Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's 4th Quarter and Full Year 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Quarter. After management's prepared remarks, there will be a question and answer session.
Today's conference call is being Quarter. I'll now turn the call over to your host, Ms. Dora Chen, Head of Investor Relations for the company. Please go ahead,
Dora. Thank you. Hello, everyone. Welcome to 4Q and full year 2020 earnings quarter. The company's results were issued via newswire services earlier today and are posted online.
Quarter. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investors gdsservices.com. Leading today's call is Mr. William Huang, GDS's Founder, Chairman and CEO, quarter will provide an overview of our business strategy and performance. Mr.
Dan Newman, GDS's CFO, will then review the financial and operating results. Quarter. Ms. Jamie Ku, 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 Litigation Reform Act of 1995. Forward looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different quarter from the views expressed today. Further information regarding these and other risks and uncertainties is included in the company's perspective quarter as filed with the U.
S. SEC. The company does not assume any obligation to update any forward looking statements, quarter, except as required under applicable law. Please also note that GDS earnings press release and this conference call quarter includes discussions of unaudited GAAP financial information as well as unaudited non GAAP financial measures. Quarter.
GDS's press release contains a reconciliation of the unaudited non GAAP measures to the unaudited most directly comparable GAAP measures. Quarter. I will now turn the call over to GDS Founder, Chairman and CEO, William Huang. Please go ahead, William.
Thank you, Laura. Hello, everyone. This is William. Thank you for joining us on today's call. GDS has been on an extraordinary journey quarter.
The data center market in China has grown beyond imagination And digitalization took off, our growth trajectory has been unprecedented President in the data center world. We have become the clear market leader, Reaching a scale which is multiple times bigger than our closed competitors. Quarter. We have the best customer relationships, the most complete market presence, quarter by far the largest development pipeline, the strongest balance sheet, quarter. The lowest cost of capital and the most important of all, an unmatched reputation which reflects quarter.
Many years of consistent delivery and high operating standards. As we look forward from today, we see wave after wave in up incremental demand, quarter, driven by new technologies such as 5 gs, AI, cloud and IoT, quarter supported by highly favorable government policies. The market opportunities in front of us is incon quarter? Seapable. While others are just waking up, we are moving rapidly quarter ahead to reinforce our market position by innovating with products quarter and business models, deepening our strategic customer relationships, adding quarter substantially to our pipeline of scarce resource in Tier 1 markets, enhancing our platform quarter by entering new markets in China and overseas, seizing opportunities to further quarter.
Consolidates the market and the groundbreaking green initiatives. We have only just begun to reap the rewards of our past efforts. 2021 will mark our 2020 anniversary. Full quarter? For me personally, GDS is still at an early stage of development and over the next few years, quarter.
We will take the business to another level. Despite the difficult quarter operating environment last year. We made a tremendous progress over the past year across every aspect quarter of our business and have met or exceeded our expectations. First of all, we beat our sales target adding over 136,000 square meters or 271 megawatts of new customer commitments. We expanded our data center capacity quarter, in line with sales, adding nearly 140,000 square meter in service and under construction.
We added significantly to our development pipeline, quarter ending the year with 480,000 square meters secured for future development. We stepped up our M and A activities, closing 4 deals with Over 50,000 square meter of capacity. We grew revenue by 39.2 percent and adjusted EBITDA by 47 0.0% year over year. Our adjusted EBITDA margin quarter came out nearly 2.5 percentage points high at 46.7%. We've raised US2.4 billion dollars of equity and successfully completed our Hong Kong IPO.
Quarter. Turning to our sales achievement on Slide 6. Quarter. At the beginning of the year, we targeted 80,000 square meter of organic net add plus 20,000 square meter from acquisitions pending closing. We over delivered by a big margin, quarter achieving 100 and 8,000 square million of organic net added, Including 14,000 square meter from BOT project and nearly 28,000 square meter from M and A.
Quarter. Looking forward to 2021, we believe that the current level of organic booking is sustainable At around 90,000 square meter to 100,000 square meter of net add. Excluding BOT data centers, For the M and A part, we already have over 19,000 square meter net added in progress from the Beijing 15 acquisition, which is a pending closing and we aim to close more deals this year. Turning to Slide 7. Every quarter, a handful of high scale orders account quarter for a large part of our sales.
These must win deals are typically major deployments at our Edge of Town campus. Hyperscale customers look to land and expand in key locations. For cloud service providers, these locations are often configured as discrete Availability Zoom, which are critical to their IT architecture. Quarter. We are very strategic in targeting the first piece of business when customers deploy to a new area.
We have succeeded many times in attracting high scale customers to establish an initiative presence on our side. It requires close collaboration with customers, the right resource Wherever they are going and undoubted Reputations for delivery and operations. As a result of winning the first deployment, quarter? We have high visibility for a substantial amount of new business in 2021 and beyond as customers deploy additional fees quarter on our sites. Turning to Slide 8.
While we maintain greater relationships quarter with our top customers. Our customer base now extended to almost all of the high growth, hyperscale names in China. We had exciting breakthrough last year and we are working on more. Quarter. The growth potential of some of our new customer newer customers is extraordinary.
We are highly focused on quarter deepening these relationships and there are significantly new business opportunities in the pipeline. We have established a high level of trust with our customers, provided we have the right resource. Quarter. We have an edge in winning new business. In the eyes of our customers, GDS is not just an asset player, But a total solution provider, we have built our platform to mirror our customers' requirements quarter end market presents.
This fundamentally differentiates us from other players. Quarter. Turning to the Slide 12. It is clear that customers must continue to Located their mission critical latency sensitive data center in Tier 1 markets. Customers target less than 5 mile seconds latency to core network nodes quarter.
And between AZs, which imposed a distance limited of up to 100 kilometers around the urban center. It is also clear from years of government policy said that the supply of suitable land and power in Tier 1 markets We'll remain limited, not just in the urban areas, but also in the surrounding edge of town locations. We recognized this year ago years ago and made a huge effort quarter to secure sufficient resource to underpin our growth in all Tier 1 markets. As of the end of the 2020, we had secured 480,000 square meters of deferrable next floor area distributed across the key markets. Most of it is land we have purchased From the local government together with an allocation of power.
This is a very valuable asset Assets and another fact which sets GDS apart. We are not stopping at the current level. Quarter. We have some big land deals in the pipeline and will further strengthen our position. Sustainability is an integral part of our resource strategy.
The whole of China is grappling with this and it is not an easy problem to solve. Quarter. We are working on a range of innovative solutions to source as much green power as we can. Quarter. We are doing green power trading whenever possible and purchasing green certificates.
Quarter. We are also working on working with partners to evaluate co investing in green power projects directly in the future. In 2020, over 20% of our total power consumption was green. In 2021, quarter. This ratio will go materially higher.
We aim to publish our first ESG report quarter? Later this year, we will set up targets and the roadmap, which are realistic quarter and achievable based on deep analysis. Quarter. In addition to the existing Tier 1 markets, we believe that some new Tier 1 markets will Emerge in the next few years, particularly as a result of 5 gs And the need to push computing closer to the edge. Chongqing is an example.
It has been on our radar for a while. We bought land there early last year. We are now building our 1st data center on the site, backed up with an anchor order in 1Q 2021. We are looking at another emerging Tier 1 market driven by customer demand. Over the next 5 years, we couldn't enter 10 new markets in China.
Turning to the Slide 14. Over the past few years, an increasing number of data center projects Have been started by independent developers whose objective is to sell. Quarter. As a result, we see a window of opportunity to consolidate the market. Quarter.
We have an M and A track record like no other, having done 10 deals in the past 5 years. In 2020, we stepped up our efforts. We previously announced that quarter. Shanghai 19 and Bijay 15 acquisitions. Today, we are announcing 2 new deals, Both of them are data centers under construction, but not yet committed by customers.
They will give us highly marketable resource in their respective markets. We are paying a relatively small premium to organic build cost. We have quarter. The variety of M and A opportunities on our radar screen, some of which are sizable. Quarter.
Turning to Slide 15. A foundation of our strategy is to be quarter. A total solution provider to the leading Chinese customers, wherever they have critical mass of demand. Quarter? Our customers see a lot of value in working with partners who understand their ecosystem.
The same logic, which takes us to the new markets in China, leads us to look at expanding Overseas. Hong Kong is the start point all sides, but mainly China. Quarter? We currently have 2 major projects. The first half, which is expected to come into service in 2022, we have recently secured another we recently secured anchor cost order from Hong Kong 1, which we will announce quarter in the next few months.
The China Cloud and the Internet Giant has big ambitions in Southeast Asia, quarter. Both directly through their core platforms and indirectly through their strategic investments. Take Alibaba as an example. They already have 3 AZs in Singapore, quarter 2 in Malaysia and 2 in Indonesia. Singapore is a well established hub for Southeast Asia And a global Tier 1 data center market.
In recent years, we believe that a large quarter. Part of incremental demand in Singapore has come from our home market customers. For the time being, the Singapore government quarter has suspended data center project approvals, while new policies are developed Around the land and power allocation. It is uncertain Whether Singapore, given its resource constraints, The adjacent Markets in Malaysia and Indonesia are less developed than Singapore, quarter, but have a high growth potential. We believe that Chinese customer demand will quarter be a critical success fact in these countries as well.
We have established a picture of demand from our home market customers. They have repeatedly request us to establish a present. We are actively pursuing opportunities with existing asset in Singko As well as getting positions for when approvals restart. Quarter. We have also entered into discussion with a number of potential local partners quarter.
We have projects at various stages of development in Malaysia and Indonesia. Quarter. We believe that expansion into Southeast Asia is strategically important and quarter that we can capture several 100 megawatts of new business over the next 5 years. Quarter. We are moving ahead in a very carefully and delivery way.
We aim to announce several new commitments quarter in Southeast Asia over the course of this year. Quarter. To conclude my section, GDS is head and shoulders above everyone else quarter in the China market. This is a matter of fact with what I told you today about the market opportunity quarter. In front of us, our strategic positioning and our competitive advantages, quarter.
We believe that the gap is only going to get bigger. Now, I will hand over to Dan
quarter. Thank you, William. Starting on Slide 18, where we strip out the contribution from equipment sales and the effect of FX changes. In 4Q 'twenty, our service revenue grew by 6.9%. Underlying adjusted gross profit grew by 7.5% And underlying adjusted EBITDA grew by 6.2% quarter on quarter.
Our underlying adjusted EBITDA margin Was 46.8 percent. Turning to Slide 19. Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 4Q 2020 was 16,461 square meters, consistent with the previous 2 quarters. The Q1 of each year is usually slower due to Chinese New Year.
Nonetheless, we expect move in in 1Q 2021 to be only a couple of 1,000 square meters Down on the prior quarter's level. Given the timing of capacity increases, As shown on slide 23, we are forecasting that move in over the course of 2021 will be heavily weighted to the second half. Monthly service revenue, MSR, declined 1.2% quarter on quarter In 4Q 2020 to RMB2489 per square meter per month. As shown on the next slide, MSR for the whole of FY 2020 was down 3.4% Compared with FY 2019. In FY 2021, we expect further low single digit decline.
To some extent, MSR is a reflection of average selling prices. However, there are many other factors Which affects MSR, including the customer mix, data center location, redundancy level, development cost and contract structure, for example, the move in flexibility and who pays for the power. Rather than talk about MSR on a standalone basis, I would prefer to focus on margins and returns. Turning to Slide 21. Our underlying adjusted gross profit margin was 53.7% For 4Q 2020 and the same number for the full year, a near 1 percentage point improvement versus FY 2019.
We calculate adjusted gross profit yield to enable investors to keep track of our returns in a simple way. It is a proxy for cash on cash returns. We divide adjusted gross profit for the year By the average gross amount invested, excluding assets or land under construction or held for future development. Gross amount invested includes the goodwill for all of our acquisitions. For FY 2020, The adjusted gross profit yield was 13.3%, which compares with 13.6% for the previous year.
This was achieved with an average utilization rate of 70.1%, not materially different from FY 'nineteen. Our commitment rate for Aireon service is 94.3%. When utilization rates catch up to the commitment level, yields can climb to the high teens. As you can see, we have sustained returns across our portfolio. Turning to slide 22.
Our adjusted EBITDA margin had a slight dip in 4Q 'twenty one, mainly due to one off expenses related to Hong Kong IPO events. For the full year, adjusted EBITDA margin was up 2.5 percentage points. Very approximately, We estimate that 0.5 percentage point improvement was due to net positive impact on costs of COVID. For FY 'twenty one, we aim for about 1 percentage point of further margin expansion. Turning to Slide 24.
Our CapEx for FY 2020 was RMB 9,400,000,000, A little bit less than what we guided due to timing of CapEx payments. RMB 9,400,000,000 includes $6,000,000,000 of organic CapEx, dollars 1,500,000,000 of land and property purchases and 1,400,000,000 Of acquisition consideration. In 4Q 'twenty, we paid RMB 413 1,000,000 of acquisition consideration, mainly related to the Beijing line and Shanghai 2019 deals. We expect our CapEx for FY 2021 to be around RMB12 1,000,000,000, including an estimated RMB3,700,000,000 of consideration for the Beijing 15 acquisition And the 2 acquisitions announced today, assuming that they all close this year. With respect to CapEx guidance, We can only include acquisitions to the extent that we have bottom up knowledge.
However, it is quite quarter. There could be more M and A deals this year, which are not reflected in our guidance. Part of the CapEx in FY 2020 and FY 2021 relates to organic projects, which we build to suit for customers under build, operate, transfer or BOT contracts. There are different financial approaches to undertaking these projects. Previously, we sought to minimize our equity investment and maximized management fees.
Now our preference is to invest more of our own capital, But to leverage it with lower cost debt. This approach gives us a reasonable risk adjusted return on equity. We therefore decided to keep on our balance sheet 2 BOT projects, which we began constructing in 3Q 2020. Accordingly, we made some minor revisions to include these projects in our core KPIs starting from 3Q 'twenty. We still have a further 9 BOT projects, which we may partner with GIC, but retaining a higher percentage of equity ownership.
We will update you about these 9 projects in the next 1 or 2 quarters. Looking at our financing position on Slide 25. We had RMB 16,300,000,000 of cash on our balance sheet, and our net debt to EBITDA ratio is 2.2 times. Given our ongoing levels of organic CapEx and assuming the Beijing 15 acquisition closes shortly, this ratio will go back up to 4 to 5 times over the next few quarters. Turning to Slide 26.
During FY 2020, we completed debt financings with a total facility amount of RMB 16,000,000,000 Equivalent to US2.4 billion dollars including both new project financing and refinancing of existing facilities. We made significant progress increasing the tenure of our facilities and lowering the interest rate margin. This is best illustrated by comparing the terms for 4 facilities, which we refinanced in FY 2020 Versus the original terms. The new facilities have tenors of 8 to 15 years Compared with 5 to 7 years for the previous facilities. Similarly, the new facilities have interest margins of minus 15 To plus 50 basis points compared with plus 120 to plus 270 basis points for the previous facilities.
These improvements reflect the strength and track record of GDS as well as increased appetite for data center exposure from the banking sector. In FY 'twenty one, we anticipate doing about RMB15 1,000,000,000 equivalent to US2.3 billion dollars The debt financing, including an aggressive refinancing plan. Refi involves some one time costs, Which will impact our effective interest rate in the 1st 2 or 3 quarters of this year. We should then see a drop. Most of our renminbi denominated debt is floating rate, priced relative to the Over 5 year loan prime rate or LPR.
This reference rate currently stands at 4.65%. It is very stable. In fact, it has hardly changed in the past 5 years. What tends to happen When there is a tightening in the credit markets in China is that banks prioritize lending to favored areas of which new infrastructure Such as data centers is definitely 1. We're therefore confident of achieving all of our debt financing goals this year.
Finishing on Slide 28 with our guidance. For the full year of 2021, we expect total revenues To be between RMB 7,700,000,000 and RMB 8,000,000,000, implying a year on year increase Between approximately 34.2 percent to 39.4 percent and adjusted EBITDA to be between RMB 3,660,000,000 to RMB 3,800,000,000 implying a year on year increase of between approximately 36.5 percent to 41.8%. In addition, we expect FY 'twenty one CapEx
please do limit your questions. Our first question comes from Yang Liu at Morgan Stanley. Please go ahead.
Thanks for the opportunity to ask questions. I have one question on the competition. Quarter? Could management update us in terms of the competitive dynamic in China market? Do you feel that the competition is getting more intensified compared with 3 or 4 months ago.
Due to the pricing return pressure How does GDS do to defend the wallet share in our key customers when the peers are chasing them aggressively?
Quarter? Okay. Good morning, Yanvie. Quarter? First of all, I think the answer is in general, I think nothing changed In terms of compared with the last couple of years, we didn't see GDS position in the market will be changed.
So our position is very solid. In terms of our platform, we are the only platform player in the market still. There's no platform player in the market. As we mentioned in the last couple of the earnings call, this is not a change. Quarter?
And the competitor in all the regional payer or project payer. So platform is very valuable for our key customer. This is number 1. Quarter? Number 2, I think our positioning in our customer is very different than all the follower.
Quarter? Our position is very solid and in our customers' eyes, GDS is very, very reliable platform. So this will empower their business in the past, even in the future. We are the only reliable platform In our key customer eyes. So what I can see, Tayo, is of course a lot of the because the market is booming, A lot of the new players in the market, even a lot of the established data center players.
The competition between them looks like more stronger than before, But not in the fact to us. So in terms of the price and quarter? Return, I would like to say that price is very difficult to top up the price as we mentioned last couple of times. We have pursued the project return. I would like to say in our future project quarter.
We will maintain what we talked about before. So in general, we'll not impact our project return.
Thank you. If I may have another question, I saw that we have a new Financial metric underlying adjusted GP, should I assume that it is almost the same with NOI we have been using for Past years. Yes. The
short answer is, It is exactly the same. It is a different name and maybe it's a little bit simpler because gross profit is a Yes, standard accounting line item. And adjusted gross profit just needs to be reconciled to gross profit. So Presentation, I think, is a little simpler, but the number itself is exactly the same, yes.
Thank you. Our next question comes from Jonathan Atkin at RBC Capital Markets. Please go ahead.
Thanks very much. So I was interested in the slide that talks about your largest orders in Q4. And 2 of those contracts commenced already, essentially. So that was a very fast turnaround between contract signing and contract commencement. And then the other 2 are Fairly far out.
They appear to be build to suits. But can you talk a little bit about the nature of the customer demand that you're seeing? Is it Similarly balanced between what appeared to be immediate needs and then needs that are kind of throughout. My second question relates to CapEx, and I wondered if there's any trend that you're seeing in your business Around the build cost, construction cost per megawatts of IT capacity, has that trended differently recently or is there any chance that that could Decline over time?
Yes. John, I'll answer the First question, we highlighted 4 hyperscale deals. The first one, we acquired a Data center in Shanghai is one of those projects that was undertaken by independent developer. And after we acquired it, we were able to move forward with the customer contracts. So that's why it appears to be A short time lag.
The second one, which also appears short is Page 7. But in this case, it's an existing data center. It was already, roughly speaking, Half committed to customers. And this was a not the first order for the data center. This was the An order that took up most of the remaining capacity.
So once again, that's why there seems to be a relatively short time period because it was a Order for an existing data center. The other 2 hyperscale orders in Lan Kwang and Puijao, yes, They're both involve, in one case, greenfield assets. In the other case, it's a conversion. But Yes. So it's an early pre commitment right at the very beginning of the project.
So John, can you repeat the second question?
In China, I wondered if you're seeing that, What the reasons might be or if you're not seeing that at all?
That's right. I'm sorry. On my line, I couldn't hear it clearly.
Construction cost per megawatts. Construction cost per megawatts of IT capacity, has that trended differently?
Yes. Sorry, I couldn't hear you clearly. The trend in construction costs has been that we are able to Keep achieving cost reductions through a variety of ways. Some of it is simply Scale and procurement. Some of it is through supply chain management.
Some of it is through the way in which we approach The construction in terms of the phasing and the modularity and off-site prefab and so And some of it frankly is by setting up projects which have the most optimal cost Due to location, due to the proximity of power infrastructure, due to the ability to leverage existing substations and so on. The gains year on year are small percentage But they are continuous. And looking forward, we continue to see Opportunities to continue this. So we expect actually for quite a few years to come to be able to Lower our unit development costs by small increments year on year.
Thank
you. Thank you. Defense for the benefit of all, please limit your questions to 1 at a time. Thank you. Our next question comes from Colby Cinna Sale at Cowen and Company.
Please go ahead.
Hi, this is Michael on for Colby. Two questions, if I may. First, it appears you restated your area under construction and a few other KPIs in the Q3 to include the BOT data centers. Just to be clear, this is because you intend to retain 100 percent ownership of those assets. And if so, what drove the change versus your prior view?
And then my second question is based on the conversations you're having in the markets outside of China to which you intend to expand, Which market would you expect to have a footprint in first and what would you consider to be a reasonable timeline for having a data center up and running there? Thank you. Okay,
Mike, on the first part of your question, We did previously disclose the existence of these projects. We had a Category we called Managed BTS Data Centers. And in that category, we group them For projects relating to customer 1, projects relating to customer 2, projects relating to customer 3. Yes. There was one project relating to customer 2 and one project relating to customer 3.
So they were just single data centers on a site. And we decided because of the situation that it would be more optimal for us to Undertake those ourselves in the usual way. And therefore, we move them from the category of what we call managed BTS data centers And then include them in our KPIs, just as we would with any other self developed data center. But we do identify In the detailed breakdown in the kind of appendix to our presentation, which are the BOT projects, so that it's Careful all to see. More generally, with regards to these DOT projects, it is becoming Quite popular or quite we see more of the large cloud and Internet Companies in China experimenting with this approach for development on their campuses in remote areas.
It's a situation where they clearly have the option to self build, right, because Typically, it's their campus and there's no barrier in terms of land and power, but they still see advantage in Outsourcing, but the terms of outsourcing are quite different. But from our perspective, it's not the core strategic focus, but it is Adjacent part of our business. And I think we will be flexible about how we approach it. In the past, we have done some on balance sheet, and we put about 80% leverage on the projects. And Yes, the return on equity to us was quite acceptable.
And I think going forward, we will do some that way. We'll do Somewhere we have majority and maybe we'll do somewhere we have a minority even just purely a management fee. I think The market will call for a wider variety of business models. And certainly, as regards to these Projects outside of the core markets, we will be adopting a variety of different approaches. William, do you want to answer the second part?
Yes. Quarter? Yes, I think the overseas strategy as I just mentioned, the first point is start point is Hong Kong, right? We already developed Hong Kong, 2 projects in the development. So the next step It's obviously Southeast Asia.
In Southeast Asia, the top three countries in our radar screen is Singapore, Malaysia and Indonesia. These 3 markets in our view in the next 5 years, The demand from China will be a few 100 megawatts. So we have tried to catch up this wave, But potentially, I think that Southeast Asia is a high potential market. We go to our current strategy is that We have to set up our presence there, but it's for the significant reason. But If you look at the current Southeast Asia market, it's very looks like very similar like 8 years And 10 years ago, the market in China.
So we are willing to step in And build our data center position our position there and to catch up with the future High growth. This is our current goal. So we will maybe we'll open maybe the first project will be in simple, maybe in Malaysia or Indonesia. So we will give you the clear answer in the near future.
Thank you. Our next question comes from Tina Hao at Goldman Sachs. Please go ahead.
Hi. Thank you very much for your time management. So yes, my question is also related to the Southeast Asia expansion strategy. Wondering what kind of differences in terms of revenue as well quarter return in these potential Southeast Asia projects and how that may impact our P and L in the future? And when do you see the 1st project to start contributing revenue to our P and L as well?
Thank you.
I think it's early it's too early to talk about the revenue because what we in the next 5 years, quarter? I don't think it will impact a lot in our revenue because our current order guidance All the developments still we are still in China because China is a still big market. Quarter? So as I just mentioned, Southeast Asia in our view is strategic, but we're not calculating any number quarter? In our P and L right now.
I think maybe when the projects coming, we will talk about that.
Our next question comes from Gokul Hariharan at JPMorgan. Please go ahead.
Thank you. So could you talk a little bit about what are we Seeing from National Gun Policy in China regarding energy efficiency, pollution control, etcetera, Given some of the bigger commitments on climate change, could you I mean, I know that GDS would be publishing the ESG report This year, but could we start talking a little bit about what are we seeing from a PUE perspective, Especially for some of the newer edge of town projects and what GDS has been able to do along with customers on this front. Second question is on M and A. Seems like M and A is now becoming a much bigger part of pipeline, as evidenced by last year. If we think about the next 2 to 3 years, should we assume that M and A becomes probably Much bigger part than even last year.
Last year, I think it was about 20% of the total pipeline build. Should we think that M and A would be a much bigger part of The pipeline, if you think about the next 2 to 3 years.
William, do you want to address the question about government policy?
I think the ESG is a very hot topic right now in Greater China, including Hong Kong or Mainland China. I think this is definitely the trend that the government Encourage the green power, right? And also we call it negative Carbon neutral. Carbon neutral, right. So GDS already start to prepare for this full?
For a couple of years. So as I just mentioned, 20% of our data center really green, green energy. So we will government policy from the policy point of view, I think quarter? In general, still under development right now. We didn't see any official enforcement policy right now.
But of course, the immediate impact is, As I mentioned, in the common quarter, in the Tier one market, especially also in Some edge top tier one market will be getting it's easy to see it will quarter? Country more tight in the future. This is what we can see, what's the impact. Yes.
I'll ask a question about M and A. Quarter? I mean, the main driver of our business for the foreseeable future is going to be organic development in Tier 1 markets. But Having said that, I mean, we clearly see an opportunity right now The next few years to consolidate the market. There's been a lot of new entrants, a lot of development by independent developers.
And that's what creates the pipeline and the opportunity to consolidate. We believe that we have Significant competitive advantage in terms of M and A, in terms of the capability and experience of our team, The methodology that we developed, the deals we've done since 2016, financing capacity, The ability to conduct technical due diligence. And we find that sellers, when you engage with sellers, Always top of their mind is, if they engage with a potential buyer, they want to know is that buyer going to Yes, the finishing line, right? I think buyers sorry, sellers have a lot of confidence when they engage with GDS because of our track record. People ask about they just said M and A in China, but I think most of it is being done by us.
I'm not aware of very many M and A deals are being done by others. So we are The major force in datacenter M and A in China. Question about How much of this could there be? And frankly, we don't have a quota. We don't look at it like that.
There's really 2 different types of deals. One type, which I Call kind of flow deal is the kind of 5000 to 10000 square meter data center, typically that kind of perhaps Single data center, Wallace. Well, purity capacity, Like the two deals we announced today, Shenzhen 8 and Tianjin 1? Or it could be Capacity with some customer commitment either there or coming with our acquisition, like in the case of Shanghai 2019. There's a steady pipeline of those kind of deals.
And the acquisition multiples have not increased. We can still do these deals paying relatively small premium to organic cost. So if we look at we count in terms of our metrics based on when deals close. So Yes, if you do 2 of those, it comes to maybe 15,000 square meters. If you do 3, it comes to something over 20,000 square meters.
The other kind of deal, which is harder to predict, is a more sizable one. Let's say 20,000 square meters and upwards. We've done 2 or 3 depending on How you categorize. There was a Beijing 10, 11, 12 deal that was 20,000 square meters. There's a Beijing 15 deals, 20,000 square meters.
If you call it M and A, there's a deal where we're partnering with Citic, which, By the way, is now upgraded to 28,000 square meters. These opportunities are scarce And hard to predict when they're going to come onto the market. Yes, we if they are At a more advanced stage, they have customer commitments, then there's likely to be more competition for those kind of And that's where multiples have probably gone up. But still, I think, reasonable and justifiable. We have some opportunities like that in our pipeline, and they can be quite a big swing factor if they crystallize.
But I can't I don't want to set any expectation on that. But that's where they could that could make quite a big difference. That's where we could go from Having 20000 or 30000 square meters of acquisition net add a year to having something Quite a bit more.
Our next question comes from Rob Palmasano at Raymond James. Please go
ahead. Hey, guys. It's Rob on for Frank. I just wanted to follow-up. You sort of spoke to this earlier.
Can you talk about likely sources of capital for next year? And also, can you speak to your strategic relationship with CyrusOne Going forward after they just recently monetized their investment in you guys?
Yes, Rob. We always try to be we have been fully financed, fully capitalized for Our business plan, I think we're quite open about sharing what our business plan is. So I think Based on the comments William made about the expected level of organic net adds, 90,000 to 100,000 square meters. The fact we've got 120,000 square meter data center acquisition already In the pipeline and potentially closing shortly and hopefully other Acquisitions that will close this year. I mean that's the business plan, which I think everyone can see.
And We're well capitalized for that, at least for the next couple of years. But we haven't factored in regionalization. We haven't factored in M and A beyond the flow deals as I just described them. Yes, we haven't factored in a higher level of organic growth. And to some degree, we haven't factored in Yes, potentially bringing forward CapEx if we see opportunities to acquire land or buildings, which are kind of Going to be opportunities that are kind of onetime opportunities that you have to grab when they're there, otherwise they've Gone forever.
So yes, if any of that materializes, it's upside to our It's a base case, and I believe it will be positive for our shareholders. So if the need for capital arises, it will it should be seen something Because of greater success. William, do you want to comment about the relationship with Saroswine?
Okay. Quarter? I think in terms of the quarter? Sales cooperation, we still maintain the sales cooperation relationship because historically they refer some deal and quarter? We follow the deal and they help us cut a couple of deals.
But since now Chinese customer go to U. S. Is a slowdown. So they get quarter? Limited benefit from us, but I think our relation is still there.
But GDS Currents, quarter? Our international team work very closely with different partners and to get a for example, last year, quarter? We got a lot of deal from U. S.-based customer, let's say, quarter? In China, so independently.
So we are not relying on them, of course. I think but in some way, we Together with some deals still, right.
Our next question comes from James Wang at UBS. Please go ahead.
Good morning, management. This is James Wang from UBS. Quarter? I've just got two questions. First one is a follow-up on the ES2 issue.
So I'm just wondering, since Chinese government has announced Carbon neutrality goal, whether your conversations with your largest cloud customers have changed? And related to that, out of Your current land held for development, future development, how much of that is renewable energy and whether you'll be able to increase The percentage of renewable energy usage for your pipeline project? That's the first question. And the second question is on you expanding into, you mentioned, 10 different regions in China. If I remember, for example, I also saw that you've recently got into Tianjin and Chongqing.
And if I remember correctly, In the past, for example, in the West, the utilization rate increase has been rather slow. So I'm just wondering what you're In terms of demand in these new regions, whether it's just whether the situation has changed versus the past? Thank
you. Can you answer this first question?
Yes. Sorry, I'm in a different place from William. I can't hear everything clearly. But James, what I heard was you asking about So the area helps you to balance it? What proportion of the power that's
been with you? Yes, I'm asking about
Yes. So on the ESG front, so conversations we align our customers, quarter? Where that's changed? Where they're taking a more focus on renewable energy usage? And also on your land, health or future development, how much of it quarter?
And whether that percentage can increase? Thank you.
Yes, sure. Well, I mean, I think the first part of the question is everyone in China take more notice, start from the central government downwards, right? And our largest customers look to us and expect us to help them solve the problem, the challenge How to reduce their carbon footprint. Probably the biggest component of it is Where does the power come from, meaning what is the What fuel is used in the power generation? It doesn't necessarily go With individual projects.
So for example, in a region like within Shanghai, for example, we can Purchase Green Power through the power trading market. That's one of the ways in which we reach the level of green power that Yes, we mentioned over 20% of our total consumption. So that's not location specific. On the other hand, There are some locations where specifically there is green power because, for example, Yes. The location may be on the same grid as where there is a large The amount of wind power generation, even though they could be quite a few 100 kilometers apart, it could just be That they are on the same power grid.
So we will come out With targets. I think rather than talk specifically about which project has what, I think the way to look at it is in the aggregate. We will Have to be innovative and take a number of different approaches, which we're working on all now At the same time. And whatever targets we set will be very serious ones, not it's not Yes, we take this very seriously. It's absolutely critical to our business.
William, you want to ask the second part of the change?
Yes, yes, yes. Sure. I think first of all, I think we are group? In China, the Tier one market is very obviously Shanghai, Beijing, Shenzhen, Guangzhou, right? And The Western side if you look at it last 3 years, Actually the growth the data center demand in Chengdu and Chongqing In last 3 years, growth very fast.
So this is the trend. So quarter? Given the current utilization, what we can tell is that the growth trend is very obvious. Quarter. So we are very confident to increase the utilization in our current data center in Western parts Of China.
But another in our radar screen, there's another 10 cities like Chongqing, right? Quarter? We paid more attention on that. This is a new trend. In the last couple of years, what we can tell is A lot of our customer, current customer, cloud player and a lot of the Internet giants, They start to deploy their server in this city.
We are very confident this 10 new market will quarter. Drive another growth in the future. So I think as I mentioned that China is 5 gs in China is very advanced than the other country. So 5 gs, what's the impact is when the 5 gs completed deployment, it will Produce more data from those cities because those cities are all economic center in all the province. And quarter?
And population is most of them is around more than 8,000,000 or even 10,000,000, right? So I think this In potential market, now it's just a start. So we are quarter? We treat them like a new emerging market, right? So but in order to Make the investment more efficiency.
We always will follow-up our customer demand To get into this market. Yes, this is
our view.
Thank you. Ladies and gentlemen, due to time constraints, we have no further time for questions. I will hand over to GDS for closing remarks.
Thanks, everyone, for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website or the Piacente Group Investor Relations. Thanks all.
Quarter. Thank you. This concludes our conference call. You may now disconnect your line. Thank you.