Q1 2022 GDS Holdings Ltd Earnings Call

Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings, Limited's first quarter 2022 earnings conference call.

At this time all participants are in a listen only mode.

After management's prepared remarks, there'll be a question and answer session.

Today's conference call is being recorded I.

I'd now like to turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.

Thank you Hello, everyone welcome to the third quarter 2022 earnings conference call of GDS Holdings Limited.

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

Summary presentation, which we will refer to during this conference call can be viewed and downloaded from our IR website at investors GDS services com.

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

Mr. Dan Newman GDS CFO will then review the financial and operating results.

Ms. Jamie <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 provision of the.

Private Securities Litigation Reform 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.

Further information regarding these and other risks uncertainties is included in the company's prospectus as filed with U S. I can see.

The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Please note that todays 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.

Unaudited most directly comparable GAAP measures.

I'll now turn the call over to GDS founder Chairman and CEO .

Please go ahead William.

Thank you.

Hello, everyone. This is William Thank you for joining us on today's call.

We are operating in a difficult environment.

<unk> always having to deal with it I appreciate that tentative.

<unk>, Inc.

Including the recent Colby Lockdown in China.

Yes.

Zealand ended defensive.

We generally recurring revenues.

The pain to by long term contracts with high quality customers.

Despite these challenges I'm pleased I'm pleased to report a solid set of results for the first quarter.

We grew revenue by 32% and adjusted EBITDA by 29% year on year.

We continue to win new business.

Hi.

<unk> thousand square meters of net additional customer commitments.

We strengthened our.

Funding position by raising U S. Dollar 620 billion from our convertible bond issued two strategic investors.

And the completed a further.

But a U S dollar at $530 million.

<unk> financing.

Near term, we must deal with the challenges to the best of our.

Ability.

However at the same time, we will remain focused on strengthening our strategic position for the medium and longer term through.

Further developing our customer franchise.

Adding to our <unk>.

<unk> pipeline.

Consolidated the market market as opportunities.

And rice.

And accelerating our regional expansion.

We'll discuss results already secured.

Greater customer relationships and a proven track record we have locked in enormous growth potential.

Will materialize.

Which will materialize in the future.

Just a matter of time.

So turning to slide four.

Starting from the late late in February bested, the Lockdowns happening happened that in many areas of China, because optical beat that.

Great.

We have a total of 82 data centers in service out of which 58 have golf slow lockdown situations.

And over 30, Skus locked locked down today.

During these lockdowns around the 880 people.

Appalachian inside our data centers, including 660, <unk> employees and 220 from our customers.

Yeah.

We needed to keep our data centers in continuous appreciate while keeping the people inside a safe and healthy we never failed to deliver.

All of our data centers are running as usual without interruption.

And all the people inside that I've taken payout.

We really appreciate it every effort from our data center employees. It is also highly appreciated and recognize the power by our customers.

Turning to slide five.

The first quarter of the year is always a slower season because of the Chinese new year on top of these lockdowns also impacted the moving rates.

Nonetheless, we still achieved over one.

12000 square meters of net additional area utilized utilized full quarter.

And our utilization rates increased to 67%.

As shown on slides six and seven we have always maintained a high commitment right.

Area in service and area under construction.

We have a very large backlog.

Total rate 243000 square meters, which is equivalent to 73% of our area utilized.

It has provided us with high visibility to future growth.

Our backlog is solid our.

Our data centers are concentrated in tier one market we have.

<unk> is increasingly scarce.

Our customers need this resource.

We will continue to deliver the backlog.

As I've said and it just a matter of time.

Turning to slide slide eight.

We have scaled down our capacity delivery this year to align with the current slower environment.

In the first quarter of 2022, we brought four 4500 square meters of capacity into service and initiated one new data centers under construction.

18 phase, one which is 68% Baxter by an anchor customer commitment.

Turning to the slides nine and 10.

While delivery is slower for <unk>.

Some customers.

Still other customers.

Out there with substantial new requirements.

In <unk> 'twenty, two we booked to 18000 square meters of new commitments.

Greetings three hyperscale orders.

Who came from the existing cloud in the large internet customers.

And then the remaining one came from our new financial institution customers.

Turning to slide 11.

Continuing the churn, which we highlighted last quarter.

Financial institution.

And the largest enterprises.

Accounted for around 45% of new bookings in <unk>.

We are still confident.

Achieving our full year sales target of around 90.

19000 square meters net add.

From what we see in the pipeline that could it be large contribution for contributions from Hong Kong and southeast Asia than we thought before.

Turning to slide 12.

I have been in Singapore for the past few months, along with our CFO , Jamie we have made substantial substantial progress in our regionalization plan.

According according to Cushman and.

Wakefield.

Is that top five data center market globally, and it was one of the fastest fastest fastest growing.

We know from our whole bump to your customers how much latent demand there is for Singapore.

Currently Singapore government has elected to pursue.

Moratorium on.

Data center.

Instructions.

While it may so allowed us some muted.

Development.

Numbers clearly.

He indicated that the excess demand will have to go elsewhere.

We're one of the first mover move is to establish Hyperscale Green data center projects in close proximity to Singapore.

So to our understanding.

No significant legal constraints.

So 8% cross border.

Singapore, Malaysia and Indonesia.

Our sites are therefore, well placed to serve both as regional.

Regional hub in the domestic market.

Furthermore, we are the only player to have established projects both in your hope Malaysia to the north of the Singapore and.

Indonesia to the south.

Singapore.

The first phase of our 54 megawatt projects <unk> Tech Park Yahoo is now under construction.

To complement this site, we recently signed a partnership with <unk> power to co developed 168 megawatt of capacity.

Across and individuals.

Individuals.

Design.

Eight facility.

After the visionary <unk> Green datacenter.

Joel.

Approximately 26 30 kilometers from Singapore.

Is data center will be powered by the onside of solid generates generation.

We have completed the land purchase.

Announcer Digital Park 10, and the construction of diversification of our 28 megawatt project will start in the next couple of months.

According to the Cushman.

Wakefield.

Hong Kong is.

Top 10 data center market globally, which offers excellent network connectivity and availability of all major cloud service.

In the first quarter, we signed a beauty to suit lease for <unk> III.

Together with our existing project with SD Wan <unk> and edge capable this will give us a continuous supply of high quality data center capacity over the next five years.

All kinds of all concentrated in our.

Flavored west West the colon area.

This is an extraordinary achievement considering how difficult it is to solve for.

Software released in Hong Kong.

In Macau, we are launching the first ever carrier neutral data Center project to meet new International Internet and the digitalization requirements.

Across Southeast Asia, Hong Kong antibody call, we now have visibility for over 300 megawatts of capacity.

Our customers are very excited about this unique strategic presents.

Okay.

We expect to announce several anchor order.

To us over the course of this year.

Leveraging the strengths of our.

Franchise in mainland China, we believe that we believe that within a short period of time.

It will create significant additional value for our shareholders through regional expansion.

Now I will.

Handing over to Dan for the financial and operating review. Thank you.

Thank you. Thank you.

Starting on slide 15, where we strip out the contribution from equipment sales and the effect of FX changes.

In <unk> 'twenty two service revenue grew by two 6%.

Underlying adjusted gross profit grew by two 3%.

And underlying adjusted EBITDA grew by two 4% quarter on quarter.

Our underlying adjusted EBITDA margin.

Was 47, 1% compared to 47, 2% in the previous quarter.

Turning to slide 16.

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

Net additional area utilized during <unk> 22.

With 12545 square meters.

Around 7500 square meters was in tier one markets affected by Lockdowns.

And 5000 square meters was in <unk> projects.

Unaffected remote areas.

During the second quarter, we expect a similar level of net additional area utilized.

Monthly service revenue per square meter.

<unk> 2296, RMB per square meter per month.

Down by two 4% compared to the previous quarter.

This is mainly due to dilution from moving at POC and edge of town projects.

So FY 'twenty two we still expect MSR to decline by mid single digits in percentage terms.

One year.

Turning to slide 17.

Underlying adjusted gross profit margin was 52, 4% from <unk> 22.

Third $2 52, 5% in the previous quarter.

As a result of higher coal prices.

We are raising the ceiling on thermal power tariffs in China.

We experienced around 10% increase in unit power costs, and <unk> 22, as compared to the prior quarter.

On a per kilowatt hour basis, we are now paying around 15% more than we were a couple of quarters ago.

Thermal power tariffs appear to have stabilized at the current level.

As we indicated on previous calls we estimate that elevated powerhouse.

Have around a one to one five percentage point impact on our profit margin for this year.

However over time, we expect thermal power tariff to normalize.

Turning to slide 18.

Capex for <unk> 'twenty two plus.

$4 9 billion RMB.

Consisting of $2 2 billion organic Capex and $2 7 billion for acquisition consideration.

As at the end of <unk> 'twenty, two we had a liability of around $1 6 billion RMB on our balance sheet eras.

With respect to deferred and contingent consideration payable for acquisitions, which have closed by the end of the first quarter.

We have a further 463 million RMB for the acquisition of <unk> and 11.

Which we announced during the <unk> 22 and closed in April .

These amounts do not include the cost of buying out partner interests and a few of our projects.

Looking at our financing position on slide 19.

At the end of <unk> 'twenty, two we had $11 3 billion RMB, one 8 billion in U S dollars.

Cash in our balance sheet.

And our net debt to last quarter annualized adjusted EBITDA ratio was 7.0 times.

Our effective interest rate to <unk> 22 was for.

Four 7%.

With five 4% in the previous quarter or five 5% for the full year of 2021.

<unk> 22, we successfully raised 620 million U S dollars through the issue of convertible senior notes.

0.25% coupon and seven year tenure.

During <unk> 2002, we will reduce working capital loans, which are shown here as short term debt by around two 3 billion RMB 350 million U S dollars.

Turning to slide 20.

As at the end of <unk> we.

We have total capacity in service and under construction.

660000 square meters.

Against this we.

Total area committed by customers.

575000 square meters.

Assuming that we deliver all of the backlog.

And sell out the small amount of remaining inventory.

No area utilized or revenue generating capacity would increase by around 90%.

The total cost to complete all existing projects is around $11 2 billion RMB, one 7 billion in U S dollars.

We can finance with existing resources.

It is a relatively small amount of capex to generate a large amount of growth because we have already made most of the investment.

On top of our existing projects, we have secured another 460000 square meters of pipeline held for future development.

It's land and buildings with project approvals and energy quota.

Dominantly located in tier one markets.

Which we believe is a very valuable asset.

Turning to slide 21.

Based on our performance in <unk> 'twenty, one 'twenty two.

And what we know so far of the current quarter.

We are still on track to deliver results within our original guidance range for revenue and adjusted EBITDA.

This assumes progressive relaxation of Lockdowns over the next one to two months.

On a moderate pickup and the move in rates in the second half of the year.

We think that this is a reasonable assumption to make at this point in time accordingly.

Leaving our original guidance unchanged.

We would now like to open the call to questions. Please operator.

Thank you we will now begin the question and answer session.

I'd like to ask a question. Please press star one on your telephone and wait to be announced.

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The benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please re enter the queue.

Our first question comes from Tina <unk> Goldman Sachs. Please go ahead.

Hi, Good morning management and thank you very much for it had a.

One question from me is that.

In terms of the overseas market, especially in southeast Asia in the longer term say five to 10 years.

Big of a potential market.

It could be versus the domestic China market, and what kind of growth rate.

Can we expect from our projects in progress there. Thank you.

Yeah.

And so for US I think the southeast Asia market, mainly driven by the Chinese customer in the U S U S per year.

And when we see the future potential for the local domestic market because of the lumpy unit.

The number of the unit.

<unk> very significantly.

In this region that will.

That's indicated that future market.

Has huge potential.

In terms of the population in this area is around $600 million population conditions region.

I think the.

Over time, I think the market.

Well gross to a similar level of the challenge.

Our market, because let's say, let's say at least 50% right around 50% of the Chinese market.

That's my view.

The market is still in the early stage, it's more like <unk>.

Years ago in China and.

But at the potentials hi, yes.

So in terms of the growth rate I think the southeast Asia market is amongst the fastest.

It's growing market in the world.

Based on some.

Analyst report right. So now that total amount.

Demand in carrying to stage.

Compared with China still small but.

We should have.

Well position in this region.

So that's our.

Thank you.

Thank you William can I just have a quick follow up.

Yes.

Okay.

Yes.

Based on my understanding the current total market in Southeast Asia Southeast Asia, as a tool to sell the megawatts totally.

Existing market got it yes.

Yes. Thank you, yes, so my follow up would be.

Is our target customer also including the local and international companies.

In addition to the domestic Chinese customers and also what kind of.

Our project.

Should we expect for the southeast Asia projects.

In terms of customer I think a very clear GBS.

Methodology is sub for the all kind of customers in this region.

Of course.

Yes.

The first priority is <unk>.

Our installed based customers, which the.

Hadley.

Yes.

Implementation.

From an Asia in this region already so I can be this is our first target.

As <unk> said, we are not just a sub.

Chinese customers.

Potentially we're also.

To all the international per year and also local.

Internet and comp as well.

In terms of the returns that maybe you add some color.

Yes, I think the returns will be.

Well up to the levels.

China appropriately towards the top end of the range of what we typically achieve in China right now.

We have a favorable dynamic.

The Singapore market as is.

Very constrained.

As a very substantial amount of.

Excess demand.

In the adjacent markets.

In Malaysia and Indonesia.

Development cost.

Operating cost including power tariffs.

Essentially lower than Singapore.

We really have a very good handle on what the development cost is going to be for us.

So have a pretty good idea of what the selling price is going to be for the initial orders because of course, we've been in dialogue with.

With potential customers.

Quite some time so based on those inputs, we believe that we can offer a very competitive price.

For this.

Sure capacity.

Still generate.

The terms as I indicated which.

At least on par if not towards the top end of the range.

To achieve in China. These days.

That's very clear thank you very much.

Our next question comes from Jon Atkin of RBC capital markets. Please go ahead.

Thank you two questions. One is if the capex guidance is unchanged, but you talked about it slowing.

<unk> so.

What is the kind of the offset there.

And then on M&A M&A, just kind of your view on the M&A environment and.

How you view financing options going forward in case, you need it right away.

Yeah.

Yes.

I'll answer the questions.

So yes, that's perfect.

We gave capex guidance, a couple of months ago previous quarterly earnings.

12 billion RMB.

Yes.

During the.

Script type.

Gave a breakdown, saying that it would be.

8 billion RMB organic of which 6 billion was in China in 2 billion is in <unk>.

<unk> Kong Southeast Asia, Cyclically in mainland, China, and 2 billion in Hong Kong and Southeast Asia.

And then the <unk>.

Well, it's a $4 billion would be acquisitions and in land bank.

The acquisitions and land banking is.

A bottom up estimate.

Deals, which have already been done or is that number.

No no no.

I'll now to that 4 billion, we really incurred.

Around.

$2 7 billion in the.

For the first quarter and we have the balance of.

Payments acquisition consideration.

<unk> purchase payments, which will mainly be made in.

In the second quarter.

For the remaining.

8 billion, which is organic in mainland China.

And recently we.

We only incurred just over $2 billion out of the $8 billion in the first quarter. So that part you can say as is.

In line with our quarterly run rate.

Four quarters at that run rate.

Add up to two 8 billion.

In actual fact, because we've made.

Adjustments to the delivery schedule, which of course goes a lot of coordination with customers as well.

It takes some time for that to work its way through too.

Capex paid.

First of all we have to slow down the incurrence of Capex and then it gets reflected in the timing and amounts of Capex payments.

I think that the capex in the second half of the year could be.

Somewhat less and that will be.

First half of the year.

On the M&A.

Your question, Jonathan you were breaking up but you were saying how would we finance M&A.

Yes, you talked about the $1 7 billion that you need to to meet your current development pipeline, but if you wanted to get more aggressive on expansion or through organic growth. How do you view the financing environment.

Yes.

Well.

I'll start off by answering that we are fully financed.

Committed to already I mean, that's what's been our approach we have set aside cash.

Cash to capitalize the projects with equity and we secure project debt as early as we can in the in the lifecycle of the each individual projects and then we have some surplus resources over and above that.

If there are opportunities that we wish to pursue.

Which could be acquisitions or it could be other new business opportunities then we need to.

Obtained.

The capital to be able to pursue those.

I think that.

Even in the current environment, we have.

Very good range of options.

Hi.

Firstly.

We have to make a decision whether to do something to the public.

The capital raising or through private capital raise and then within the public and private.

The range of options.

Highlight is that.

Since 2016 when we.

<unk> in the U S.

We've done four private placements.

If you recall the cyrusone with Ping an.

Hillhouse, and then recently with <unk> and sovereign wealth fund that was.

That was equity convertible preferred and convertible bonds.

Also done two joint ventures, one with sovereign wealth fund one with.

Private equity the largest private equity firm in China.

And just recently, we announced the co development with <unk>.

<unk>. These are all in the category of private <unk>.

Capital raising for.

Accessing <unk>.

Capital privately so we did this during the six years that we've been a public listed company.

In the U S. The business fundamentals, we believe.

Still.

Very very solid.

As we keep emphasizing that.

We have very high visibility for future growth promo asset base and from our backlog.

There is very strong interest from private capital providers.

<unk> invested in this sector, particularly with with market leaders. So.

Bottom line of this is that if there are opportunities that we wish to pursue we will.

<unk> be able to access capital.

Recently on reasonable terms.

Two.

To do what we wish to do.

If I could ask one last question and so the mix the mix of the internet versus enterprise versus cloud inside of China, you talked a little bit about that.

<unk> demand and so forth, but maybe just a little bit of an update.

And what you've talked about in the script as well as last quarter.

And then if he wants to add.

Sure.

We talked last time, when we talked actually for quite a few quarters about.

Being positioned.

Their demand.

Comes from demand profile changes over time.

During last year, we saw significantly increased new business from financial institutions, both domestic Chinese.

And foreign.

We had some tremendous wins, including most of the top 10.

Global banks.

Thanks Wolfgang.

In the first quarter.

Sign enterprise business was 45% of.

New bookings in the second quarter, it will probably be.

A similar level maybe.

40%.

So.

That demonstrates that.

<unk>.

We positioned our sales effort in our asset base.

Correctly.

I'd like to add something to what we're doing on the episodes enterprise side.

Yes, I think.

Davis diversify our customer base always out.

Our goal right from.

From day, one so that's why net us catch up on any kind of big rose from a different industry.

We look back last 10 years, we start from the enterprise customer and then we catch up the Internet booming then we go to the cloud.

Yes.

Takeoff and now the demand also more balance from the cloud Internet and also the enterprise as well. So I think we are we have very very we have very solid customer base. That's allowed us to capture any kind of the demand from the from that because the bank can always change.

So the only thing that the thing.

The right thing to do just that.

<unk> always beauty Europe .

Solid.

Our customer base.

So now.

Last quarter and this quarter, maybe last quarter.

You called it I think the growth we saw the growth from the enterprise.

Financial institution, obviously, the decline a little bit of a slowdown right.

We still cannot meet our targets.

So lots.

Since last year, we already saw that chance so last year, we stopped to high more increase our salespeople.

Our salespeople.

Penetrating the enterprise customer and now we saw the efforts.

Coming in.

We did the right thing last year.

As a reminder, please limit yourself to one question. If you have more you may re enter the queue.

Our next question comes from Michael Elias at Cowen. Please go ahead.

Hi. This is just one for Michael I, just wanted to touch on the organic leasing target and you noted in your prepared remarks that you could see a little bit more coming from southeast Asia. In 2022 wondering if you can provide a little bit of color around the exact split between southeast Asia platform.

Along with mainland China and secondarily.

Your guidance does imply a step up.

In leasing to reach that 90 90000 square meter target. What are you hearing from your customers that indicate an acceleration is coming on that as part of that what level of visibility do you have in your existing pipeline for that lease income on thank you.

Okay go ahead.

Yes.

Yes, I'm sorry on the first part of the question we deliberately didn't.

Any quantification.

The split.

We can make our target number.

A number of different ways right. So it's not it's not really appropriate for us to.

Yes put put some kind of closer on orders from a particular <unk>.

A customer or a particular.

Region.

And we have.

A couple of projects.

In Hong Kong.

Where we haven't yet.

Disclosed.

<unk> custom orders and we have three major projects around Singapore, three three campuses to ensure hormone.

One at a time so that.

Five projects in total of course.

We've made these investments and.

Close consultation with al.

Leading leading customers and it has been a sales dialogue going on for a long period of time, but when we.

Actually disclose the sales order it depends on there being.

A firm commitment.

It's too hard to say right now how many of those projects will have firm commitments within this within this financial year it could be it could be.

A combination.

That's why it wouldnt really be meaningful appropriate too.

To put a number on it I think we will have.

Enough anchor orders in southeast Asia to give investors a very.

Strong feeling about call it proof of concept.

Yes.

What we're doing I think probably the most of them.

Important thing.

The second question was about.

Visibility on the 90000 are willing to add something.

Yes, I think the number one at 90000 square meter we confirm we still can achieve right we're confident of that but.

Do you think about it it's early to talk about it a little bit early to talk about it accelerates.

In general I think.

Our customer is to prepare for the future all of our customers preparing for the future growth. So we have more.

Monitor.

Our customers have been the plan.

I'm very closely so in order to well position to catch up whenever it's accelerating.

Or still maintain the current demand profile. So I think that our our goal is long.

Short term we cannot.

Yeah.

Say what happened.

Et cetera et cetera.

But still we are confident for the midterm long term right.

Demand steel will not change.

Our next question comes from Frank Louthan Raymond James. Please go ahead.

Sure.

Great. Thank you just wanted to go back to the guidance.

So when you came into the end of the year the guidance was a little bit lower.

Because of the supply chain issues your customers were having supply chain issues getting inflation now obviously they've been precluded from installing.

Lockdowns, what's the bigger factor now in your mind that if there is something that would keep you from hitting the guidance we're happy to have you.

Later this year are you confident that they do have the equipment and then gotten through the supply chain issues there'll be able to do these installations and now is it just the.

The assumption that the lockdowns will pull through or how should we think about those two factors.

Yes.

Any differences.

As the Lockdowns.

When we.

Gave guidance.

In mid March.

It was still relatively early.

Don't think anyone.

Anticipated then that's a shanghai would be and locked down for two months.

And.

I don't know how much.

Specific detail.

Investors have about the extensive.

Of Lockdowns, but what we saw was.

So as the lockdown in Shanghai, which is quite well known but also the surrounding areas.

The government I think is a proportion went into lockdown.

Thanks, Sue Province.

Then there's quite a bit of news about some restrictions in Beijing.

But.

What I see as necessary, so well known as <unk>, which is in Hubei province, just outside Beijing.

That's been in Lockdown for extended periods of time as well.

If you look at.

The page in our earnings presentation in the appendix, where we show what we call ramping up data centers ramping up data centers is where most of the move in is taking place. If you scan down that table and you just look at the number of data centers, which start with sage.

For CFS, which is trying to.

Or.

And tea, which is non tone.

That's all in the Shanghai area and surrounding area affected by Lockdown and then you look at Beijing and lifetime Lf.

You'll see a very substantial part of our.

Ramping up data centers are in the areas, which have been amongst the worst affected by.

By Lockdowns.

We may be.

Coming to the end of that right from certainly from government comments and.

When we looked at our guidance.

We assumed as I said during the prepared remarks that lockdowns come to and then progressively in the next one to two months.

And thereafter.

We assume that move in would recover to the level that it was.

Last year.

The last year.

Yes.

Not affected by Lockdowns, but it was affected by quite a number of other <unk>.

So I think if you look at the <unk>.

Quarterly move in last year student acquisitions. It was in the in the high teens in terms of thousands of square meters per quarter.

So we've assumed that thats.

In the second half of the year and then if that happens.

We will come out with revenue results within our guidance.

I think everyone.

Probably do that.

Their own cross check mathematically because.

We have given.

Direction, saying that MSR will decline by mid single digits, and we have revenue guidance. So if you divide one by the other you can calculate.

The average area utilized and then.

<unk>.

Constructive quarterly quarterly progression for that for that metric.

Thank you. Our next question comes from Coco, Harry Kevin J P. Morgan. Please go ahead.

Yeah, Hi, Thanks William.

And then so first of all on cloud one of your bigger cloud customers yesterday mentioned that they are becoming a lot more.

Selective in terms of their cloud investments.

Looking for quality growth rather than growth and make any cost could you talk a little bit about the discussions you are having with customers cloud customers in terms of how they think about growth going forward is there a meaningful step down.

And what kind of expectations do you have let's say the next three four years in terms of cloud growth in <unk>.

Currently on the FSA financial services customers.

Is there any different profile in terms of financial service customers in terms of the kind of demand that they have on the engagement models that you have.

If that becomes a significant part.

Bigger part of your revenue does that mean anything for IRR on MSR. Thank you.

Yes, I think the cloud.

Service provider steel.

A major driver main driver to drive data center demand in the groups I think.

Even they talk about.

Selected.

Pursuit.

Yeah.

The growth of the high growth rate, so I could see.

Does that mean they will.

Yes.

Slow.

Slow down.

Lets say John that the job.

Dramatically so I think the steel they maintain the two.

<unk>, 30% growth still.

Still I think.

Is the is the number.

So this is still a big number right in my view.

But on the other hand things, we talk about the demand profile a little bit change if it gets a lot of the enterprise.

Or internet giant Steve Scott to the to the hybrid.

Crop model so the demand from the.

<unk>, a little bit of shift to Chile, our end.

End user directly purchased purchased datacenter, so I think in total and from our perspective.

Total demand still maintain the similar.

<unk>.

Yes.

Size.

Compared with last year.

The demand.

Shifting from one industry to another in the U S.

That's the current churn what we saw.

In terms of the enterprise customer to finance it.

Institution.

I think the.

Traditional colo.

Demand as small size. They also represent very big demand, let's say 1000 back to southern backs a lot of the change.

Structure from the typical problem their mainframe to there.

Similar base so that demand.

Profile for each order.

He is very very big.

As you can.

SEBI Hyperscale data center.

Right. So so in terms of the price that you want to add some color.

Correct.

Semi hyperscale Wallace answer the question as upfront price as well.

Almost.

As is almost entirely untrusting if it is internally actually what we would call downtown data centers.

Unless we had continued.

To pursue this strategy.

Sourcing data centers within Beijing, within Shanghai, which we <unk>.

<unk> done.

I'm, sorry, within <unk>, which is very.

Time consuming.

In challenging.

And as we've done that we would not have been able to get this business. So it's mostly.

Downtown.

There is still a significant differential between the pricing for downtown and edge of town.

Customers.

Recognizing it.

Set.

The IRR is probably quite quite similar now between downtown and.

Downtown edge of town.

So I don't think this episodic business makes much difference throughout.

Average IRR is or two out.

<unk> operating cost structure and so on.

Thank you. Our next question comes from Joe <unk> at Nomura. Please go ahead.

Thank you management for taking my question. So actually I just saw a tightening policy trial for purely monetary and carbon emission quanta management in Beijing area. So.

We expect any.

Back to the company or industry into long term, maybe some data center they need renovation.

So.

We might lose some time.

Chuck capital to solve some issues, maybe not a whole lot.

Can you talk about that thank you.

Palin what's your question.

There was I think it was I think it was yesterday kind of thing was municipal government and DRC announced.

Implementation of the.

This years.

Monitoring of <unk> levels.

List out April 10 actions that they would take to try to increase efficiency of small smaller data.

Follow through from.

The strategy policy, which they've announced several times.

Obviously to try to.

To try to be more assertive in.

Forcing data center operations to become more efficient or even.

Creating a kind of economic pushed for older data centers shutdown. It does it doesn't affect us at all.

I mean, not negatively I mean may be positively if theres some.

Demand shifts from that natural fact, I think we've played a very constructive role with the government in helping to establish.

Established.

<unk>.

This exercise right because.

Some of it.

<unk>.

Integration to create the platform for the for the monitoring of <unk>.

Yes, yes.

Yeah, I should add onto the market.

I think it's the most efficiency data center.

I think it is.

Got it just a government asked us to do.

Some to our benefit.

No benefit to it.

Improved power efficiency is always our goal our day to day job. So just.

What Dan mentioned.

It would not.

Yes.

Okay.

Thank you. Our next question comes from Alex Wang at Iowa. Please go ahead.

Hi management.

Can you hear me, yes, yes.

Yes.

Our strong results.

<unk> from Daiwa capital markets.

On behalf of John Choi and the first question regarding all our customer.

Customer diversification as well.

Mentioned earlier.

We're trying to diversify our revenue mix towards 19 snapshot. So we have maybe a target for revenue mix from Andrew.

Enterprise.

Financial snapshot in the next one to three years.

And also we have preserved our targets of MSR mid single decline in this year and with our observation on new contracts.

In the culture.

And it really is shown by the Oaks, hence to negotiate.

However.

Contractor.

My second question is.

Regarding our capacity the injection time as we see this year, it's more back end loaded.

So.

Into the second half.

Our.

Observation on the biggest downward a risk for our capacity injection.

However, because we can see the over 80% of our capacity actually in aggregate in the second half. Thank you very much.

Okay.

Yes.

Alex.

We have sales targets of course, but from a strategy and planning point of view we don't.

Yes.

Quotas for particular customers.

The market.

I mentioned that previously.

Previously.

I don't think that would be the right approach I mean, we've tried to position to address demand.

From what we considered to be.

Strategic.

High value customer base, and we want to be in the right place at the right time to.

To capture that.

That demand.

The comments I make about MSR reflect some internal assumptions about.

Particularly about.

The.

Pricing for new contracts, which itself is reflecting the location of that capacity.

Whether its downtown edge of town all remote.

And.

<unk> also it goes into that although I would say the renewals is a pretty small part of.

Both the.

Change in MSR.

Quite a few times before that.

Overall renewals.

Close to flat.

We do have.

Some older contracts like five to seven year.

Old contracts.

Particularly.

For our first few data centers in each market. So it would be like the data center number 1234 in particular.

Market, where we had some what we would call today hyperscale customers, but at that time.

Order size was.

A few hundred square meters.

And the total volume with their business with US has increased by.

Yes.

<unk> more than 10 X.

Since then those customers typically they have downtown capacity <unk> capacity, so when those contracts come up for renewal.

Pretty small part about total contract base.

Yes.

We've seen some.

Small.

Recline.

But once you factor that in to our overall MSR.

Much is not.

Not much.

Material difference.

By far the biggest differences is the.

If the patient mix.

<unk> the edge of town projects.

So on for.

So the Capex number.

<unk>.

Look back here.

Added around.

819000 square.

Square meters.

Of capacity in service and the loss.

Per annum in the last couple of years.

And.

This year, we brought that down to around.

60000, so we've done that because of the slow moving.

In order to do that.

Have to consult with customers because as.

Also contractual delivery.

Commitments that we have to do.

We have to adhere to if you will.

Asking whether there was a risk.

The point of view of being able to execute so I think that's relatively.

Small I mean, we're not.

Affected by supply chain issues to any great extent in terms of our construction activity.

We deal with.

Supply is in a very strategic way, we place won't be cool bulk purchase orders.

They.

Produce a lot of equipment and hold it and inventory to be able to deliver to us at very short.

Notice so we don't within mainland China really experienced material issues.

In terms of.

Getting plants and equipment.

<unk>, maybe had some small effect on our construction in Hong Kong.

Just because of the.

Statistics, just fix from mainland China to.

The Hong Kong.

Yes.

Really what's driving the.

The 60000 square meter number that's more of a business decision to slowdown.

Which we bring capacity into service.

Referrals through the slow move it.

Thank you. Our next question comes from Sara Wang at UBS. Please go ahead.

Hi, Thank you for the opportunity to ask a question. So I recall during our last earnings call that managements, yet that.

Outlook into next year should be better than this year.

Given what happened so far at least do holding.

Launch next year and then what are our key assumptions for the outlook into next year. Thank you.

Sarah continent, exactly what I said.

I'm, giving you the benefit of the tax if I've said next year will be better I.

I don't know if im specifically meant year because thats a state.

All of our crew starts and then and then but I mean, clearly we're going through a cycle right everyone knows that.

And.

We will we will see.

Well both of them at some point and they will be.

Recovery.

We.

Got it.

Many quarters of historic data on the ratio.

Moving to backlog.

And.

Although there is quite a wide range.

That is held for.

A long long period of time currently we see move in tobacco ratio has fallen to a level that we had not seen historically.

Well below.

Historical levels I don't think that.

I don't think anything fundamental has changed structurally has.

Has changed I think thats cyclical and a reflection of some of the.

Unprecedented.

Factors, which are currently affecting the market.

So once that once those go away amongst we see the cycle turn.

I don't see why the year.

Historical ratio move into backlog should not.

Return.

And if that's the case, then we will see higher growth rates than were seeing currently.

Thank you that's all the time, we have for questions. So I'd now like to turn the call back over to the company for closing remarks.

Thank you all once again for joining US today. If you have further questions. Please feel free to contact GDS investor relations through the contact information on our site or the <unk> group Investor Relations.

<unk>.

Thank you. This concludes this conference call you may now disconnect.

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Hello, Ladies and gentlemen, thank you for standing by for GDS Holdings Limited first quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode.

After management's prepared remarks, there'll be a question and answer session.

Today's conference call is being recorded at.

I'd now like to turn the call over to your host Ms. Laura Chen head of Investor Relations for the company. Please go ahead Laura.

Thank you Hello, everyone welcome to the first quarter 2020 earnings conference call of GDS Holdings Limited.

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

Summary presentation, which we will refer to during this conference call can be viewed and downloaded from our IR website.

At Tds to services.

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

Mr. Dan Women GDS CFO will then review the financial and operating results.

Ms Jamie <unk> our CFO .

Available to answer questions.

Before we continue please note that today's discussion will contain forward looking statements made under the safe Harbor provision.

Private Securities Litigation Reform Act of 1995.

Forward looking statements involve inherent risk and uncertainty.

The company's results may be materially different from the views expressed today.

Further information regarding these and other risks.

This is included in the company's prospectus as filed with U S.

The company does not assume any obligation to update any forward looking statements, except as required under applicable law.

Please note that today's earnings press release.

Conference call.

Discussions on.

That's the nature of the medicine as well as unaudited non-GAAP financial measures.

<unk> press release includes a reconciliation of the unaudited non-GAAP measures.

Unaudited most directly comparable GAAP measures.

I'll now turn the call over to GDS founder Chairman and CEO .

Please go ahead William.

Thank you.

Hello, everyone. This is William Thank you for joining us on today's call.

We are operating in a difficult environment.

Everyone is having to deal with.

Dented it.

<unk>, Inc.

Including the recent Colby Lockdown in China could.

Could you ask business is resilient and defensive.

We generally recurring revenues.

And the pain to buy long term contract.

With the high quality customers.

Despite the challenges I'm piece I am pleased to report a solid set top the result for the first quarter.

We grew revenue by 32% and adjusted EBITDA by 29% year on year.

We continue to win new business wins.

Hi.

<unk> thousand square meters of net additional customer commitments.

We strengthened our.

Funding position by raising U S. Dollar 620 billion from our convertible bond issued two strategic investors.

And the completed a further.

But a U S dollar at $530 million.

<unk> financing.

In the near term, we must deal with the challenges to the <unk>.

Best of our ability.

However at the same time, we'll remain focused on strengthening our strategic position for the medium and longer term.

Further developing our customer franchise.

Adding to our.

<unk> pipeline.

Consolidated the market market.

Opportunities.

And rice.

And accelerating our regional expansion.

We will discuss.

<unk> already secured.

Greater customer relationships and a proven track record we have locked in enormous growth potential.

Will materialize.

Which will materialize in the future it.

It is just a matter of time.

So turning to slide four.

Starting from the late late in February .

City Lockdowns happen, they happen and in many areas of China, because optical beat the outbreak.

We have a total of 82 data centers in service all of them.

Which.

58 have golf slow lockdown situations and over 30 active locked locked it knocks it down today.

During these lockdowns.

880 people were escalated inside our data centers, including 660, <unk> employees and 220 from our customers.

We needed to keep our datacenters in continuous appreciate while keeping the people inside a safe and healthy.

We never failed to deliver.

All of our data centers are running as usual without interruption and.

And all the people inside that I've taken payout.

We really appreciate it every effort from our data center employees. It is also highly appreciated and they recognize the power by our customers.

Turning to slide five.

The first quarter of the year is always a slower season because of the Chinese new year on top of these lockdowns also impacted the move in rates.

Nonetheless, we still achieved over one.

12000 square meters of net additional area utilized utilized full quarter.

And our utilization rates increased to 67%.

As shown on slides six and seven we have always maintained a high commitment right.

Area, each service and area under construction.

We have a very large backlog.

Total rate 243000 square meters, which is equivalent to 73% of our area utilized.

It has provided us with high visibility to future growth.

Our backlog is solid our.

Our data centers are concentrated in the tier one market where supply is increasingly scarce.

Our customers need this resource.

We will continue to deliver the backlog.

As I said, it just a matter of time.

Turning to slide slide eight.

We have scaled down our capacity delivery this year to align with the current slower environment.

In the first quarter of 2022.

We brought four 4500 square meters of capacity into service.

This year, the one new data centers under construction.

Page 18 phase, one, which is 68% Baxter by an anchor customer commitment.

Turning to the slides nine and 10.

While delivery is slower for <unk>.

Some customers.

Still other customers out there with substantial new requirements.

In <unk> 'twenty, two we booked to 18000 square meters of new commitments.

Greetings three hyperscale orders.

Two came from existing cloud and large internet customers.

And then the remaining one came from our new financial institution customers.

Turning to slide 11.

Continuing the churn, which we highlighted last quarter.

Financial institution.

And the larger enterprises.

Accounted for around 45% of new bookings in <unk>.

We are still confident.

Achieving our full year sales target of around 90000 square meters net add.

From what we see in the pipeline that could be large contribution for contributions from Hong Kong and southeast Asia than we thought before.

Turning to slide 12.

I have been in Singapore for the past few months, along with our CFO Jamie.

Have made a.

Substantial substantial progress in our regionalization plan.

According according to Cushman <unk> <unk>.

Wakefield.

Is that top five data center market globally, and it was one of the fastest growing.

We know from our home market customers, how much latent demand there is for Singapore.

Carrington a simple governments.

<unk> to pursue.

Moratorium on.

Data center.

Instructions.

While it may so allowed us some new development.

Development.

Numbers clearly.

Indicating that the excess demand will have to go elsewhere.

We're one of the first mover move is to establish Hyperscale Green data center projects in close proximity to Singapore.

So to our understanding.

No significant legal constraints.

So Dana cross border.

Singapore, Malaysia and Indonesia.

Our sites are therefore, well paced to saw both at the regional.

The hub and the domestic market.

First of all we are the only player to have established projects. Both in your hope Malaysia should enough of the Singapore and.

Indonesia to the south.

Yes.

Singapore.

The first phase of our 54 megawatt projects <unk> Tech Park is.

<unk> is now under construction.

Company. This site, we recently signed a partnership with <unk> power to co developed 168 megawatt of capacity.

Across and individuals.

Individuals.

Design of.

Eight facility.

At envision rate <unk>.

<unk> datacenter product.

Joel.

Approximate Kennedy 630 kilometers from Singapore.

As data center will be powered by the onsite solar generates generation.

We have completed the land purchase.

Announcer Digital Park 10, and the construction of diversification of our 28 megawatt project will start in the next couple of months.

According to the Cushman.

Wakefield.

Hong Kong is.

<unk> CAD data center market globally, which offer excellent network connectivity and availability of all major cloud service.

In the first quarter, we signed a build to suit lease for <unk> III.

Together with our existing project to SD Wan edge to edge capable this will give us a continuous supply of high quality data center capacity over the next five years.

All all concentrated in our.

Flavored west West of call loan area.

This is an extraordinary achievement considering how difficult it is to solve for.

So our real estate in Hong Kong.

In Macau, we are launching the first ever carrier neutral data center project to meet new internationally in connect and the visualization requirements.

Across Southeast Asia, Hong Kong antibody call, we now have visibility for over 300 megawatts of capacity.

Our customers are very excited about this unique strategic presents.

Okay.

We expect to announce several anchor order orders over the over the course of this year.

Leveraging the strengths of our.

Franchise in mainland China, we believe that we believe that within a short period of time.

Will create significant additional value for our shareholders through regional expansion.

Now I will.

Handing over to Dan for the financial and operating review. Thank you.

Thank you. Thank you.

Starting on slide 15, where we strip out the contribution from equipment sales and the effect of FX changes.

In <unk> 'twenty two our service revenue grew by two 6%.

Underlying adjusted gross profit grew by two 3%.

And underlying adjusted EBITDA grew by two 4% quarter on quarter.

Our underlying adjusted EBITDA margin.

Was 47, 1% compared to 47, 2% in the previous quarter.

Turning to slide 16.

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

Net additional area utilized during <unk> 2002.

With 12545 square meters.

Around 7500 square meters was in tier one markets affected by Lockdowns.

And 5000 square meters was in B O T projects.

Unaffected remote areas.

During the second quarter, we expect a similar level of net additional area utilized.

Monthly service revenue per square meter was <unk>.

2296, RMB per square meter per month.

Down by two 4% compared to the previous quarter.

This is mainly due to dilution from move in.

<unk> and edge of town projects.

For FY 'twenty, two we still expect MSR to decline by mid single digits in percentage terms.

Year on year.

Turning to slide 17.

Underlying adjusted gross profit margin was 52, 4% from <unk> 20 to <unk>.

<unk> 252, 5% in the previous quarter.

As a result of higher coal prices.

And our raising of the ceiling on thermal power tariffs in China.

We experienced around 10% increase in unit power costs, and <unk> 22, as compared to the prior quarter.

On a per kilowatt hour basis, we are now paying around 15% more than we were a couple of quarters ago.

Thermal power tariffs appear to have stabilized at the current level.

As we indicated on previous calls we estimate that elevated powerhouse.

Have around a one to one five percentage point impact on our profit margin for this year.

However over time, we expect thermal power tariffs to normalize.

Turning to slide 18.

Our capex for <unk> 'twenty two.

$4 9 billion RMB.

Consisting of $2 2 billion organic Capex and $2 7 billion per acquisition consideration.

As at the end of <unk> 'twenty, two we had a liability of around $1 6 billion RMB on our balance sheet.

With respect to deferred and contingent consideration payable for acquisitions, which had closed by the end of the first quarter.

We have a further 463 million RMB for the acquisition of Shenzhen 11.

Which we announced during the <unk> 22 and closed in April .

These amounts do not include the cost of buying out partners interests in the <unk>.

Few of our projects.

Looking at our financing position on slide 19.

At the end of <unk> 'twenty two.

Had 11 3 billion RMB, one $8 billion of cash in our balance sheet.

Net debt to last quarter annualized adjusted EBITDA ratio was 7.0 times.

Our effective interest rate to <unk> 22 was four 7%.

Paired with five 4% in the previous quarter.

Five 5% for the full year of 2021.

<unk> 22, we successfully raised $620 million through the issue of convertible senior notes with a 0.25% coupon and seven year tenure.

During <unk> 2002, we will reduce working capital loans, which are shown here as short term debt by around two 3 billion RMB 350 million U S dollars.

Turning to slide 20.

As at the end of <unk> we.

We had total capacity in service and under construction.

660000 square meters.

Against this we.

Total area committed by customers.

575000 square meters.

Assuming that we deliver all of the backlog.

And sell out the small amount of remaining inventory.

No area utilized or revenue generating capacity would increase by around 90%.

The total cost to complete all existing projects is around $11 2 billion RMB, one 7 billion in U S dollars.

We can finance with existing resources.

It is a relatively small amount of capex to generate a large amount of growth because we have already made most of the investment.

On top of our existing projects, we have secured another 460000 square meters of pipeline held for future development.

It's land and buildings with project approvals and energy quota.

Dominantly located in tier one markets.

Which we believe is a very valuable asset.

Turning to slide 21.

Based on our performance in <unk> 'twenty, one 'twenty two.

And what we noticed so far of the current quarter.

We are still on track to deliver results within our original guidance range for revenue and adjusted EBITDA.

This assumes progressive relaxation of Lockdowns over the next one to two months.

On a moderate pickup and the move in rate in the second half of the year.

We think that this is a reasonable assumption to make at this point in time accordingly.

Leaving our original guidance unchanged.

We would now like to open the call to questions. Please operator.

Thank you we will now begin the question and answer session.

I'd like to ask a question. Please press star one on your telephone and wait CMA today announce if you need to cancel your request. Please press the pound or hash key.

The benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please re enter the queue.

Our first question comes from Tina <unk> Goldman Sachs. Please go ahead.

Hi, Good morning management, and thank you very much for it.

One question from me is that.

In terms of the overseas market, especially in southeast Asia in the longer term say five to 10 years.

Big of a potential market.

It could be versus the domestic China market, and what kind of growth rate.

Can we expect from our projects in progress there. Thank you.

Yeah.

And so for US I think there <unk>.

The Asia market, mainly driven by the Chinese customer in the U S U S payer.

But we see huge potential for the local domestic market because of the lumpy unit.

The number of the unit.

<unk> is very significant.

In this region that will.

That's indicating the future market.

It has huge potential.

In terms of the population in this area is around 600 million population in this region.

I think the.

Over time, I think the market.

Well gross to a similar level of the Chinese.

Our market.

Let's say, let's say at least 50% right around 50% of the Chinese markets.

That's my view.

The market is still in the early stage, it's more like <unk>.

Years ago in China and.

But as a potential hi, yes. So.

So in terms of growth rate I think the southeast Asia market is amongst the fastest growing market in the world.

Based on some.

Analyst report right. So now that total amount.

Demand in carry to stage.

Compared with China's still small but.

We should have.

Well position in this region.

So that's our.

Thank you.

Thank you William can I just have a quick follow up.

Either way.

Yes.

Based on my understanding the current total market in Southeast Asia Southeast Asia, as a tool to sell the megawatts.

Italy.

Existing market got it yes.

Yes. Thank you, yes, so my follow up would be.

Is our target customer also including the local and international companies.

In addition to the domestic Chinese customers and also what kind of.

Our project.

Should we expect for the southeast Asia projects.

In terms of customer I think a very clear GDS, our our methodology is sub Florida, all kind of customers in this region.

Of course.

The first priority is <unk>.

Our installed based customer which D.

Hadley.

Implementation.

At the business from a major in this region already so I can do this is our first target.

As you said, we are not just a sub.

Chinese customers.

We potentially will also.

To all the international per year and also local.

Internet and copy as well.

In terms of the return that maybe you add some color.

Yes, I think the returns will be.

Up to the levels.

And China appropriately towards the.

Top end of the range of what we typically achieve in China right now.

We have a favorable dynamic.

The Singapore market is.

<unk>.

Very constrained.

There's a very substantial amount of excess.

Excess demand.

In the adjacent markets.

In Malaysia and Indonesia.

<unk> cost.

Operating cost including power tariffs.

Essentially lower than Singapore.

We really have a very good handle on what the development cost is going to be for us we.

We also have a pretty good idea of what the selling price is going to be for the initial orders because of course, we've been in dialogue with.

With potential customers for quite some time, so based on those.

Those inputs, we believe that we can offer a very competitive price.

For this.

Sure capacity.

Still generate.

The terms as I indicated which.

Compare.

On par if not towards the top end of the range.

To achieve in China. These days.

That's very clear thank you very much.

Our next question comes from Jon Atkin of RBC capital markets. Please go ahead.

Thank you two questions. One is the Capex guidance is unchanged, but you talked about it slowing.

Schedule so.

What is the kind of the offset there.

And then on M&A, just kind of your view on the M&A environment and.

How you view financing options going forward in case, you needed to provide a walk.

Yes.

I'll answer the questions.

Yes.

Remind we gave capex guidance a couple of months ago previous quarterly earnings.

12 billion RMB.

During the.

Script.

Gave a breakdown, saying that it would be.

8 billion RMB organic of which 6 billion was in China in 2 billion is in.

Hong Kong and Southeast Asia 6 billion in mainland China.

<unk> 2 billion in Hong Kong and Southeast Asia.

And then.

The balance of 4 billion would be acquisitions and land bank.

The acquisitions and land banking is a.

Bottom up estimate.

Deals, which have already been done so is that number.

No change to that 4 billion we.

Already incurred.

Around.

Two 7 billion.

For the first quarter and we have the balance of the pay.

Payments acquisition consideration and land purchase payments.

Which will mainly be made.

In the second quarter.

For the remaining part.

<unk> 8 billion, which is organic and mainland China.

And recently we.

We only incurred just over $2 billion out of the $8 billion in the first quarter. So that part we can say is is in line with our quarterly run rate.

Quarters at that run rate.

Add up to two 8 billion.

In actual fact, because we've made it.

Adjustments to the delivery schedule, which of course goes.

Lot of coordination with customers as well.

It takes some.

Some time for that to work its way through too.

Capex paid.

First of all we have to slow down the incurrence of Capex and then it gets reflected in the timing and amounts of Capex payments.

I think that the capex in the second half of the year could be.

Somewhat less and it will be in the.

First half of the year.

On the M&A.

<unk> Jordan Youre breaking up what you were saying how would we finance M&A.

Sure.

Yes, you talked about the $1 7 billion that you need to to meet your current development pipeline, but if you wanted to get more aggressive on expansion or through organic growth.

The financing environment.

Yes.

Well if.

If I may I'll start off by answering that we are fully financed.

Committed to already I mean, that's what's been our approach we set aside.

Cash to capitalize the projects with equity and we secure project debt as early as we can in the <unk>.

In the lifecycle of the each.

Each individual project and then we have some surplus resources over and above that.

If there are opportunities that we wish to pursue.

Which could be acquisitions or it could be other new business opportunities then we need to.

<unk>.

Capital to be able to pursue those.

I think that.

Even in the current environment, we have.

Very good range of options.

Yes.

Firstly.

We have to make a decision whether to do something to the public.

The capital raising or through private capital raising and then within the public and private.

The range of options.

I would highlight.

The highlight is that.

Since 2016.

When we IPO in the U S.

We've done four private placements.

If you recall the cyrusone with Ping an.

With Hillhouse, and then recently with <unk> and sovereign wealth funds that was.

That was equity convertible preferred and convertible bonds.

Also done two joint ventures, one with sovereign wealth fund one with.

Private equity the largest private equity firm in China.

And just recently, we announced the co development.

<unk>. These are all in the category of private <unk>.

Capital raising for.

<unk> <unk>.

Capital privately so we did this during the six years that we've been a public listed company in the U S business fundamentals, we believe still.

There is very solid.

As we keep emphasizing that.

We have very high visibility for future growth promo asset base and from our backlog.

There is very strong interest from private capital providers.

<unk> invested in this sector, particularly with with market leaders.

Bottom line of this is that if there are opportunities that we wish to pursue we will undoubtedly be able to access capital.

Reasonably reasonable terms to be able to.

To do what we wish to do.

If I could ask one last question and so the mix the mix of the internet versus enterprise versus cloud inside of China, you talked a little bit about.

Ssi demand and so forth, but maybe just a little bit of an update.

And what you've talked about in the script as well as last quarter.

And then if we want to add.

We talked last time, what we've talked actually for quite a few quarters about.

Being positioned.

Their demand.

Comes from in the demand profile changes over time.

During last year, we saw significantly increased new business from financial institutions, both domestic Chinese.

And foreign.

We had some tremendous wins, including most of the top 10.

Global banks.

Thanks Wolfgang.

On.

In the first quarter.

Sign enterprise business was 45% of.

New bookings in the second quarter, it will probably be.

A similar level maybe 40.

<unk>, 40%.

<unk>.

So.

That.

It demonstrates that.

We positioned.

And our asset base.

<unk> correctly.

I'd like to add something to what we're doing on the episodic enterprise side.

Yes, I think.

Dr diversify our customer base always out.

Go right from day, one so that's why net us catch up on any kind of big rose from the different industry. If we look back last 10 years, we start from the enterprise customer and then we catch up the Internet booming Dan we go to the cloud.

Takeoff and now the demand also more balance from the cloud Internet and also the enterprise as well. So I think we are we have very very we have very solid customer base. That's allowed us to capture any kind of the demand from the from that because the bank can always change.

Yes.

So the only thing that the thing.

The right thing to do just that.

Beauty always beauty.

Solid.

Our customer base.

So now some slots.

Last quarter and this quarter, maybe last quarter.

Not a few quarters I think the the growth we saw the growth from the enterprise.

Financial institution, obviously declined a little bit of a slowdown right.

We still cannot meet our targets.

So lots of.

Since last year, we already saw that churn so last year, we stopped to high more increase our salespeople.

Our salespeople.

Penetrating the enterprise customer and now we saw the effort.

Coming in.

We did the right thing last year.

Thank you.

Please limit yourself to one question. If you have more you may re enter the queue.

Our next question comes from Michael Elias at Cowen. Please go ahead.

Hi. This is just one for Michael I, just wanted to touch on the organic leasing target in <unk>.

<unk> in your prepared remarks that you could see a little bit more coming from southeast Asia. In 2022 wondering if you can provide a little bit of color around the exact split between southeast Asia Slash line.

Along with mainland China.

And secondarily.

Your guidance does imply a step up.

In leasing to reach that 90 90000 square meter target.

Are you hearing from your customers that indicate an acceleration is coming on that as part of that what level of visibility do you have in your existing pipeline for that lease income on thank you.

Okay go ahead.

Yes, I'm sorry on the first part of the question we deliberately didn't.

Provide any quantification.

The split.

We can make our targets.

There are different ways right. So it's not really appropriate for us to.

Yes put put some kind of closer on orders from a particular type of customer or a particular.

Region.

Have.

A couple of projects.

Hong Kong.

Where we haven't yet.

Disclosed.

Custom orders and we have three major projects around Singapore, three three campuses two interval and one in.

One at that time, so thats five projects in total of course.

We've made these investments in <unk>.

Close consultation with our.

Leading leading customers and it has been a sales dialogue going on for a long period of time, but when we.

Actually disclose the sales order it depends on there being.

Firm commitments.

It's too hard to say right now how many of those projects will have firm commitments within this within this financial year it could be it could be.

A combination.

That's why it wouldnt really be meaningful appropriate too.

To put a number on it I think we will have enough anchor orders in southeast Asia to give investors a very.

Strong feeling about call it proof of concept.

As to what we're doing I think it's I think that's probably the most of them.

Important thing.

The second question was about.

Visibility on the 90000 that William would like to add.

Okay.

Yes, I think number one at 90000 square meter we confirm we still cannot achieve right. We're confident of that but if you think about it. It's early to talk about it a little bit early to talk about it accelerates.

In general I think.

Our customer is to prepare for the future all of our customers preparing for the future growth. So we are we are.

Monitored.

Our customers have been the.

Plan very closely so in order to well positioned to catch up whenever it's accelerating.

We still maintain the current demand profile, so I think that our our goal is long.

Short term we cannot.

Okay.

Yes.

Hey.

Et cetera et cetera.

But still we are confident for the midterm long term right the demand steel will not change.

Thank you. Our next question comes from Frank Louthan Raymond James. Please go ahead.

Great. Thank you just wanted to go back to the guidance.

So when you came into the year the guidance was a little bit lower.

Because of the supply chain issues your customers were having supply chain issues getting inflation now obviously they've been precluded from installing.

The lockdowns.

The bigger factor now in your mind that if there is some.

That would keep you from hitting the guidance or have you lower. It later this year are you confident that they do have the equipment and have gotten through the supply chain issues that will be able to do these installations and now is it just.

The assumption that the lockdowns will pull through or how should we think about those two factors.

The main differences.

The lockdowns.

I think when we.

Gave guidance.

In mid March.

It was still relatively early.

Think anyone at.

Had anticipated then that Shanghai it would be in locked down for two months.

And.

I don't know how much.

Specific detail.

Investors have about the extensive.

Of Lockdowns, but what we saw was.

As the lockdown in Shanghai, which is quite well known but also the surrounding areas.

The government I think as a proportion.

Into Lockdown Xinjiang suite.

Province.

Then there's quite a bit of news about some restrictions in Beijing.

But.

What I see as necessary, so well known as <unk>, which is in Hubei province, just outside Beijing.

That's been locked down for extended periods of time as well.

If you look at.

The page in our earnings presentation, and the appendix, where we show what we call ramping up data centers ramping up data centers is where most of the move in is taking place.

Scan down that table and you just look at the number of data centers, which start with sage.

For CFS, which is trying to.

Or.

And tea, which is nantong.

That's all in the Shanghai area and surrounding area affected by Lockdown and then you look at Beijing and limestone Lf.

Youll see a very substantial part of out.

Ramping up data centers are in the areas, which have been amongst the worst affected by.

By Lockdowns.

We may be.

Coming to the end of that right from certainly from government comments and.

When we looked at our guidance.

We assumed as I said during the prepared remarks that lockdowns come to and then progressively in the next one to two months.

And thereafter.

We assume that move in would recover to the level that it was.

Last year.

The last year.

<unk>.

Not affected by Lockdowns, but it was affected by quite a number of other <unk>.

So I think if you look at the <unk>.

Quarterly move in last year, excluding acquisitions. It was in the in the high teens in terms of thousands of square meters per quarter.

So we would assume that thats.

In the second half of the year and then if that happens.

We will come out with revenue adjusted within it within our guidance.

I think everyone can.

Probably.

Do their own cross check mathematically because.

We have given.

Direction, saying that MSR will decline by mid single digits, and we have revenue guidance. So if you divide one by the other you can calculate.

The average area utilized and then.

<unk>.

Constructive quarterly quarterly progression for that metric.

Thank you. Our next question comes from Coco, Harry Kevin J P. Morgan. Please go ahead.

Yeah, Hi, Thanks William.

And then so first of all on cloud one of your bigger cloud customers yesterday mentioned that they are becoming a lot more.

Selective in terms of their cloud investments.

For quality growth rather than growth and make any cost could you talk a little bit about the discussions you are having with customers cloud customers in terms of how they think about growth going forward is there a meaningful step down.

And what kind of expectations do you have let's say the next three four years in terms of cloud growth in <unk>.

Currently on the FSA financial services customers.

Is there any different profile in terms of financial service customers in terms of the kind of demand that they have on the engagement model that you have.

If that becomes a significant part.

Bigger part of your revenue does that mean anything for IRR on MSR. Thank you.

Yes, I think the cloud.

Service provider steel.

A major driver main driver to drive data center demand in the groups I think.

Even they talk about.

Selected.

Pursuit.

<unk>.

The growth the high growth rate.

I mean.

Did that mean they will.

Yeah.

Slow.

The slowdown.

Lets say John that the job.

Dramatically so I think the steel they make TD I think two.

<unk>, 30% growth.

Still I think.

Is that number.

So this is still a big number right in my view.

But on the other hand things, we talk about the demand profile a little bit of change it gets a lot of the enterprise.

Or internet giant stop to the to the hybrid.

Crop model so the demand from the.

A little bit of shifting to the hour.

Our end.

And users to directly purchase purchased datacenter, so I think in total and from our perspective.

Total demand still maintained at.

Kimberly Ross.

Size.

Compared with last year.

The demand.

Shifting from one industry to another <unk> <unk>.

That's the current churn what do we saw.

In terms of the enterprise customer financing.

Institution.

I think the idea of not traditional colo.

Demand.

They also represent very big demand, let's say whats all going back to southern backs a lot of deep against the change there.

Structure from the typical from the mainframe to there.

Some are based so that demand.

Profiles for each order.

Very very big.

You can call it.

Semi hyperscale data center.

So in terms of the price that you want to add something.

Correct.

Semi hyperscale as well as answer any questions upfront.

As well.

Is it almost done.

Is it is almost entirely on crushing it is entirely actually what we would call downtown data centers.

Unless we had continued.

To pursue the strategy of sourcing data centers within Beijing within Shanghai, which we have done.

I'm, sorry, I'm within <unk>, which is very.

Time consuming.

In challenging.

And as we've done that we would not have been able to get this business. So it's mostly.

Downtown.

There is still a significant differential between the pricing for downtown and edge of town.

Customers.

Recognizing it.

Set.

The IRR is probably quite quite similar now between downtown and.

Downtown edge of town.

So I don't think this episodic business makes much difference throughout.

Average IRR or two out.

<unk> operating cost structure.

And so.

Thank you. Our next question comes from Joe <unk> at Nomura. Please go ahead.

Thanks management for taking my question, so actually I just saw a tightening policy trial for purely monetary and cover additional quota management in Beijing area. So.

Should we expect any.

Parts of the company or industry into long term, maybe some data center they need renovation.

So.

We might lose some time.

Chuck capital to solve such issues.

Can you talk about that thank you.

What's your question.

There was I think it was I think it was yesterday or something was municipal government.

<unk> announced.

Implementation of the.

This years.

Monitoring of <unk> levels.

April 10.

Actions that they would take to try to increase efficiency of small smaller basis.

It's a follow through from.

The strategy policy, which they've announced several times.

Previously to try to.

<unk> tried to be more assertive in.

Forcing data center operators to become more efficient or even.

Creating a kind of economic pushed for older data centers to shutdown. It does it doesn't affect us at all.

Negatively I mean may be positively if there is some.

Demand that shifts from that.

And natural fact, I think we've played a very constructive role with the government in helping to establish this.

This exercise right because.

Some of it.

<unk>.

Integration to create the platform for the monitoring of <unk>.

Yes, yes.

Yeah, I should add onto the market.

Do you guys think.

It's the most efficiency data some of it.

I think it is.

Not just the government asked us to do.

Some of our benefit.

So that doesn't point to.

Improved power efficiency always our goal our day to day job. So just like what Dan mentioned.

<unk>.

Yes.

Thank you. Our next question comes from Alex Wang at Iowa. Please go ahead.

Hi management.

Can you hear me, yes, yes.

Yes.

Our strong results.

<unk> from Daiwa capital markets.

On behalf of John Choi.

The first question regarding all our customer.

Customer diversification.

Mentioned earlier.

We're trying to diversify our revenue mix towards 19 snapshot. So we have maybe targeted for revenue mix from <unk>.

Enterprise and.

Financial snapshot in the next 12 months.

Two or three years.

And also we have observed your targets of MSR of Middle single point decline this year and with our observation on new contracts.

In the first culture.

Is there any reason is shown by the Oaks, hence to negotiate.

However.

Contractor.

My second question is.

Regarding our capacity the injection pattern as we see this year is more back end loaded.

So.

Into the second cargo what's our.

Observation on the biggest downward a risk for our capacitor injection.

However, because we can see the over 80% of our capacity actually in aggregate in the second half. Thank you very much.

Okay.

Yes.

Alex.

We have sales targets of course, but from a strategy and planning point of view we don't.

Yes.

Quotas for particular customers or particular markets.

I mentioned that previously.

I don't think that would be the right approach I mean, we've tried to position to address demand.

From what we consider to be.

Strategic.

High value customer base.

And we want to be in the right place at the right time to.

To capture that.

But that demand.

The comments I make about MSR reflect some internal assumptions about.

Particularly about.

The.

Pricing for new contracts, which itself is reflecting the location of that capacity.

Whether its downtown edge of town or remote.

And renewals also it goes into that I'd say, the renewals is a pretty small part of.

Both the.

Change in MSR.

Quite a few times before that.

Overall renewals.

Close to flat.

We do have.

Some older contracts like five to seven year.

The old contracts.

Particularly for.

For our first few data centers in each market. So it would be like the data center number 1234 in particular.

Market.

We had some what we would call today hyperscale customers, but at that time the.

Order size was.

A few hundred square meters.

And the total volume their business with US has increased by.

Yes.

<unk> more than 10 X.

Since then.

Those customers typically they have downtown capacity <unk> capacity, so when those contracts come up for renewal so.

Pretty small part about total contract base.

Yes.

We've seen some.

Small.

Decline there.

But once you factor that in to our overall MSR.

<unk> much.

Not yet.

Material difference.

By far the biggest differences is the.

The patient mix.

Projects the edge of town projects.

And so on for the Capex number.

If you look back.

Added around.

890000.

Square meters.

Of capacity in service and the loss.

Per annum in the last couple of years.

And this year, we've brought that down to around <unk>.

60000, so we've done that because of the slow moving but in order to do that we have to consult with customers because there's.

Also contractual delivery.

Commitments that we have to.

So we have to adhere to.

We're asking whether there was a risk.

The point of view of being able to execute so I think that's relatively.

Small I mean, we're not.

Affected by supply chain issues to any great extent in terms of our construction activity.

We deal with.

Supply is in a very strategic way, we place what we call bulk purchase orders.

Hey.

Produce a lot of equipment and hold it and inventory to be able to deliver to us at very short.

Notice so.

Within mainland China.

Experience material issues.

In terms of.

Getting plants and equipment.

<unk> maybe.

Maybe.

<unk> had some small effect on our construction in Hong Kong.

Just because of the.

Sophistic, just sticks with mainland China or Hong.

The Hong Kong.

Yes, so that's not really what's driving the.

The 60000 square meter number that's more of a business decision to slow down the road.

Which we bring capacity into service.

Rick was true of the slow and move it.

Yeah.

Thank you. Our next question comes from Sara Wang at UBS. Please go ahead.

Hi, Thank you for the opportunity to ask a question. So I recall during our last earning call that managements yet that.

Outlook into next year should be better than this year.

Given what happened so far at least your holdings.

But next year and then what are our key assumptions for the outlook into next year. Thank you.

Sarah continent, exactly what I said.

I'm, giving you the benefit that helps if I've said next year will be better I.

I don't know if im specifically meant year because thats a state.

All of our crew starts and then and then but I mean, clearly we're going through a cycle right everyone knows that.

And.

We will we will cycle will both of them at some point and they will be.

Recovery.

We.

Got it.

Many quarters of historic data on the ratio.

Moving to backlog.

And.

Although there is quite a wide range.

That is held for.

A long period of time currently we see move in tobacco ratio has fallen to a level that we have not seen historically.

Well below.

Historical levels I don't think that I don't think anything fundamental has changed structurally has.

Has changed I think thats cyclical and a reflection of some of the.

Unprecedented.

Factors, which are currently affecting the market.

So once that once those go away amongst we see the cycle turn.

I don't see why the year hits.

Historical ratios move into backlog should not.

Return.

And if that's the case, then we will see higher growth rates than were seeing currently.

Thank you that's all the time, we have for questions I'd now like to turn the call back over to the company for closing remarks.

Thank you all once again for joining US today. If you have further questions. Please feel free to contact <unk> investor relations through the contact information on our site or the <unk> group Investor Relations.

<unk>.

Thank you. This concludes this conference call you may now disconnect.