that tells you that there's no movement.

In the customer base.

The data centers, which are coming up for renewal I say downtown downtown means they were.

Amongst.

The first 567 that we built in Shenzhen Shanghai.

Beijing.

And the customers are holding on to that.

Pasty, so it was purely and simply.

Out of a price negotiation William talked about.

Some of the factors that we take take into account when we when they conduct that negotiation.

Okay, great. Thank you very much.

Okay.

Okay.

We have the next question from Edison <unk> from Jefferies. Please go ahead.

Yeah.

Alright, Thank you for.

That gives me the opportunity to ask a question I would just stick to one for the time being.

I think on the P. O T projects that you are doing with GIC. So the previous idea was to so 90% stick with GIC and then you called out a management fee of 10%, but right now we want to go up to 51%.

So in terms of in terms of cash flow doesn't mean that you are going to steal collect money from GIC.

That's because of political you happen to own a higher equity stake in this project and how a change from 10% to 51% change Ohio.

Prospect for these projects.

Yeah, Yeah. It is.

Youre correct.

Yes.

We have not changed.

The economic arrangement.

As a provider of management and operating services to these projects.

<unk> receives a fee, which is so happens is structured as a as a revenue share we take a certain person.

<unk> of the revenue.

And we cover.

Cover our own cost.

Operating costs directly.

The revenue share that we take.

Most of those costs and give us the margin.

So we are charging the project company is the revenue share originally.

We thought that we would be owning 10% of the project company is now around 51% so in that sense, yes, we're charging.

Yes, 51%.

Management fees being charged the GDS and 49% to.

To GIC.

Previously.

The way we were looking at this is yeah, we yeah.

Yeah, we were.

Trying to maximize management fees and minimize.

The capital will be invested we thought we could.

Do these projects just as a kind of.

Capital light.

Approach.

But then we look at the quantum of the management fees and.

It's not insignificant it's not enormous.

And then we look at the opportunity to deploy capital.

The return on that capital and enhance it with management fees and.

And we simply decided that.

It made more sense for us now better I think proud shareholders for us to take the the latter approach it so happens that.

As we start to.

Look for more different customers with these structures, we do get asked by by some customers.

To maintain a majority stake although all the customers very much like the.

The partnership approach and involvement with GIC.

It did come up.

A few times. So so that was another factor to doing it. Thank you. We have our next question coming from the line of Hong Zhang.

From CIBC.

Go ahead.

I'm, Dan management a Macquarie.

My question is that okay.

In Asia there.

Green energy cause you mentioned the presentation that.

They do more direct investments Inc.

Energy generation.

Solar panels.

So how should we outlined.

Telecom.

Impact on margin.

Yeah.

Yes, we did mention that I think that.

Strategically.

The top.

Objective.

Is to be able to invest.

In.

Some renewable power generation on an integrated basis.

With data Center development.

Yes.

That would be highly.

A highly innovative.

Around tier one markets.

You know it takes time to put together projects like that.

And time to develop them. So that's an objective, which I think will take several years to to make.

To realize it to make it to make it happen.

In the meantime, it means that.

Most of what we're doing.

Renewable energy is opex.

Uh huh.

Yeah, if you look at.

If you look at the.

Utility costs.

Clear.

Tier one markets it averages around.

65 10.

Six five renminbi per kilowatt hour.

For thermal power.

And renewable energy certificates.

Cost about one to.

The ones too.

On top of 65.

Direct purchases of renewable power.

I can only really happen in places where.

We were able to take delivery of renewable power.

As an end user.

Renewable power.

Yeah, right now I would say the premium is typically around <unk>.

<unk> so on top of it.

65.

So that gives you some idea of what.

The cost is in terms of in terms of Opex, we haven't yet made any significant.

Capex allocation.

Investment in renewable energy generation.

Yes.

Yeah.

Some of that come around that I guess.

Our customer organic depression from the Green.

Green data center or.

A carbon neutral right so deeply seen them more.

A strong passion so based on this we already talked to our customers. We believe the cost we will transfer to our customer.

Yes.

As there are no further questions at this moment I'd like to turn the call back to the company for closing remarks. Please go ahead.

Thank you all once again for joining US today. If you have further questions. Please feel free to contact <unk> Investor relations contact information on our website or the P&C group Investor Relations. Thank you all bye.

This concludes today's conference call.

Thank you all for your participation you may now disconnect your lines.