GDS Holdings (HKEX:9698) Q3 2020 Earnings Call

0:00 Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura. Thank you. Hello, everyone. Welcome to the 3Q20 earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire Services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investorsgdsservices.com.

0:53 Leading today's call is Mr. William Huang, GDS founder, chairman, and CEO who will provide an overview of the business strategy and performance. Mr. Dan Newman, GDS CFO will then review the financial and operating results. Ms. Jamie Koo, our COO, is also available to answer questions. Before we continue, please note that today's discussion will contain forward-looking statements. made under the Safe Harbor provisions of the U.S. Private Securities Education Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be maturely different from what is expressed today.

1:41 Further information regarding these and other risks and uncertainties is included in the company's prospectus as filed with the U.S. SEC. The company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that today'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 comparable debt measures. I will now turn the call over to GDS founder, chairman, and CEO, Mr. William Huang. Please go ahead, William.

2:29 Hello, everyone. This is William. Thank you for joining us for today's call. Two weeks ago, our shares started trading on the Hong Kong Stock Exchange, opening a new chapter for GDS. I'm pleased to say that we achieved all of our objectives for the Hong Kong IPO and the secondary listing. We attracted a high level of demand from new investors, including strong participation from China. We significantly strengthened our equity base with over 1.8 billion US dollars of net proceeds.

3:14 adding to our competitive advantage in terms of financing. We established a liquid market in our shares in Hong Kong to complement trading on NASDAQ. And last but not least, we raised our profile and the reputation among customers, government, partners, and investors. which help us to attract more business and secure more resources, further strengthening our market leading position. Meanwhile, our business continues to perform strongly. During the third quarter of 2020, we added nearly 24,000 square meter or 46 megawatt of new customer commitments.

4:09 During the first nine months of 2020, Our organic net add was over 72,500 square meters, more than we did in the whole of last year. In order to maintain our sales momentum, we added over 100,000 square meters to our secure development pipeline, including greenfield land for a major new edge of town campus near Shenzhen. We grew revenue. by 43% and adjusted EBITDA by 48% year-on-year, and our EBITDA margin remained at 47%.

4:56 At the beginning of this year, we targeted 100,000 square meters of annual net assets consisting of 80,000 square meters organic. plus 20,000 square meters from the Beijing 10, 11, 12 acquisition, which was pending closing. Today, we are clearly on track to achieve around 98,000 square meters of organic sales, plus 27,000 square meters from M&A, including nearly 80,000 square meters from a new acquisition in Shanghai during the current quarter. This gives us over 120,000 square meters net added for 2020, representing 20% of performance.

5:52 Looking forward to FY21, we believe that the current level of organic sales is sustainable. Furthermore, with the potential acquisition of Beijing 14, which we announced in September, we already have visibility for another 20,000 square meters of M&A next year. As you can see from our disclosure, there is a consistent pattern of three to five hyperscale orders every quarter. Each of these orders represents a major development by one or other of our top customers. These developments are often planned in multiple phases to be delivered over several years.

6:46 This gives us a strong foundation for our future sales. Turning to slide seven, over the past few years, We have made a lot of progress in developing meaningful relationships with fast-growing new customers. We had exciting breakthroughs, which we announced last quarter with ByteDance and PDD. We are actively pursuing multiple hyperscale opportunities with these two domains. China's internet sector continues to produce very large companies which emerge very quickly. Typically, they begin by using the major public clouds. However, as they develop, they also start to deploy their own private clouds and they require all sorts of data center services.

7:50 This is where we see incremental opportunity. Given extensive present of cloud service providers in our data centers and the multi-market platform. We have a unique value proposition in hybrid cloud. We are also starting to see financial institutions deploy hybrid cloud. We have a well-established customer base of over 230 financial institutions. as they evolved their IT architecture from the mainframe to server, we anticipate significant incremental opportunity. Over the past five quarters, we have stepped up our construction program from 84,000 square meters to 135,000 square meters of active developments.

8:48 At the same time, our pre-commitment pre-commitment rates have remained solidly over 60%. We have talked repeatedly about why a secure development pipeline is a critical success fact. During 3Q20, we added over 30,000 square meters to our area held for future developments. and during the fourth quarter, we have added another 70,000 square meters. We now have a total of over 400,000 square meters secured and we will continue to add aggressively over the next few quarters. It really is that important.

9:42 Turning to slide 11. Following the success of our edge of town strategy in Beijing and Shanghai, we made a very significant move to set up a new edge of town campus in the Great Bay Area. We have acquired from the local governments a greenfield site in Huidong, around 24 kilometers from the edge of Shenzhen. It is one of the key areas identified for data center development in the new infrastructure plan recently published by Guangdong province. Once fully developed, the site will yield a net floor area of approximately 72,000 square meters, according to the initial design.

10:37 We established our edge of town campus in Langfang, near Beijing, in Chukuo, in 2Q19. In less than 18 months, we have initiated nine data center projects and secured over 67,000 square meters of customer commitments. In 3Q20, we initiated our non-fung nine data center, which contributed a 25 megawatt new order. We also added to our land bank with the acquisition of Langfang Landside Street and further land acquisitions are in progress.

11:24 On the edge of Shanghai, we have two locations, Kunshan and Changshu. During 3Q220, we leased three adjacent buildings in Kunshan. with a total developable next floor area of 16,000 square meters. The first of these buildings, which we call the is undergoing conversion. Turning to the slide 14, we announced two M&A deals during 3Q20, which added to our capacity in the urban area of Beijing.

12:14 Today, we are announcing a new acquisition in urban Shanghai, which we call the Shanghai 19. It has total developable net floor area of 12,800 square meters, of which 7,900 square meters is complete and fully committed The total acquisition and development cost, including cost to complete, is 778 million RMB. It's an attractive acquisition with good terms. We will continue to pursue this kind of opportunity, which adds to our presence in key downtown locations.

13:06 With that, I will hand over to Dan for the financial and operating review. Thank you. Thank you, William. Starting on slide 18, where we strip out the contribution from equipment sales and the effect of FX changes. In 3Q20, our service revenue grew by 14.1%. Underlying adjusted gross profit, which we previously called net operating income, grew by 12.7%, and underlying adjusted EBITDA grew by 12.5%, quarter on quarter. The Beijing 10-11-12 acquisition closed on June 5th, 2020.

13:52 Excluding the contribution from this acquisition in both the second and third quarters, our service revenue grew by around 8%, and our adjusted gross profit grew by around 7%, quarter-on-quarter. Turning to slide 19, service revenue growth is driven mainly by delivery of the committed backlog. Net additional area utilized during 3Q20 was 16,589 square meters, continuing the recovery we saw in 2Q20. We expect similar levels of move-in in the fourth quarter. was 2,519 RMB per square meter per month.

14:42 Without Beijing 10, 11, 12, it would have been slightly higher at 2,533 RMB. Turning to slide 20, our adjusted EBITDA margin remained around 47%, and we're still benefiting to a small extent from government concessions. Turning to slide 23, up to the end of September, our capex year-to-date stood at 6.6 billion RMB. In 4Q20, we expect another 3.4 billion RMB of capex, including acquisition consideration for Beijing 9, Beijing 13, and the new Shanghai 19 deal, and payment for the Langfang and Huidong land.

15:32 This is what gets us to our 10 billion RMB CapEx guidance. Up to the end of September, we had paid cumulatively 640 million RMB of CapEx for managed BTS bill to suit projects that we intend transferring to GIC. During 4Q20, we expect to transfer the first project by way of selling 90% of the equity of the project company. The proceeds will reverse a small part of the capex, while the assets and liabilities of the project company will be deconsolidated. Looking at our financing position on slide 24, pro forma for the cash proceeds of the Hong Kong IPO, we have 18.7 billion RMB of cash on our balance sheet, and our net debt to EBITDA ratio is 1.2 times.

16:29 Given our ongoing levels of organic and inorganic capex, and assuming the Beijing 14 acquisition closes in 1Q21, this ratio will go back up to around four times within a couple of quarters. As in the past, we will allocate and reserve cash to capitalize new investments in our business plan, and we'll then leverage those investments to ensure an efficient overall cost of capital. Given William's comments about the sales outlook and the importance of adding to our land bank and our ability to keep on generating attractive acquisitions like our recent deals for Beijing 13, Beijing 14, and Shanghai 19, we will not be short of opportunities.

17:20 While we are not changing our financing approach, we will strive to enhance our debt capital structure. We have an aggressive plan to refinance a substantial portion of our existing onshore R&B denominated project debt to achieve longer tenors and lower cost. We have multiple refinances going on right now with 10 to 15-year terms, back-ended repayment profiles, and all in costs of below 5% based on the current loan prime rate. Finishing on slide 26 with our revised guidance. For the full year of 2020, we are raising the bottom end of our original guidance for both revenue and adjusted EBITDA and keeping the high end unchanged.

18:11 We now expect total revenue to be in the range of 5.7 billion to 5.75 billion RMB and adjusted EBITDA to be in the range of 2.66 to 2.67 billion RMB. The updated estimates imply an increase of 38.3% to 39.5% year-on-year in total revenues and 45.8% to 46.4% year-on-year in adjusted EBITDA. Our capex guidance of 10 billion RMB for the full year remains unchanged. We'd now like to open the call to questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session.

19:02 If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. But if you wish to cancel your request, please press the pound or hash key. For the benefit of all participants in today's call, please limit yourself to one question. Your first question on cue comes from the line of John Atkin from RBC. Please ask your question, John. Your line is now open. Thank you very much. I'm interested on the commercial front. What are you seeing in terms of customer demand on the hyperscale side? Are they wanting to maybe think about building more of their own capacity going forward? And if so, does that affect you at all?

19:52 and are the internet companies that up till now have been pursuing a cloud first strategy, is there any trend that you're seeing where they're beginning to shift their IT onto their own equipment and perhaps signing deals with data, more frequent deals with data center companies such as yours? Thank you. So John, this is William. The first question is, the customer built by myself. So far, we didn't see any change right now. I think especially in a tier one market, which we focus, we didn't see any change. The second question is... Internet companies using data center companies to host their own private clouds.

20:45 Yeah, there's very, very significant changes. I see a lot of the large internet companies, their IT became more complicated. So they used to use the cloud when they grew up. during their growth period. Now it looks like more and more they use the hybrid cross strategy. So that's why we see this is very, we are very excited for the future demand from this portion. Thank you. And maybe just a brief one for Dan as we kind of think about the drivers for 2021, what you're seeing in terms of your development pipeline, what you're seeing in terms of your late stage sales pipeline, what are the kind of factors to keep in mind as we think about top line growth and then what the EBITDA contribution might be for 2021?

21:42 Thank you, John. We made some comments today to set initial expectations for our sales organically and potentially inorganically next year. I think this is higher than what we've said previously. If you're talking about revenue and EBITDA next year, of course that lags the sales by at least one year to two years. What we can look at there as a kind of indicator is how much new capacity is coming into service because the capacity which we have under construction is 60% to 70% pre-leased, pre-committed.

22:39 So as new capacity comes into service, that means that there's potential to deliver significant incremental backlog. In 2020, New capacity coming into service is being pushed to the fourth quarter. You'll see there's a significant amount of new capacity coming into service in the fourth quarter of this year. And then we laid out the delivery schedule in the earnings presentation. You see there's over 50,000 square meters of new capacity coming into service in the first half of next year. Typically, after new data centers come into service, Not much happens for the first quarter. It takes a couple of quarters before the movement starts to build up. But I think that this quantum of new capacity coming into service will increase what we call the backlog related to area and service.

23:35 And then that will flow through to further step up in the quarterly net addition to area utilized, which drives Revenue. We talk about EBITDA, then it becomes a matter of the MSR trend and the margin, which I'm sure some of your colleagues are going to ask me about at the moment, but maybe I'll answer now. I think the MSR is going to continue to decline very slightly, as it has been doing. Over a period of time, it seems to average out at around 1%. and we've discussed the factors behind that.

24:20 It's not indicative of what's happening to returns. In fact, it may be contrary to what's happening to returns. EBITDA margin has increased significantly this year. It's still slightly elevated due to the benefit we received from government concessions. I think next year, the target to achieve maybe another one percentage point and Yixin Qian. I say target because we also have in our plan quite a number of corporate initiatives around smart data centers, around ESP, around renewable energy, branding, corporate communications and so on.

25:08 So, there will be some increased costs associated with that. in due course there will be increased return from that expenditure. But I'm just a little cautious on margins next year because we do plan to increase our corporate expenditure. Thank you very much. Your next question on cue comes from the line of Colby. and Xiaoyang from Colvin. Colby, please ask your question. Your line is now open. Okay, great. Thank you. A few, if I may. 1.8 billion in proceeds from the Hong Kong listing, obviously quite a bit.

26:00 Has this changed the company's view on market expansion? Are you intending or focusing on going into more markets in China? perhaps with the new proceeds or just given where you're seeing demand go. And then also as part of that, you're interested in going outside of China with new builds. And then my second question, just quickly, you mentioned the opportunity to refinance debt. You have a variety of different, I guess, refis in process. Can you give us an idea of what the total interest expense savings is? you think you might be able to achieve when all is said and done? Thank you. Kobe, I answer the first question. I think definitely we raised $1.8 billion net proceeds. I think this is to show our view, our ambition in the next five years.

27:00 I think we see a tremendous demand in the inside China and also overseas like Southeast Asia and Hong Kong. I think even in China, we believe there's more new market will come in, become more important, except our previous four key market. So I think we do have the plan to expand our business, still strengthen our business Again, more market share in the current tier one market. Also, we do have a very, very solid plan to move to some new important market in China. But in the meanwhile, as we talked during our roadshow Hong Kong IPO, we do see a lot of the solid demand from our install base is in Southeast Asia expansion. So this is, we have actively developed those business plan.

28:06 So that's why I think that we are quite exciting at this moment to look forward to the next couple of years. William, do you think that we could see you going outside of China in 2021? It's too early to say. We will actually develop the plan and evaluate all the demand and evaluate all the business partners in Southeast Asia. I think maybe in the near future, maybe the beginning of the next year, we will tell you guys what exactly the plan is.

28:52 I don't want to say too early, it's too early to say, but I can tell you we activate the capacity right now. Yeah, hi Colby. If we just isolate out the refinancing part of what we're doing, I would say that the cash interest saving is several hundred million RMB per annum. In terms of how it gets reflected in our accounts when we refinance. In some cases, we have to write off the amortized portion of front end fees that we've incurred on the initial financing. So it may not become immediately apparent in the first half of next year that we have reduced the effective interest rate.

29:45 But if you give us a few quarters, I think it will become apparent later. next year. Then in addition to refinancing, there's the incremental financing, which I believe we'll be able to do on these better terms. It's a significant improvement on what we've been doing in the past. It's a continuous improvement, but it's not that long ago that we were doing project financing at an all-in cost of around 7%. The facilities we've got in execution right now will work out around 5% or even less. Got it. Thank you very much.

30:33 Your next question comes from the line of Gokul Hariharan from JP Morgan. Gokul, please ask your question. Hi. Thanks for taking my questions. First of all, now that we are developing a bigger and bigger edge of town portfolio, in at least the three main locations. Could we talk a little bit about how is the demand looking at the city center, the more older data centers versus what you are developing at edge of town? Are we seeing any kind of differences in terms of demand, be it power density or other requirements? Second is, I think 2020 seems to be the year where CapEx, a lot more of the CapEx is being spent on inorganic.

31:26 As we think about the next couple of years, how should we think about organic versus inorganic? Do you feel that inorganic is going to be a bigger portion of the capital outlay as we think about the next couple of years and some of the opportunities that you've talked about? I think the first one is demand for the downtown data centers. Yeah, I think the very direct answer is the demand for the downtown, let's say Edutown, right? More central. More central, still maintained very strongly. So I think that's why we keep acquiring the Edutown data center. when we also defected the edge of the campus. So this strategy will continue.

32:18 We will build our large-scale, high-scale campus in the edge of the town. In the meanwhile, we will still continue to build a data center and acquire the data center resource in an urban town. So the demand is very clearly very strong. Yeah, I'll just read. Yeah, go ahead. Go ahead. There's a difference in demand. That's all. It's the same customers. Yeah. Maybe a typical architecture is the edge of town site is a hub, which will then be connected to a number of downtown sites. So downtown is the edge. I know we call it edge of town in terms of the customer's architecture. Downtown is the edge, and the edge of town is the hub.

33:22 Downtown, as you know, is really challenging. We have to be creative to create new resource, and we've done a number of acquisitions to give us large quantities of new supply in Beijing and now Shanghai. It would be easy to abandon downtown because it is so challenging and time consuming, but then we would be failing our customers. It's part of the value that we provide to our customers that we have a total solution, both the edge of town and the downtown, and in all markets. So your question about organic versus inorganic, and William made a comment that current year's run rate for organic is going to lead us to around 95,000 square meters.

34:25 I know William said 98,000 square meters, but... it wasn't Freudian, it's 95,000 is where the math comes out. And William said that next year we can say already that that kind of level is sustainable and we have visibility to that because we have a certain quantum of multi-phase audits which already give us highly servicing new business next year and even and even the year after. So the inorganic part is mainly driven by our desire to create more capacity downtown. In each market, there are a number of independent project developers. They always have been and they continue to be and we monitor them.

35:17 The Shanghai 19 acquisition which we're announcing today is a case in point. It's a company, it's a project that we've been aware of in Shanghai. They reached a stage of completion where we were able to move forward and make the acquisition. We've been aware of this project and a number of others from inception. That's why we have a pipeline. That's why I believe that we can sustain M&A at the current levels as well. Beijing 14 is not a done deal yet. We haven't entered into definitive sale and purchase agreement.

36:03 If that goes ahead as we plan, then it will give us 20,000 square meters of M&A for next year already and more than 12 months to do some more deals. Got it. Understood. Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. For the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, you can re-enter the queue. Your next question on queue comes from the line of Tina Hu from Goldman Sachs.

36:55 Tina, please go ahead and ask your question. Hi, management. Thank you for your time. If I may just ask one question, then it would be I think, William, you mentioned in your presentation that you've been pursuing multiple hyperscale opportunities with ByteDance and PDD, so I was just thinking if you could provide more colors on that. What location these projects may be? Is it edge of town, downtown, or built to suit, and then the sort of expected timeline that these can be decided and come online, and also maybe in like three to five years, what kind of revenue contribution do you see from these two customers? Thank you.

37:45 I think number one, I think we start to build our business relationship with these two new logos. It starts from last quarter. I think given the time, we do expect to build a more strong relationship with them. And I think according to their current position in China, our resource platform, our data center platform in China, which is quite unique, and it will create a lot of value for those kinds of customers in the future. I think those customers, their demand is urban-town plus edgy-town, high-scale both, right? So I think we are well prepared for echo their future demand already. So I think we are confident we will have more business with them. So the time is too early to talk to some detail because it's, We are communicating with those kinds of accounts very, very closely. So I think I'm very confident to get some new deals from them in the near future.

39:02 Thank you. Your next question comes from the line of Frank Luthan from Raymond James. Frank, please go ahead and ask your question. Great, thank you. I wanted to just ask a more general question, talking about demand and how things may have changed a bit. And in particular, the digitization trends that you would have seen, say, a year ago, now that the dust has settled a little bit, can you characterize what sort of the pace of those trends are with end users in China now versus what they were and how much that may have accelerated?

39:50 Yeah, Frank's asking the difference we've seen in digitalization trends. Yeah, Frank, when you asked me to respond, it's hard to isolate the difference that going through the COVID periods has made. Clearly, not just in China, but around the whole world, we were all required to adapt and adapt to new technology so that we could work from home and do everything from home, do IPOs from home.

40:41 And that's accelerated the structural shift. Our dialogue with our customers, and New Business is based on at least, say, their three-year forward plans. So what happened doesn't get reflected in some short-term change. But clearly, New Business has gone to a higher level, and I think that doesn't just reflect our success, but it reflects there's more opportunity in the market. And definitely now, some of this is being driven by 5G. particularly say IoT and smart city type applications both for and also for enterprise customers.

41:37 Yeah, I think the trend is not only triggered by the COVID, right? I think it's the logic is that the whole logic is in China, the digitalization is overwhelming to evolve. And I think the cloud, as we mentioned again and again, cost in the early stage. So we will see in the next five years, cloud players still will be the major key driver to drive the data center demand. In the meanwhile, as I just mentioned, I think a lot of the new internet, large internet companies still be produced in China, like a big company, quite so like PDD, right? If you look at the last five years, they are nothing, right? Now they became a $10 billion company, more than $10 billion company.

42:33 And I think this is, so that means the internet is still a defect and a penetrated to different segment, penetrated to different vertical industry. So I think that there's still a, a big space for the internet company to grow. So I think this will do, and now there's a lot of internet companies start to use, not just using public cloud, they're using the adopted to hybrid cloud architecture. This will trigger a lot of cloud demand plus a lot of data center code or high-scale data center demand. So I think we are very confident. In the meanwhile, I just mentioned that like the traditional financial institution class enterprise.

43:27 They also start to transfer their architecture from the traditional architecture to the cloud-based, hybrid cloud-based. So this will create another wave of the demand for data center. In my view, there's three drivers, cloud, internet, enterprise. In the next five or even 10 years, we'll be the key driver to drive the demand. So that's why we raise such big money, and we try to catch up, echo this wave, right? But I will add a little more. As Dan mentioned, 5G. It's just an implement right now, but we believe in up to two years, 5G will trigger more IoT stuff, will trigger more new applications, and also will be another potential key driver to drive the data center demand.

44:36 What are some of the key applications you think that come out of 5G? What are you seeing right now? Yeah, I think there's a lot of the, so far, I think it's too early to talk about it, but you will see a lot of the IoT stuff. We talked to a lot of the traditional industry. They all talk about IoT stuff, and I think the very clear 5G will drive their new application to implement to all the supply, all the very chain, this is the very chain. including the traditional manufacturing and the traditional retail, traditional industry. So I think this is not very clear now, but the market is talking about a lot of the development right now.

45:27 All right, great. Thank you very much. Your next question comes from the line of James Wang from UBS. James, Your line is now open. Good morning, management. Congratulations on a good result. So first question from me is, I remember in the second quarter result, Dan mentioned there were a few locations that experienced some delays in activation of power supply. So I'm just wondering whether these are resolved now. And maybe a broader question on this is, as the number of projects under construction grows, is it getting more difficult to execute with the same level of precision as the past and then there may be more slippage in capacity delivery over time. And then my second question is about the Huidong project.

46:16 Just wondering whether how supply has already been secured for that project and also what sort of customers you have in mind for that location. And also we're hearing, for example, there's potential overbuilding parts of Guangdong so perhaps a bit more color on the demand and supply situation in that particular region as well. Thank you. Okay, thanks James. The reference I made was actually just to a couple of sites. We can control to a large degree the construction but the provision of the power infrastructure and the activation of power depend on supplier and sometimes there's some Small delay.

47:04 But that was fixed, I think, by the end of September. It may happen from time to time, but it adds up to a few months. A few months matters, particularly when we have delivery schedules for customers, but life can't be perfect, right? So the degree to which this affects us is pretty small. Your second comment, though, is very apposite. I think we have the largest data center construction program in the world. I tried to benchmark it against some other very well-known large-cap global players. It looks like we have almost double the amount of capacity under construction.

47:49 And operationally, Execution is difficult. There's lots of challenge, lots of complicating factors. I'd like to stress this as you brought it up because I think generally maybe analysts and investors underestimate this when they talk about competition and people's plans. It's easy to say it. It's not easy to do it. But we've been scaling up for 10 years. We started with three data center projects. We went through 10 years of increments, and now we have around 20 projects more or less permanently under construction. So I think we've shown that we can handle this efficiently and keep execution issues down to a minimum. Your last question about Pidong, we bought the land from the government. That means that the deal.

48:48 the deal was to acquire the land and together with the government's commitment of the carbon quota, the right to use the power capacity and to coordinate with the state grid to provision the power supply. The land is actually located in an industrial park which is actually called a data center Park. So it's an established location from that respect. Overbuild, oversupply, well, we've always heard that, right? Meanwhile, our commitment rate is 95%, and our pre-commitment rate is 60% or 70%, which you won't find at any data center company in the world, which has that level of commitments and pre-commitments. A site like this It's actually very close, we said, to the edge of Shenzhen, right?

49:53 It will be first in queue and very attractive to hyperscale cloud. So we'll announce an anchor customer in one or two quarters. Right. Thank you. Thanks, Ben. Your next question on queue comes from the line of Edison Li from Jefferies. Edison, please go ahead and ask your question. Hi. Good morning, management. Thank you very much for taking my question. I guess the number one is about your comment on the growth in hybrid cloud demand. And I suppose that the hybrid cloud demand is going to come more from enterprises rather than large-scale Internet companies.

50:45 So does it mean that your proportion of retail in the business is going to go up? I know that you guys don't want to try to distinguish between wholesale and retail, but I'm just trying to get a sense of the breakdown of the demand coming from large internet giants and traditional enterprises and how that's going to impact your pricing and also your utilization rate going forward. So I think the demand profile, as I just mentioned, the key demand still will be the cloud service provider in the short term. But we do see the internet company, since they adopted their architecture to the hybrid cloud, I think the demand will be more are growing more fast. In terms of the enterprise customers, as everybody knows, the enterprise customer, their self-sleep time is longer than other Internet companies and cloud players right now. And we do see the change of their architecture. So we see some solid enterprise customers, very solid demand from some of the large

52:20 financial institutions. So I think this will be the trend. Number one, this is the trend. Number two, I think in the short term, the demand still will be there. Number one, cloud. Number two, internet company. the number three is an enterprise customer. So in terms of the new enterprise customer demand, development, I can tell you that four years ago we had this 350 customer name, right? But now we have almost 700 yet today, right? Almost 700. That means we have doubled our customer number.

53:07 The number is mainly driven by the enterprise customer. We never stop to develop a new customer in an enterprise area. So we will still continue to develop. And the good thing is that they are not traditional enterprise. They start to use the hydrocarb. We think that we will get the benefit from next few years. Yeah, Edson, you're right. We use hybrid clouds in reference to large internet companies, which maybe sounds pretty unusual. But that's what we're seeing. It reflects the range of applications and data that they have, the range of their requirements. For example, video streaming might rely more on, say, CDN, for which they will use a public cloud.

53:59 but there could be other business areas, other data and applications which requires large concentrations of servers in which case they put that on their private cloud and then there's traffic migrating between the two. So I think it is right to talk about hybrid cloud with reference to the opportunity with large internet customers. We haven't provided any I hesitate to do so, but on a three to five year basis, we do aim to increase the proportion of, we call it retail, financial institution and enterprise from where it is today.

54:44 And that's despite what we expect to be the continued very high volume growth from cloud and internet. Thanks, Stan and William. Can I ask two follow-up questions? Number one is, For these traditional enterprise customers, do they have more demand or do they want more to be in the core tier one cities or are they happy to be at the edge of town locations? So how does that impact your capacity expansion plan? And number two is that if you have more of these traditional enterprise customers on the retail basis, does it mean that Your utilization rate will likely ramp up more slowly than before because you need to go out and find these enterprise customers in a retail model.

55:39 Yeah, you're right on that last point. The enterprise deployments are mainly downtown. There may be a limited number, which in the kind of 1,000 square meters plus order size, which could go to edge of town. We do see some order size like that, but it's not yet part of our customer mix for edge of town. So I think, yeah, the enterprise business does require downtown, and the sales cycle is longer, and it's more are all intensive. We are increasing our sales resources to cover that segment.

56:32 But we also have a lot of follow-on sales potential with our established customer base. Our 700-odd customers is 250, almost 250 financial institutions in that mix. And that's been filled up over more than 15 years. We were the first mover in providing business continuity and disaster recovery. A very high-quality customer base there, and there's a lot of potential, particularly as they start to change their IT architecture to make new sales to those long-established customers.

57:19 Okay. Yeah, that's great. Thanks for the comments. Okay. Your next question comes from the line of Hongjie Li from CICC. Hongjie, please ask your question. Thanks, Benjamin. I have one question. On the power supply, I saw we have multiple pipelines for next year in our construction program, especially in Long Song. So how do you see the power supply over there? Will the power supply impact our delivery? And also in other urban areas and edge towns, except for they are government vouchers. They have other ways to guarantee our power supply over there.

58:04 Thanks. Sorry, your line was really unclear. I was just checking with Laura. Maybe we could hear what your question was. She said on the power supply in Longfong. Power supply in Longfong? Will that affect our delivery next year? Okay. I think Longfeng is a city that has some limited power capacity, number one. But number two is we are first mover in Longfeng. We definitely secured the power capacity for the future development. I think this is our first mover advantage. The power supply will not impact our delivery in a long-term area in the next couple of years.

58:58 Is that your question? Okay. Once again, if you wish to ask a question, please press star 1 on your telephone. and for the benefit of all participants on today's call, please limit yourself to one question. Your next question comes from the line of John Choi from Daiwa. John, please ask your question. at Management. Thanks for taking my question.

59:44 I have a quick question related to your, I think initially, management, you guys mentioned about your ESG efforts, you know, like next year you'll spend a bit more and I'll buy you still able to expand on 1% EBITDA margin. I think, you know, with the recent carbon neutral initiative by the government, you know, what is our plan for on the renewable side and how will that impact our, you know, our cost in terms of developing, and would that have any impact on our MSR? And just quickly on Dan, I think you mentioned about the app was inorganic. It seems to me that inorganic has been stepping up since the past 12 months. Is it because the projects are being more mature in the in-town cities or the prices have been coming off? Is there any trend that you could share with us?

1:00:30 Thank you. Hi, John. Frank? Thanks for initiating. I think John is the most recent one to initiate on GDS. Very good report, if I may say. We'll publish our first ESG report next year. And until then, I don't want to come out and set any expectations because I think there's a lot of irresponsibility in this area where companies talk about and others. We've established a team.

1:01:17 We have and we are enhancing our expertise in the power sector to try to manage this better. It requires ingenuity and creativity to be able to increase the proportion of our data centers which use renewable energy. And we're working hard to do that and take it very seriously. You said the inorganic proportion seems to have stepped up. And we've done, I think, with the Shanghai 19 acquisition which we announced today. That was the 11th acquisition which we've done since I think the second quarter of 2016 was the first M&A deal. There's been around two deals per annum.

1:02:11 Some of those deals have been larger. For example, one of the deals in 2019 was Beijing 10, 11, 12. So it's like three data centers. And the deals that we've done in 2020, like Beijing 13, was 20,000 square meters. We hope soon to announce that we've been able to upscale that quite significantly. And Beijing 14, which hopefully will move forward and sign definitive agreements and close next year, it's also 20,000 square meters. So I think we're still doing around two deals per annum. And I hope to maintain that, if not more.

1:02:59 made a comment about acquisition multiples. We're seeing two kinds of M&A opportunity in terms of stage of development. Most of our deals have been projects which are under construction, or at least when we sign the sale and purchase agreement, there is still a substantial amount of work to be done to complete those projects. and in that case we've been buying projects at single digit multiples of estimated stabilized EBITDA factoring in what we pay and the cost to complete.

1:03:46 Shanghai 19, you can kind of do the math from what we've disclosed, definitely fits into that category. But then there have been a couple where we've acquired data centers which were already complete and as I mentioned before, there's more competition for those kind of opportunities, including from financial investors. We will do those deals when we see very strong strategic rationale. Of course, the multiples are double digits now, but I'm interested to see when the REIT market in China develops, which won't be long now. in respect to data centers. I'm interested to see what kind of cap rate data center REITs will command.

1:04:33 My expectation is it's going to be way below the level at which we've done our deals, even the more advanced or mature deals. Great. Thank you. As there are no further questions, I'd like now to turn the call back over to the company for closing remarks. Thank you everyone once again for joining us today. If you have further questions, please feel free to contact EDS Investor Relations through the contact information on our website or Tiasante Group Investor Relations. See you next quarter.

1:05:20 Thank you, presenters. This concludes this conference call. You may now disconnect your line. Thank you.