Q2 2022 GDS Holdings Ltd Earnings Call
Yeah.
Hello, Ladies and gentlemen, thank you for standing by for the GDS Holdings Ltd second quarter 2022 earnings Conference call. At this time, all participants are in listen only mode.
After management's prepared remarks, there'll be a question and answer session. Today's conference call is being recorded.
I'll 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 and welcome to the second quarter of 2022 earnings Conference call of GDS Holdings Limited.
Company's results were issued via Newswire services earlier today and are posted online a summary presentation.
Dentation, which we will refer to during this conference call can be viewed and downloaded from our IR website at investors GDS services don't call me.
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. Daniel Man.
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 Securities.
Litigation Reform Act of 1995 forward looking statements involve inherent risks and uncertainties.
Such the company's results may be materially different from the views expressed today further information regarding these and other risks and uncertainties.
It is 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 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 the call over to GDS founder Chairman and CEO .
Please go ahead with them.
Thank you.
Hello, everyone.
William Thank you for joining us on today's call.
The word is undergoing a lot of uncertainties and its very unpredictable right now for.
For the confidence in China.
Streamlined challenging year, especially.
It's really the tech sector.
Our customer and the impact it has.
Impacted by the economic slowdown.
Covid lockdown and the supply chain shortage.
This is reflected in there we can be a normal business performance and the result.
However, GTS.
Resilient and defensive.
Despite the challenges we are still delivering solid had been solved.
Growing revenue by 24% and adjusted EBITDA by 18% in the second quarter.
And at the same time, we continue to make significant progress in the execution our growth strategy by far.
Further developing our customer franchise.
Demand diversified across the cloud Internet and enterprise verticals.
That's stepping up our international expansion.
And.
Establishing a new data center phone as the channel to access private capital.
We have strengthened our position in absolute and relative terms for future recovery and the value creation.
Even in a softer demand environment. There are a few a significant significant new business opportunities.
As a result of our customer targeting and the market presents.
We are well placed to compete.
In the second quarter. We won we won three new Hyperscale orders.
The first I came from a global cloud customer, who we are already serving in mainland China.
This latest order was for our Hong Kong hold on one data center.
As a result of this deal we now have the largest global car and the largest the China call.
Our anchor customers in Hong Kong, one, which is quite an achievement.
The second award from China cloud customers for capacity at our location near B G.
We are already they have significant presents.
He is a typical land and expand order.
The seller was from a major Chinese bank for capacity in Shanghai.
Continuing the trend, which we highlighted it for the last few quarters.
Financial institutions, and large enterprise prices once again, our content and full enrollment of 40% of new bookings.
Two Q2 can be true.
During the first half.
Of this year, our new bookings was 31000 square meters.
For the full year, we are confident of achieving 70000 square meters of net additional area committed.
We may be able to do more but it depends on deal timing.
This is a transitional year.
Going forward, we still target 80000 square meter and then up to 90000 square meters of annual new bookings.
Within this number we expect a change change in the mix with <unk>.
15, 15% to 20% coming from our regional business.
GDS business and folks are tier one market.
What should we add them.
Effective at a by Lockdowns.
Nonetheless, we still achieved over <unk>.
13000 square meters of net additional area utilized.
<unk> utilized in the in the second quarter.
Based on feedback from our customers.
We expect the moving to continue.
Similar level for the next few quarters.
However in a minute.
We believe that moving were returned to historic levels.
We have a large backlog totaling 240000 square meters.
And the piece, our multi year growth.
Our backlog is solid.
Our data centers.
<unk>.
Concentrated in tier one market, where future supply is limited.
Customers have have secured this resource because it is very strategic for them.
We will continue to deliver the backlog as.
Is it just a matter of time.
Yes.
Adjusting to the current slow slower environment.
<unk> scaled down our capacity delivery schedule.
In the first half of 'twenty 2022, we promise.
<unk> thousand 516500 square meters of capacity into service.
In the second half we plan to bring another 31000 square meters into service.
As comparative with our original plan of FY 'twenty two.
<unk> pushed it back nearly 39000 square meters of completions.
Into next year and beyond.
Our whole market customers at <unk> increased.
Emphasize emphasis on international expansion.
Particularly in Southeast Asia.
We're also putting a lot of time and effort into scaling up our.
Accelerating our regionalization strategy.
In Hong Kong, we have accomplished but difficult task of establishing a five year pipeline of purpose built data center capacity classic clog.
Most of that.
Location.
Our first one data center, one with comps into service in the next few months.
It is almost sold out with Danny.
Chinese and global customers, we are now working anchor customers orders for Hong Kong.
In Southeast Asia, we have secured the hyper scale capacity at our.
Campuses in Joel, Malaysia, and Indonesia.
Indonesia.
Our campuses are now under construction.
The scale at the sales pipeline for this capacity is even stronger than what we expected.
The customer profile.
Barry across verticals and including included both Chinese and global names there.
There are a few deals which we are confident of winning this year.
Which will demonstrate strong proof of concept.
Yes.
With demand.
From Chinese and global customers Southeast Asia is one of the fastest growing growing data center market in the world.
We believe that our regional business, including Hong Kong will become our second growth engine for GDS alongside of mainland China.
As part of today's earnings release.
We announced the.
Formation.
RMB six 7 billion equivalent to USD 1 billion mainland China data Center fund.
It is important for us to have access to capital from a very very very small.
Solstice.
And the project onshore and offshore.
This data center fund will significantly enhance our financing strategy and the benefit all of our shareholders.
So finish up.
We have been strong difficult times in the cycle cycles in the past are you in the past that.
The challenge is the challenges that we are experiencing now a poor short term while data center industry is for long term.
During this time of uncertainty, we're continuing to build up our position by expansion of our customer base and enhancing our market presents both in and outside of China.
We believe we will be well prepared that both in terms of business appreciation and the financial capabilities when the recovery happens.
We remain very confident about our future.
I will now pass pass on to Dan for financial and operating reviews.
As well as to expand in more detail about the farm.
Thank you.
Starting on slide 14, where we strip out the contribution from equipment sales and the effect of FX changes.
The <unk> 20 to <unk>.
Service revenue grew by two 6%.
And underlying adjusted EBITDA grew by <unk>, 2% quarter on quarter.
Our underlying adjusted EBITDA margin was 46% compared to 47, 1% in the previous quarter.
Turning to slide 15.
Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions.
Net additional area utilized during <unk> 22 was 13659 square meters.
Around 8300 square meters was in tier one markets affected by Lockdowns.
And the remaining 5300 square meters.
<unk> projects and unaffected remote areas.
In the second half of 2022, we expect a similar level of move in as we saw during the first half.
Monthly service revenue per square meter.
Was 2265 RMB.
Down by one 4% compared to the previous quarter.
The decrease is mainly due to dilution from move in at <unk> <unk>.
<unk>.
This dilution effects will continue in the second half.
As we deliver most of the remaining.
Backlog.
However for FY 'twenty, two as a whole.
We still expect MSR to decline by around 4% to 5% year on year in line with our original expectations.
Turning to slide 16.
Our underlying adjusted gross profit margin was 59% for <unk> 'twenty two.
<unk> to 52, 4% in the previous quarter.
The extreme hot weather this fall.
This.
This resulted in a higher seasonal <unk>.
Than we normally see in the second and third quarter.
Furthermore.
<unk> Terrace, now up the maximum permitted 20% across our tier one markets.
In <unk> 'twenty to Youtube.
Utility costs was 30% of service revenue.
Compared with 28, 3% in <unk> 'twenty two.
And 26, 9% in <unk> 'twenty one.
There is no sign yet that tariffs will come down in the near term.
Therefore, we expect the combined effect of higher power consumption and higher power tariffs to continue being a drag on our margins in the second half of the year.
Turning to slide 17.
We think about our capex in three parts.
Mainland China organic.
Acquisitions.
And regional expansion.
For mainland China organic we spent $2 7 billion RMB in the first half of 2022.
Also our full year budget of 6 billion RMB.
As William mentioned, we have scaled back our project delivery. However, while capex is generally linked to capacity expansion.
There is a significant portion.
Has to be front ended.
Installation of power infrastructure at new campuses.
Accordingly, it will take time for our mainland China organic capex to come down.
We expect mainland China organic capex to be several billion lower next year.
For acquisitions in the first half of 2022, we paid just over 3 billion RMB of consideration.
We will pay another 1 billion RMB, but at the end of the year.
As of now there is no material acquisition consideration that will be payable nextgen.
For regional expansion, which includes Hong Kong, and Macau as well as southeast Asia.
We spent just over 1 billion RMB in the first half out of our original full year budget of $2 billion.
Regional Capex is likely to step up by several billion next year, given the expected new business wins.
For the whole of 2022, we will most likely still hit our original Capex guidance of 12 billion RMB before taking account of any potential capital recycling through the data center.
Turning to how we fund this capex.
We think it makes sense to take a different approach for our regional business and our mainland China business given the differences in the capital markets Investor base and valuations.
There is a lot of money chasing digital infrastructure in the region.
GDS regional as a very attractive investment opportunity.
We believe that we have already created significant value from our initiatives in Hong Kong and Southeast Asia.
Accordingly, we have set up an international holding company under GDS holdings to hold all of our projects outside of mainland China.
We will use this international Holdco as the equity capital raising vehicle for our regional business.
As a first step we intend offering a small minority stake to private equity investors, who we believe can add value.
We have started work on the process and aim to get this done in the next couple of quarters.
For our business in mainland China, excluding acquisitions, our objective is to become self financing within a few years.
With buildup in operating cash flow as more data centers reached stabilization.
Substantial front end capex already incurred.
GAAP to free cash flow breakeven is narrowing down.
Turning to slide 18.
In order to act and wholesale access to capital, which is a competitive advantage in uncertain times.
Have been considering structures, which enabled us to bring in outside equity investors at the project level and mainland China.
We find that there is strong interest, particularly among real estate investors in this kind of participation.
Further to this strategy.
We recently entered into a framework agreement with an investor which is a sovereign wealth fund for the formation of our first offshore mainland China data Center fund.
As envisaged by the framework agreement the firm, who has $6 7 billion RMB equivalent to U S dollars 1 billion of committed capital.
With 70% coming from the Investor at 30% for GDS.
The investment objective of the funds is to acquire data centers in mainland China.
Either from our own portfolio or from third parties through M&A transactions.
GDS, we'll manage these data centers under long term contracts.
We're looking to see to fund with a few projects in which we have invested significant capital but.
But which is still several years away from stabilization.
This will allow us to recycle capital and accelerate monetization.
While maintaining our recurring income model with management fees.
Our target is to complete the formation of a fund and object at least one project by the end of this year.
Meanwhile, we are also in discussions with some domestic financial institutions about onshore version of this fund structure.
These discussions are currently at an earlier stage.
Looking at our financing position on slide 19.
At the end of Q2 'twenty two we have $9 2 billion RMB or U S. Dollar was $1 4 billion of cash on our balance sheet.
And our net debt to LTM adjusted EBITDA ratio was seven two times on a consolidated basis.
However.
As shown on slide 20.
We should really look at our leverage in two different categories.
Our in service portfolio.
Which is 96% committed and 68% utilized.
Has a net debt to <unk> adjusted gross profit ratio of four two times.
As these data centers reach full utilization.
The leverage ratio or Doug will come down closer to three times.
We have another portfolio, which includes area under construction and area held for future development.
So this part of the portfolio, we believe that it makes more sense to look at the ratio of net debt to fixed assets, which is a reasonable 53%.
Once we have completed the regional equity capital raise and some capital recycling through the fund we expect our consolidated leverage to come down.
Yeah.
Turning to slide 21.
As at the end of <unk>, we had total capacity in service and under construction.
667000 square meters.
Against this.
We had total area committed by customers of <unk>.
588000 square meters.
Assuming that we deliver all the backlog.
Sellout.
<unk> inventory.
Area utilized or revenue generation capacity would increase by around 90%.
The total cost to complete all existing projects is around $9 8 billion RMB.
Our one 5 billion in U S dollars.
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 457000 square meters of pipeline held for future development.
It's land and buildings with project approvals and energy quota predominantly in tier one markets, which features which we believe is a very valuable asset.
Turning to slide 22.
After evaluating the impacts of Covid lockdowns.
And slower economic growth.
We are revising our original guidance for 2022 revenue and adjusted EBITDA.
We now expect revenue.
925 to $9 4 billion RMB.
And adjusted EBITDA of $4, two to $4 to 8 billion RMB.
Our capex guidance of around 12 billion RMB remains unchanged, but could be lower if we inject any data centers into the fund by year end.
We'd now like to open the call to questions operator.
As a reminder to ask a question. Please press star one one.
Okay.
For the benefit of all participants on today's call. Please limit yourself to one question. If you have more questions. Please reenter the queue.
Okay.
Our first question comes from Michael Elias with Cowen Your line is open.
Great. Thanks for taking the questions two if I may so first.
I just wanted to touch a little bit on the China data Center fund and get a better sense of what the mandate is.
Is this for is this really just a capital recycling vehicle of your stabilized assets or pre leased assets or is this really a vehicle for you to go and do more outside M&A. That's my first question and then second question is in the U S.
We've seen over the years.
Crying in returns for build to suit type deals and I was just wondering as we think about your <unk> projects, how would you characterize the willingness to pursue incremental BLT.
Projects and any color you can give around the return expectations there.
Yes.
Okay.
Yes. Thank you. Thank you Michael.
The mandate of the data Center fund is is actually broad.
It includes acquiring.
The data center projects from GDS at all stages of development.
And also <unk>.
Barring datacenters from third parties through M&A transactions, which were where.
Where the fund would be the <unk>.
Direct buy rather than buying from wine from GDS having.
Having said that from our perspective.
For the first phase we are focused on.
Injecting a small number of projects from our own portfolio.
In order to hit a certain level of capital recycling, we're looking at something like <unk>.
$300 million to $500 million in terms of.
Injection equity value.
And existing state.
Either by the end of this year was not by this by the end of the.
First quarter.
Thereafter, I think we are.
We're more open minded.
We consider further objections from our own portfolio and also.
To consider what opportunities there are in the market suddenly.
It's very welcome to have this fund to give us.
The reserve capital for.
Third party M&A.
Which of course, we did not have before.
Second question with them about.
Our appetite for <unk>.
<unk> type projects in remote areas like let's say given the.
Given the level of returns.
I think I think.
We did historically, we did a lot of deals.
Suite, which we think retaining its quite right but.
But in the last two years I think that metric.
A couple of that deal I mean.
Because.
Tencent getting lower.
I think.
We still will disciplined to do the business, which we think is suitable.
We have the ability to access those kind of a deal in any time, but it just depends on our option right.
So I think it gives us our position.
Thanks for the color guys I appreciate it.
Okay.
Our next question comes from Tito <unk> with Goldman Sachs. Your line is open.
Hi management, Thanks for your.
Answer two questions.
Okay.
The first one is regarding your overseas business.
In the ASEAN markets.
Especially like Malaysia, and Indonesia would you characterize it more similar to pier one.
<unk> market in China or more like <unk>.
Key projects type of that type of thing and also I believe previously our strategy in <unk> is.
<unk> go out with our <unk>.
Domestic customers, but now we see that Hong Kong data Center has also.
Secured a global number one cloud customer so wandering in the Aussie market are we open more to international customers as well and if yes how.
Do we compete with other global data center platform in those markets.
This is first question second question is also regarding the China Data Center fund.
Mentioned that you are looking at injecting some like a ramping up projects.
Wondering how do you choose from all of these different locations in tier one edge of town.
And also like project.
Okay.
And our first question.
Our rig utilization.
I think the number one how do we look at the mid range and ICT, we still maintain our strategy of timber market right. So southeast HSBC.
We know we understand the Singapore.
Ireland, Singapore market is the most attractive market in the southeast Asia, even in a work.
If I remember if I remember I mean, the simple the St. Paul.
Datacenter market is representing almost a 50% update total southeast Asia.
Because of.
That does.
The situation here in last two years symbol governance stock start to allocate it to power.
So that that means if you look at in Singapore.
Market demand is very strong from the global multinational even from China. So I think the visits.
A market for us so.
So if you look at <unk>.
Next three years in Singapore that has very very limited.
Almost zero in next three years, but if demand is still there. So our strategy is set.
Build out with data plan that call to Singapore, So I think that with future business.
Our tier one market and very clear.
Demand in next three or five years, so thats our strategy.
So we think the hour.
Yes, our data center.
Strategy SKU.
In this region.
And Hong Kong, obviously is.
Top market in Asia, right. So I think we are.
We have enlarged <unk> with builder.
Yes, with builder, it's very difficult to build that.
Land Bank and in a fair and a good location in Hong Kong.
With success.
First of all to achieve that so and then we see this demand continuing Friday.
Hong Kong is from that.
Just like what happened in Singapore et cetera.
Not only China, China from China, It's also from.
Our global so we are well positioned to catch up this churn skewed. So these two market we are very confident and I think location. It's good.
Talk about how to compare with a multinational company in this region.
I think the GTS GTS has it become.
We have it.
After 20 years, we build up our very very low cost capability to do this data center business. Nevertheless, I think we are we are more familiar with the customer we are more familiar with the region.
So in terms of the to build our market presents I think we're we have always we have still maintained a first mover in this region.
So this is number one we always take first the first move advantage, which I think this is our.
Our strength.
We are because we build a larger scale in the last couple of years. So we do have we can feel more cheaper more faster and that we could point out.
I appreciate capability more faster more a cheaper than anyone else. So that's our chairs.
So I think we are.
We think we have all kind of.
Capability to compete with any.
Our competitor in this deal in those in those regions we.
We are confident.
Okay.
Ross how do we select.
<unk> so the phone so.
Yes.
Respondents Michael earlier mandated funders.
It is very broad.
The seed projects.
We selected and propose it still has to go through a process with the investor.
We selected and proposed projects.
In a category, which we called pre call.
These.
<unk>, which.
Under construction may be a small part is in service.
Partly pre committed.
And.
At least say three years away from being complete.
Complete.
Fully stabilized at least based on.
Current projections.
So from a financial perspective.
These are projects where we.
We've already invested considerable sums of money.
Sure.
And we believe created value because the value creation comes through forming these projects and getting the customer commitments and saw.
But where we are going to be years away from having revenue EBITDA or suddenly.
For the stabilized EBITDA.
And it feels like maybe the public equity market of the value of these situations.
Our southeast Asian business either.
So for our perspective, it was kind of getting.
Hopefully the biggest bang for our Buck.
Taking these projects and recycling the most capital with the least EBITA in the next.
In the next in the next few years.
Yes, maybe that also help too.
To highlight the value.
While still having the kind of recurring.
Recurring income model going forward.
Lucy projects.
As I said before.
Open minded we may we may do we may do other types of projects that was our thinking.
For the first phase.
Okay.
I think it.
<unk> in a position to vary Frac frac cycle to access to difference.
Capital and that <unk> can more practical do more.
Valuable business and acquisition as well.
I understand thanks, William and Dan.
Our next question.
It comes from Jonathan Atkin with RBC capital markets. Your line is open.
Yes, Hi, this is <unk> on for John Thanks for taking the questions first on M&A could you comment on what you've been seeing in terms of multiples.
And seeing any movement up or down and how target rich is the M&A environment and edge of town versus say municipal sites.
And then secondly on your progress in Indonesia, and Malaysia.
Could we when could that start to become a bit of a needle mover generating revenues.
And are there any other markets in the region that you would consider or is that for now.
Keith.
Yeah.
Yes.
Okay.
Hi, Boris.
First touch will target rich I think that's a good way of putting it.
Yes.
So highly fragmented.
Markets were much bigger than.
Any other player.
But there's a long tail.
<unk> with <unk>.
Small portfolios Theres lot of companies, who are kind of like single single project companies.
So.
In theory at least.
There is a lot of potential targets.
When it comes to what is the what is the driver for doing that.
We're doing the M&A and what is the strategic rationale.
Okay.
Yes.
In the past we were right.
We're very focused on building up.
Resource pipeline.
We also.
Situations, which enhance the customer franchise.
And.
In the past also will give us scale.
Now we don't see that.
Take acquisitions Miss.
So obvious to us.
<unk>.
Whether they make whether there will be a very strong.
Strategic rationale.
So therefore that has to be a strong international financial rationale.
I can say really.
Our market multiples.
We have our own view.
View about what makes sense. It has it has to be highly accretive.
To us it's not so much about what is the market multiple.
Mix will make financial sense to us and that's why we.
A disciplined approach.
Wait wait to see those opportunities.
Which to satisfy our financial.
Natural criteria.
So Indonesia, Malaysia.
You have to wait for revenue to move to the meeting with the needle in terms of.
In terms of valuation.
Laura I think.
Yes, I think it probably apparent to many investors that we have already created value with what we've done maybe when we do the regional equity capital raising and put a value on the business.
That will illuminate.
Number.
For investors.
Also when we when we have some when we are able to announce some significant business wins, which is which is great.
Operator, I'll now before we're able to do that so.
Business wins and regional capital raising I think I would hope that that moves the needle.
Next few few months or couple of quarters at the lows.
And on the targets was that more on the edge of town arm or municipal sides or both.
Okay.
Our business.
Yes.
Sure.
But I think yes.
Okay.
We have we have the ambition to do more business globally right. So because we are.
We absolutely maintain that.
Yes.
The strongest position in China already right. So now we are seeking to.
Our beauty business outside of China as well in the same time.
Thank you.
Our step is the number one is the Hong Kong, which we did and we're well positioned now to southeast Asia, which we think.
It's good.
It's a good timing to steady but.
In the Meanwhile, we also look at other Asia market.
So we are.
We will look at it more market.
If we think timing is it.
It's Randy.
Thank you for that.
In China M&A targets in China.
I think Dave.
First is that in China, and EMEA targets are getting more I think but it.
The question is.
We feel we are we are.
We have a lot of patient with.
<unk>.
Create value for our shareholders. So now I think it is still in that transition.
The seller a lot with data as an owner.
This started to lower expectation, which we think is not still not meet our expectation. So I think we feel weight weight of product right.
Thanks for the color William and Dan.
Shannon.
Our next question comes from Yang Lau with Morgan Stanley . Your line is open.
Thanks for the opportunity I have two questions here. The first one is on the.
Demand in China, because we recently served that.
Chinese telcos their public cloud or their cloud revenue is growing rapidly well the previous companies their cloud businesses.
Slowing down so.
I would like to ask what's the management view in terms of the future demand.
Or from the cloud vendors in China, or whether the strong telco cloud being censored demand will shift to telcos and finally data center demand and we'll shift to their own data center as well.
And the second question is regarding the.
The China data center found.
GDS is also our investor or in this fund.
Could you please update us in terms of what is.
Expected the return of the phone thanks. Thank you.
Okay.
I think the China market demand, obviously in DCA slow down right. So.
So I think but.
The another another angle. So you will see the <unk> active in that.
Demand is shifting.
Shifting from the traditional.
Cloud service providers too.
I think.
Perfect very clear Chan itself, it's happened in the last couple of quarter already.
From the from the.
Traditional cost service provided to the largest deal in connects.
Company. So I think this is it gives us a shifted given the delay in the China is very clear I mean that so I think so.
That's why we if you look at it in the last two or three quarter, even this quarter our.
Internet companies Internet to all <unk>.
From the Internet and the enterprise is getting bigger and a bigger right. So this is a very clear and we are well positioned on that because we have a very broad customer base build out lots of 20 years. So.
Ed.
This is number one in terms of the.
<unk> Street telecoms cloud.
John .
Secondly, I think we notice on that but I think it did.
It is not a take over order.
Like Alibaba Tencent market share I think.
A lot of the cloud service provider.
They have a difference.
Way to calculate it.
Cloud revenue. So this is what I.
Well my understanding so I think the maybe take a little bit but not that much.
Yes, yes.
Yes.
The expected return to the fund actually.
Sure.
The fund will look at projects.
Individual project basis.
So would you expect to return is not for the fund as a whole it's for individual project investments in there of course, it will depend on on the stage of stage of development.
I can't be specific because it will it will vary from from investment project to project.
But I would just highlight that.
From our point of view structuring the fund was critical importance that we maintained our management role.
I didn't mean to suit fund manager I mean data center manager.
So the projects that go into the fund.
<unk> carry with them.
Our long term management contracts for which we will generate fee income, which is which if it works out as we expect.
Give us a profit share.
Of the project.
So as a fund investor.
We will sell to the fund and.
And equity valuation.
And then reinvest burst in the fund.
Valuation alongside the Investor so that.
The cost basis for our investment in the fund will be the same as the cost basis of one other LP.
But.
Our economics from the investment in the fund could be enhanced by a management fee.
Right.
Things workout, but it works out well of course, we would get an enhanced return from our participation in the phone plus the management fee profits.
Yes, I tried to add more color on your first question I think they did a lot of the investor concerns had more focus on that Alibaba Tencent cloud capacity call a growth, but I think it.
The one thing I think there is a slowdown not means the market slowdown.
Same.
Wait right, so what I would change it I.
Managing against this.
<unk> channel.
Already happened in last couple of quarter is switched to the Internet and enterprise debuted at the back.
Oh.
Private crop this trend is already happening.
Few quarter, maybe maybe in a few years in one or two years, but before people didn't pay more attention on that but I remember.
I mentioned that in that in the last couple of days.
Earnings call already.
Yeah.
Thanks for the color.
Okay.
Our next question comes from Frank Louthan with Raymond James Your line is open.
Great. Thank you.
A clarification and then a question.
Question.
To clarify.
Capital ingestion deals.
<unk> B and cash are the donation of facilities and then.
Good question.
How many of your data centers fit the profile of what you might donate into that too.
It can be recycled and then secondly can you quantify the impact of the power on your margins either in absolute levels of EBITDAR margin for the year.
Okay.
Yes, so Frank we will.
Sales to the fund.
100% Oc.
Equity, which we own in each project.
So thats a sale transaction, we will realize a gain we will we will book okay.
Hello.
In structuring this we are trading off.
The front end gains against.
The level of future recurring management fee income.
It is a tradeoff.
Having.
<unk> executed the sale of 100% to the fund we will take.
Take 30% of the of the sale proceeds.
And reinvest that into the fund.
So.
Affect this is releasing 70% of our equity in the projects.
Yes.
<unk>.
Plus having a continuing 30% investment.
With the management fee income.
How many of our projects.
Fitness.
Yes.
$1 billion fund, which is what we've been sidestepped performed one.
I mean, we would have no difficulty.
Yes.
Allocating tuscarora owned portfolio, if that's what it is.
That's what we chose to do.
And indeed the investor.
At this point in time as expressed appetite.
In scaling up this venture.
Picture.
It remains to be that remains to be seen but it really does depend.
For now we're just focused on this initial batch of sea projects.
That needs.
Stablish this mechanism.
And.
Recycle a certain amount of capital show show our shareholders.
Book value there is there.
Yes.
And how we can manage our manage our capital in this environment. So we're not we don't have any different plans beyond this initial fee projects.
It remains to be seen.
Sure.
Okay, and the EBITDA impact.
The EBITDA impact will be.
Minimal next year and even even the year after.
Yes, we've selected projects.
I mean, if we go ahead with these projects.
That will be stabilized based on our existing projections until.
Fourth quarter of 2025, or the first quarter of 2026.
So that means over the next.
Three years, there is a ramp up of EBIT.
In 2023, and even 2024 is not that much.
I tried to add it's not it's not.
I don't think its certainly will impact our future.
Based on our.
Spending standard.
Kevin.
Our financial position, we can do more deal right. So maybe can bring more revenue more accurately.
Mitigated by the management, yes, yes, yes.
And there is a question of what we do with the capital.
Yeah.
Our next question comes from Sara Wang with UBS. Your line is open.
Hi, Thank you for the opportunity to ask one question. So my question is on the <unk> project.
Just that those projects in Bahar about them, we'll be ready for service by 2024, and then so what's our agitation on D C regional Capex or maybe next year or <unk> 24 arguments later and then.
Also would you please share with us what's our expected date.
<unk> pricing.
The same thing about plus project. Thank you.
Okay.
Yes, So I gave I gave some numbers in prepared remarks Lisa.
Just to emphasize this is all based on.
Existing business plans look like.
Our guidance right.
What I said was that.
China organic capex, which is about $6 billion.
On the this year.
Probably come down by one or 2 billion next year.
And our regional.
Capex, which will be about 2 billion RMB this year.
Could be.
Could be forfeited RMB.
Next shift.
Yes.
Got it.
Talked about raising capital.
That's true the international Holdco for the regional <unk>.
Expansion.
And what we have in mind its stages.
Yes.
Yes.
As to raise around $300 million.
But it does depend on.
The proposals we received valuations and so on we may choose to take it.
In smaller bites.
Break it down into <unk>.
Yes.
A series of transactions.
But you will see with that level of Capex for 4 billion RMB.
We're going to need around.
200 to 300 million U S dollars.
Equity to see us through the next 18 months.
So.
Yeah.
As there are no further questions I'd like to now turn the call back over to the company for closing remarks.
Thank you all once again for joining us today.
Further questions. Please feel free to contact GDS Investor Relations Conference call.
Sites or the <unk> group Investor Relations.
Next time.
This concludes this conference call you may now disconnect your lines. Thank you.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Hum.
Okay.
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