Hello, ladies and gentlemen. Thank you for standing by for GTS Holdings Limited 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 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 GBS Holdings Limited. The company 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 investorsgdservices.com.
Leading today's call is Mr. William Huang, KDS founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS's CFO, will then review the financial and operating results. Ms.
Jenny 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 from the risks expressed today. Further information regarding these and other risks and uncertainties is included in a company's perspective 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 GAAP measures. I will now turn the call over to GDS's Founder, Chairman and CEO, Mr. William Huang. Please go ahead, William.
Hello, everyone. This is William. Thank you for joining us today's call. 2 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 USD 1,800,000,000 of net proceeds 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 continued to perform strongly, During the third quarter of 2020, we added nearly 24,000 square meters or 46 megawatts of new customer commitments.
During the 1st 9 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 secured 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%.
At the beginning of this year, We targeted 100,000 square meter of annual net add consisting of 80,000 square meter organic plus 20,000 square meters from the Beijing 101112 acquisition, which was pending clothing. Today, we are clearly on track to achieve around 98,000 square meters of organic sales plus 27,000 square meters from M And A, including nearly 8000 square meters from from a new acquisition in Shanghai during the current quarter. This gives us over 120,000 square meter net added for 2020, representing 20% outperformance. Looking forward to FY 2021, 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 2000 square meters of M And A next year.
And you can see from from our disclosure. There is a consistent pattern of 3 to 4, 5, high skilled order every quarter. Each of these orders represents a major development by 1 or other of our top customers. These developments are often planned in multiple phases to be delivered over several years. This gives us a strong foundation for our future ourselves.
Turning to Slide 7. Over the past few years, we have made a lot of progress in interacting and meaningful relationships with fast growing new customers. We had exciting breakthroughs which we announced last quarter with biden and PDD. We are actively we are actively pursuing multiple hyperscale opportunities with these 2 domains. China's internet sector continues to produce very larger companies, which emerged 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 also data center services. This is where we see incremental affinity Given the extensive presence of car service providers in our data center in our data centers and a low to market platform, we have a unique value proposition in hybrid cloud. We are also starting to see financial institutions deploy hybrid clouds. We have a well established customer base of over 230 financial institutions.
And they involved that their IT architecture from the mainframe to server We anticipate significant incremental opportunity. Over the past 5 quarters, We have stepped up our construction program from 84,000 square meters to 135,000 square meters of active developments. At the same time, our pre commitment, pre commitment rate have remained solidly over 60%. We have targeted to target to tap attack repeatedly about why a secure development pipeline is a critical success fact. During 3Q 'twenty, we added over 30,000 square meter to our data our area held for future development And during the fourth quarter, we have added another 70,000 square meter We now have a total of over 400,000 square meters secured and we will continue to add aggressively.
Over the next few quarters. Turning to slide 11. Following the success of our agile autonomous 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 at Greenfield Sites in Huizong, around 24 kilobytes 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 This site will yield a next four area of approximately 72,000 square meters. According to the initial design, we established our edge of town campus in Longfeng near Beijing in 2q 'eighteen in 2q 'nineteen. In less than 18 months, we have initiated 9 datacent projects and secured over 67,000 square meter of customer commitments In 3 to 20, we initiated our long term 9 data center, which which contributed a 25 Megawatt new order. We also added to our land bank with the acquisition of Longfeng Landside Street and further land acquisitions are in progress. On the edge of Shanghai, we have 2 locations, Kunshan and Changshu.
During 3Q 2020, we lead to the 3 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 Tencent 4, is undergoing conversions. Turning to the Slide 14. We announced 2 M and A deals during 3Q 20.
Which added to our capacity in the urban area of Beijing. Today, we are announced announcing a new acquisition in urban Shanghai, which we call the Shanghai 2019. It has total developable next floor area of 100 12,800 square meters, of which 7900 Square Meters is complete and fully committed. The total acquisition and development costs including costs to complete is RMB778 1,000,000 an attractive acquisition with, with good partners. We will continue to pursue this kind of the opportunity, which adds to our presence in key downtown locations.
With that, I will hand over to Dan for the financial and operating review. Thank you.
Thank you, Will. Starting on Slide 18, where we strip out the contribution from equipment sales and the effect of FX changes. In 3Q 20, our service revenue grew by 14.1%. Underlying adjusted gross profit which we previously called net operating income grew by 12.7 percent and underlying adjusted EBITDA grew by 12.5% quarter on quarter. The Beijing 101112 acquisition closed on June 5, 2020.
Excluding the contributions from this acquisition in both Second And Third Quarters, Our service revenue grew by around 8% and our adjusted 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 step in 2Q 20.
We expect similar levels of moving in the 4th quarter. NSR was rmb2519 per square meter per month. Without Beijing 101112, it would have been slightly higher at RMB2533. Turning to Slide 20. Our adjusted EBITDA margin remained around 47%.
We're still benefiting to a small extent from public concessions. Turning to Slide 23. Up to the end of September, our CapEx year to date stood at RMB6.6 billion. In 4Q 20, we expect another RMB3.4 billion of CapEx, including acquisition consideration for Beijing 9, Beijing 13, and the new Shanghai 2019 deal, and payment for the Langham and Fidong land. This is what gets us to our 10,000,000,000 R and D CapEx guidance.
After the end of September, we had paid cumulatively RMB640 1,000,000 of CapEx for managed BTS build to suit projects that intend transferring to BIC. During 4Q 20, we expect to transfer the first project by way of selling 90 percent 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 form a for the cash proceeds of the Hong Kong IPO, We have RMB18.7 1,000,000,000 of cash on our balance sheet, and our net debt to EBITDA ratio is 1.2 times. Given our ongoing levels of organic and inorganic CapEx and assuming the Beijing 14 acquisition, closes in 1Q 'twenty one, this ratio will go back up to around four times within a couple of quarters.
Having 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 attracted acquisitions like our recent deals for Beijing 13, Beijing 14 and Shanghai 19, we will not be short of opportunities. While we are not changing our financing approach, We have an aggressive plan to refinance a substantial portion of our existing onshore R and D denominated project debt. To achieve longer tenures and lower cost. We have multiple refinancings going on right now, with 10 to 15 year terms, back ended repayment profiles and all in costs are below 5% based on the current loan primary 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. We now expect total revenue to be in the range of RMB 40,700,000 to RMB 5,750,000,000. And adjusted EBITDA to be in the range of RMB2.66 billion to RMB2.67 billion. The updated estimates imply an increase of 38.3 percent to 39.5 percent year on year in total revenues and 45.8percentto46.4percent year on year in adjusted EBITDA. Our CapEx guidance of RMB 10,000,000,000 for the full year remains unchanged.
We'd now like to open the call to questions. Operator? Thank
you. You. Session. Your first question on queue comes from the line of John Atkin from RBC. Please ask your question, John.
I'm interested did 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? 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 ship 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. I mean, the first question is, the customer build by himself. So, so far, we didn't see any change right now. I think the especially, I mean, in a Tier 1 market, which we focus, we didn't see any changes.
The second question is, the second question is, using data center companies to host their own private clouds
Yes. There's a there's very, very, significant changes. I see a lot of the large Internet company that they it became their IT became more, complicated. So they used to use the cloud when this, grew up during the, a grow up period. Now it looks like the, more and more they use the hybrid cross strategy.
So that's why we see this is a very we are very excited for the future, a 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?
Thank you, John. We have 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 1 year to 2 years. What we can look at there is 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. So with new capacity coming into service, that means that there's potential to deliver significant incremental backlog. In 2020, new capacity coming to service is being pushed to the fourth quarter. You'll see there's a significant amount of new capacity coming to service in fourth quarter of this year. And then we laid out the delivery schedule in the earnings presentation, you see that over 50,000 square meters of new capacity coming into service in the first half of next year.
And typically after new data centers come into service, not much happens in the first quarter. It takes a couple of quarters before the move in 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. And then that will, flow through to further step up in the, quarterly net addition to area utilized, which drives revenue. If we talk about EBITDA, then it becomes a matter of, the MSR trends and 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 MSI is going to continue to decline very, very slightly as it has been doing. Over a period of time, it seems to average out around, 1% per quarter we've discussed. The factors behind that, 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 professions. I think next year, the target to achieve, maybe another 1% 1 percentage point, increase in EBITDA margin over the past, what we achieved this year. I say target because we also have in our plan, quite a number of corporate initiatives, around smart data centers around ESG, around, renewable energy, branding, corporate communications, and so on. So will be some increased costs associated with that. But in due course, there will be increased investment return from that expenditure, but I'm just a little cautious on margins next year because we do plan to increase our corporate expenditure.
Your next question in queue comes from the line of Colby Sain Zayal from Cowen.
$1,800,000,000 in proceeds from the Hong Kong listing, obviously, quite a bit. 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 going? And then also as part of that, your interest 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 you think you might be able to achieve when all said and done? Thank you.
Kobi, I answered the first question. I think definitely we are we raised RMB 1,800,000,000 net proceeds I think this is a shoe, our next, our view, our ambition in the next 5 years, I think we see a tremendous demand in the inside of China and also oversee like Southeast Asia and Hong Kong I think even in China, we think we believe there's more new market will come in, become more important accepted our previous 4 key markets. So I think we do have the plan to expand our business to still strengthen our business, again, more market share in the current Tier 1 market. Also, we do have the very, very solid plan to move to some new important market in China. But in the meanwhile, we see we, as we talked during our road show Hong Kong IPO, we do see a lot of the solid demand from our installed base it's in a Southeast Asia expansion.
So this is a we have actively development, those business 10. 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 see we will we actually develop the plan and evaluate all the demand and all the evaluate all the very much more the business partner in Southeast Asia. So I think maybe in the near future, maybe the beginning of the next year, we will tell you the tell you guys what's the exactly the plan is. So, I don't want to say it's too early to say, but I can tell you we activate to get back to the plan right now. Yes.
Hi, Colby. If we just isolate out the refinancing part of what we're doing. I'll say that the cash interest saving is RMB700 1,000,000 per annum. In terms of how it gets reflected in our accounts, when we refinance In commentators, we have to write off the amortized portion of front end fees that we incur on on the initial financing. So it may not become immediately apparent in the first half of next year.
We have which is the affected interest rate. 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. This is 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 services we've got, in execution right now, will work out around 5% or even less.
Got it. Thank you very much.
Your next question comes from the Harai Haran from JP Morgan.
First of all, now that we are developing a bigger and bigger edge of town portfolio in the at least a 3 main locations. Could we talk a little bit about how is the demand looking at city center, the more older data centers versus what you are developing at the edge of town. Are we seeing any kind of differences in terms of demand, be it power density or other 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 As we think about the next couple of years, how should we think about organic versus inorganic? Do you feel that organic will be because a portion of the capital outlay, as we think about the next couple of years and some of the opportunities that you've talked about?
The first one is demand for the downtown data centers.
Yes. I think the very direct answer is the demand from the for the downtown and its edge time, right?
Most sensual.
Most sensual. If you maintain very strongly. Yeah. So I think we are that's why we keep up quite the edge account data center. When we did when we also divested when we divested the edge out of the campus.
So this is a this strategy will continue. We will build our large scale hyperscale campus in the edge of the town. In the meanwhile, we will still continue to build data center and acquire data center base ops in the urban time. So we the demand very clearly, a very strong
Yes, I'll just read. It's the same customers. Yes. 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 Edgerton, in terms of the customer's architecture, the downtown is the edge and the edge of town is the heart. Downtown, as you know, is really challenging. We have to be creative, to create new resource And we've done a number of acquisitions. In fact, 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, that we, have a total solution, both the Edgertown and a downtown and in all markets. So your question about organic versus in organic. And Lynn made a comment, that currently is run rate for organic, it's going to lead us to around 95,000 square meters. I know we wouldn't say 98,000 square meters, but it wasn't Freud in.
It's $95,000,000 is what we, is what is where the maths 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 multiphase orders, which already give us high sourcing new business next year and even the year after. So the inorganic part is mainly driven by our desire to create more capacity at downtown. In each market, there are a number of independent product developers that they're always happy and they continue to be. And we launched them.
The Shanghai 2019 acquisition, which we're announcing today, is a case in point. So the company, it's a project that we've been aware of in Shanghai. We reached a stage of completion, where we were able to move forward and make the acquisition. But we've been, say, we've been aware of these projects and a number of a number of others, from inception. That's why I think that's why we have a pipeline.
That's why I believe that we can sustain M and A, at the kind of current levels as well. Beijing 14 is not a done deal with the We haven't entered into definitive sale and purchase agreement. If that goes ahead, as we plan, that it gives us 20,000 square meters of M and A for next year already and more than 12 months to do some more deals.
Got it. Understood. You.
Your next question on queue comes from the line of Tina Yu from Goldman Sachs. 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 Biodes and PDD. So I was just thinking if you could provide more colors on that. What, like what location these projects may be?
Is it edge of town, downtown or go to suit? And then the sort of expected timeline that these can be decided income online? And also maybe in like 3 to 5 years, what kind of revenue contribution do you see from these these two customers? Thank you.
I think number 1, I think that we start to build our business relationship with the these 2 new logo, it's a large size from last quarter. I think the, given the time we do expect build a more stronger relationship with them. And I think according to their current position in China, our resource platform, our different platform in China, which is quite unique and will contribute a lot of value create a lot of value for those kind of customer in the future. I think that those customers that they have in mind, the urban top plus editing high scale posts, right? So I think the, we are well prepared for, Applebee at future men.
Already. So I think we are confident to we will have to better,
more business with them.
So it's too early to toxic cell because it's, we are committed with those kinds of account very, very closely. So I think I'm so I'm very confident to have a new view from them in the near future.
Thank you.
Your next question comes from the line of gluten 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 change a bit. And in particular, the digitization trends that you would have seen say a year ago, now that the dust is settled a little bit, can you characterize what the pace of those trends are within users in China now versus what they were and how much that may have accelerated
Yes, fantastic difference we see in each
Yes,
Frank, when you ask me to respond. And it's hard to isolate the difference that going through the COVID period has made. And clearly, not just in China, but around the whole world, we were required to adapt and adapt to new technology and so that we could work from home and back, do everything from home? Do IPOs from home? And that's, it's a functional shift.
Our dialogue with our customers and new business is based on, at least say they're 3 year, 4 plans. And so what will happen don't get reflected in some short term change. But clearly, yes, new business has got a high 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 cloud and so for enterprise customers.
Yeah. I think, Greg, I think it's logically that the whole logic is China, the serialization is also working to evolve. And I think the cloud as we mentioned again, again, cluster in the early stage, so we will see in the next 5 years cluster cloud player still will be the major key driver to drive the things and the demand. In a meanwhile, as I just mentioned, I think a lot of the new internet, large internet companies to, be produced in China like a baker, like, a pie. So like a PDD, right?
If you look at the last 5 years, there are nothing, right? Now that we can, can be a dollar company more than $7,000,000,000 globally. And I think the visit, so that is still, a CapEx and penetrated to different segment to penetrate a different vertical industry. I think that we are still a big space for the Internet company to grow. So I think it needs to do content sucks to, use not just using a public cloud, they're using the adapter to a hybrid cloud architecture This will trigger a lot of cloud demand plus a lot of data center collars or hyperscale data center demand.
I think we are very confident. In a meanwhile, I just mentioned that the like traditional financial institution plus enterprise. They also have to transfer the architecture from the traditional architecture to the cloud base, hybrid cloud base. So, this will create another wave of the demand for data center. So in my view, there's a 3 driver cloud Internet Enterprise.
In next 5 or even 10 years will be the key demand, a key driver to drive the demand. So that's why we've reinvested in money and we tried to catch up, way, right? But, I would add a global, and as Sam mentioned, the 5 g is just an implement right now, but we believe, in up to 2 years, 5G will trigger more IoT staff will trigger more, a new application and also will be another potential key driver driving the business in demand. And what are some of
the key applications you think that come out of 5G? What are you seeing right now?
Yes, I think there's a lot of the so far. I think it's too early to talk about it, but you know, we've seen a lot of the, IoT staff, we we talked to a lot of the traditional industry. They all talk about the IoT staff And I think the very clear 5G will drive there the new application to implement to the order, supply all the battery share. A business value chain, including the manufacturing, traditional manufacturing and the traditional retail, traditional industry So I think it is not air clear now, but the market talk about a lot of the investments right now.
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 high. So I'm just wondering whether these are resolved now and maybe a broader question on this is as a number of projects and the 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 Hui Dong project.
Just wondering whether how supply had 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 in Guangdong So perhaps a bit more color on a demand and supply situation in that particular region as well? Thank you.
Okay. Thanks James. Yes, the reference I made was, was access 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, it depend on supplier. And sometimes there's some, small small delay.
But that was fixed, I think, by the end of September, Yes, it may happen from time to time, but it adds up to you a few months. Few months matters, particularly when we have delivery schedules for customers, but, life can't be perfect, right? So agreed to which this affects us is pretty small. Your second comment though is very opposite. I think we had the largest data center construction program in the world.
I tried to benchmark it against some other very well known large cat global players. It like here, we have almost doubled, in our capacity under construction. 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 deal's plans and 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 3 data center projects And 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, have this sufficiently and keep execution, issues down to a minimum. Your last question about feed on here, we bought the land from the government.
That means that the deal, the builders require the lands. And together with the government's commitment of the call it Carbon Croda, the right to use the power capacity and to coordinate with the state grid to provision, well, actually some grid, right, to provision the power supply. The landscape located in a industrial park. It's actually called a data center park. So it's an established location.
From that respect. Overbuild oversupply, but we've heard we've always we've always heard that, right? Meanwhile, our commitment rate is 95% and our pre commitment rate is 60%, 70%, which you won't find any data center company in the world, which has been able to, commitments and, and, pre commitments. A site like this, it's actually very close we said to the edge of the edge of Shenzhen, right? It will be 1st in queue.
And, very attractive to hyperscale cloud. So we'll announce an anchor customer in 1 or 2 quarters.
Great. Thank you. Thanks, guys. Your
next comes from the line of Edison Lee 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 well from enterprises rather than large scale internet companies. So does it mean that your proportion of retail 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,
So I think the demand profile, as I just mentioned, and then the key demand still will be the cloud service provider in a short term, but we do see the internet company since they adopted their architecture to the hybrid crop, I think the demand will be more fast, the growth more fast. In terms of the enter customer, as you said, everybody know, the enterprise customer, they are much they are they are self reliant time is longer than the other internet company and a cloud player right now. And we do see the change of their architecture So, we see some solid, solid enterprise customer Very solid demand from some of our large financial institution. I think this will be the trend. Number 1, this is the trend.
Number 2, I think in the short term, the demand still will begin. Number 1 cloud, number 2, internet company and the number 3 is a enterprise customer. So in terms of the new customer, new enterprise customer demand, a development, I can tell you 4 years ago, we are we have this 350 customer name, right? But now, we have almost 700 yet to date, right? Almost 700.
That means we have doubled our customer number, mainly driven the number is mainly driven by enterprise customer. We never stopped to get back a new customer in the enterprise area. So, we will still continue to divest. And the good thing is that they are not traditional in price. They start to use the hydro crop.
We think that we will get the benefit from next few years.
Is that right? Yes, I think as you're right, we used hybrid cloud in reference to large internet companies, which maybe sounds pretty unusual. Yes. But that's what we're seeing. It reflects the range of applications and data that they have, the range of requirements, for example, video streaming might provide more, let's say, CN, which, for which they will use a public cloud, but there could be other business areas, other different applications, which requires a lot of complications and services in case we put that on there, private cloud.
And then there's a traffic migrating between the two. So I think it is right to talk about Hydro Cal. There's reference to opportunities you would love to meet customers. We haven't provided any, target, I hesitate to do so, but on a 3, 5 year basis, we do, aim to increase the proportion of the reported retail financial institution and enterprise from from where it is today. And that's despite what we expect to be the continued very high volume growth from cloud Internet.
Thanks, Stan, and William. Can I ask you a follow-up question? Number 1 is, if the I mean, for these traditional enterprise customers, do they have more demand or do they want more to be in in the core Tier 1 cities, or are they happy to be at edge of town locations? So how does that impact your capacity expansion plan. And number 2 is that if you have more these traditional enterprise customers on a 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 and make sure
Yes, you're right to that last point. The enterprise, enterprise deployments are mainly downtown. There may be a limit on that, which in the 1 1000 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, it's not yet part of our customer mix related talent. So I think, yes, the enterprise business does require downtown. And the sales cycle is longer, and it's more intensive with the increase in our sales resources, to cover that segment.
We also have a lot of, follow on sales potential without established customer base. I'm now 700. Our 700 odd customers is 250, almost 250 financial institutions in that mix. Well, that's been filled up over more than 15 years. We were sort of 1st 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 IP architecture to to make new sales for those long established customers.
Okay. That's great. Thanks for the comments.
Your next question comes from the line of Angie Lee from CICC. Hongji. Please ask your question.
Thanks management. I ask one question. Can we just proceed on the power supply? As well as we'll have multiple So how do you see the power supply over there or the power delivery impact our delivery and also in other urban area and edge count is, except for their government hotels, they have other ways to guarantee our power supply over there. Thanks.
Sorry, sorry. The line is really unclear. I'm just checking with Laura. If you could ask me a question once more.
To the power supply in mobile. Power supply will that affect our delivery next year.
Okay. Yeah, yeah, long term, long term is a city has some limited power capacity number 1. But number 2 is that we are first moving downtown we definitely secured the power capacity for the future development. I think this is our first mover advantage I think the power supply will not impact our delivery delivery in a noncore area in a net or couple of years. Okay.
You. Your next question comes from the line of John Choi from Daiwa. John, please ask your question.
Management, thanks for taking my question. I have a quick question related to your, I think initially management you guys mentioned about your ESG efforts on like next year, you'll spend a bit more on and how about you still able to extend on 1% EBITDA margin? I think with the recent Carbon Neutral initiative by the government, what is our plan for on the renewable side and how would that impact our our costs in terms of developing and would that have any impact on our MSR? And just quickly on Dan, you mentioned about your app was inorganic. It seems to me that inorganic has been stepping up since the past 12 months.
Is it because the projects that will be more mature in the in town cities or the prices have been coming off? Is there any trend that you could share with us? Thank you.
I think Jonathan likes to respond to, initiate on G Destiny, unfortunately, may see. Yes, 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 targets without giving a timeline or any metrics. And it just looks to me like, a marketing We've established, I mean, we are we have and we are enhancing our expertise in the power sector that I imagine is better. And it requires ingenuity and creativity.
To be able to increase the portion of our data centers, which use renewable energy. And we're working hard to to do that. So take it very seriously. Inorganic proportion seems to have stepped up. And we've done, I think, the Shanghai 2019 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 and A deal. There's been around 2 deals, per annum. It's just that some of those deals have been being larger, for example, one of the deals in 2019 was Beijing 101112. So it's like 3 data centers. And the deals that we've done in 2020, like Beijing 13 was 20,000 square meters.
In fact, we hope soon to announce, but we've been able to upscale that quite significantly. And beta 14, which hopefully, we'll move forward and find definitive agreements and close next year. It's also 20,000 square meters. So I think we're still we're still doing around 2 deals, per annum. And hope to maintain that or if not more.
And then comment about acquisition multiples. I think we've we're seeing 2 kinds of, M and 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 a settlement purchase agreement, there is still a substantial amount of work to be done to complete those projects. And in that case, we buying projects at single digit multiples of estimated stabilized EBITDA fact factoring in what we pay and the cost to complete. Shanghai 2019, you can, you can kind of do the math from what we disclose definitely fits into that. Into that category.
But then there have been a couple where we've acquired data centers, which were already complete, 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 REIT markets in China, develops, which won't be long now. Respect to data centers, I'm interested to see what kind of cap rate, data center REITs will command.
My expectation is going to be, it's going to be way below the level at which we've done, our deals, even be more advanced from materials.
Great. Thank you.
There are no further questions. I'd like now to turn the call over to the company for
We feel free to contact GDS Investor Relations through the contact information on our website or Piacente's Investor Relations. See you next quarter.
This concludes this conference call. You may now disconnect your lines. Thank you.