Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited. 4th Quarter Full Year 2019 Earnings Conference Call. 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.
Hello, everyone. Welcome to the 4Q 2019 full year 2019 earnings conference call of GDS Holdings Limited. We are deeply sorry keep you guys wait paying for so long, but we just had some technical issues last minute with to file our release with the SEC. So we assure you that everything is fine. The company's results were issued via newswire services earlier today and are posted online.
A summary presentation which we'll refer to during this conference call can be viewed and downloaded probably soon from our IR website at investors. Cdservices.com. Leading today's call is Mr. William Huang, CDS, 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. Jamie Kuo, 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 views expressed today. 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 GDS 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 founder, Chairman and CEO, William Huang. Please go ahead, William.
Hello everyone. This is William. I'm here in Hong Kong with Dan and Jamie. Thank you for joining us on today's call. With all the recent developments, 2019 feels like a long time ago.
But please allow me to begin by talking about our great achievement last year. First of all, We hit our self targeting adding over 81,000 square meter or 174 megawatts of new customer commitments. When fully delivered, this will add RMB2.4 billion or $345,000,000 of annual recurring revenue. We expand the data center capacity in line with sales, adding over 90,000 square meter in service and under construction. In addition, we expanded our development pipeline We currently have over 320,000 square meters as square meters occurred for future development.
Which is far more than anybody else in the market. It's very variable and a key to our continuing success. All of our flows and all of our capacity additions were in Tier One markets. Our financial results were impressive. We grew revenue by 47.6% and adjusted EBITDA by 74.3% year over year.
We beat guidance on both metrics. Our adjusted EBITDA margin came out nearly 7 percentage points higher. We raised US900 million dollars of equity to ensure that we can keep on growing at the current pace or faster. Furthermore, we established an innovative, strategic partnership with GIC, which expands our addressable market and gives us access to an alternative source of equity. Let's turn to Slide 5.
Demand was consistently a stronger throwout 2019. What is driving this? 1st and foremost, is called adoption. Alika, the market leader reported over 60% revenue growth for the last quarter. Tenson Cloud just reported nearly 90% growth.
The cloud in China is still at an early stage in terms of penetrating large enterprises. In addition to cloud, we have recently started to see our customer gearing up in anticipation of 5g Takeoff. Let's turn into our customer franchise on Slide 6. The major highlights is expansion of our hyperscale customer base. On the one hand, demand from our top 2 customers was very well sustained and it continues to drive around 50% of our sales.
On the other hand, we made breakthroughs with several key accounts. As a result of which we are now a significant service provider to almost almost all of the hyperscale customers in China. The winning factors our multi market platform continues to apply long term track record repetition for operational excellence, transparency and financial capability. These are the differentiators which have taken years to develop and are not easily matched. We believe that our market share has increased in Tier One markets with our parent customer mix We are pledged into growth across the digital economy.
In addition to hyperscale, we added some highly prestigious new logos In the last quarter, we signed a master sales agreement with April and won our first business from April. We ended up this year with great sales momentum. As a result, we have raised our sales target for 2020 to 100 square meter net add made up of 80,000 square meter organic growth and a 20,000 square meter from the pending acquisition in Beijing. This target did not reflect any flow through from increased usage of digital services in the current period. In 1Q 20, we are not we are on track to achieve comfortably over 20,000 square meters net add and the next quarter also looks very strong.
This demonstrates that customers are not holding back We expect to make a lot of progress towards the 100,001 100 K target by the middle of the year. Turning It is also very noticeable that customers have changed their approach. They are pre committing early to secure their supply. This is reflected in the upward trend in our pre commitment rate. In reality, almost everything that we do is driven by specific customer requirements.
On Slide 9, as we have been saying for a while, the biggest challenge is keeping up with demand in Tier One markets. To deal with this challenge, we have involved evolved our approach to project sourcing in 3 major ways. 1st, because of the restructuring on data center development in urban areas, we have established a supplemental supplementary presents at the edge of town, such as Langham, to serve Beijing, and Kunshan and Changshu to stop Shanghai. 2nd, we have increased our property ownership existing buildings in urban areas and the greenfields land at the edge of time. We now own over 50% of our entire capacity, including around 20% at the end of 2018, increased ownership give us much more flexibility and the certainty of supply.
And 3rd, we have put tremendous efforts into building up our pipeline of future projects. We aim to have at least 3 years supply in each market and have made great progress towards this goal. The change of approach is already yielding great results. Let's move to Page 10. Take a long time as an example on Slide 10.
It's 50 kilometers from Beijing and the Bible edge of town location due to the existing concentration of carrier data centers. We selected Lanfeng with the endorsement of our top customers and spent a long time working with the local government on a framework agreement for power, land and investment. 1 year ago, we had nothing in long term. As of today, we have 30,000 square meters of capacity in service and under construction. Across 5 data centers, all of which are 100% committed by our top customers.
And we have secured another 83,000 square meter of develop capacity. We aim to repeat this success evolved our approach is with regard to acquisitions. We started off a few years ago, viewing M And A as a means of adding to our supply. Now we also view it as a way of increasing our presence in key locations, expanding our relationship with strategic customers and accelerating our growth on a very accretive terms. We have stepped up our M and A efforts.
And if the opportunity allows We aim to do more deals. We are actively pursuing several deals targets. Before I hand over to Dan, I would like to say a few words about the current situation. From the onset of the coronavirus epidemic, our top priorities have been to ensure number 1, to safety, the safety and the well-being of our employees and of the people we interact with. And the second incident free operations So far, I'm pleased to say we have achieved both of our goals with 0 infection and 0 SLA breach.
It has not been easy. We made many changes to our policies. Procedures and the communications, but business continuity is where we come from. It's part of our DNA. The steps that we have taken have been very much appreciated by our customers.
We received a lot of positive feedback. It's at a time like this that you get tested That's the quality of our operations set us apart. That the customers remember why they do business with us. Our reputation has been enhanced. Coming into 2020, we felt that our market position and capabilities has gone a lot stronger over the past year, while the opportunity in front of us keeps getting bigger.
The virus epidemic is a tough tragedy and our thoughts and the prayers are with all those who have been affected. During this tough time, Digital service has played a critical role. We have all had to change our behavior And this may result in a structured shift in how we live and work. The importance of the underlying infrastructure has been recognized at the highest level of the Chinese government. And may result in favorable new policies.
We are waiting to see the specifics. However, long it takes to get through this period. We believe that the the mental of our market position and opportunity will remain intact if not stronger. With that, I will hand over to Dan for the financial and operating review. Thank you.
Thank you, William. Starting on Slide 15, where we strip out the contribution from equipment sales and the effect of FX changes. FY 2019 finished strongly, and I'm pleased to say that we beat our guidance for revenue and adjusted EBITDA. In 4Q 2019, our service revenue grew by 9.5%. Underlying adjusted NOI, grew by 7.4%.
And underlying adjusted EBITDA grew by 8.8% in consecutive quarters. Our underlying adjusted EBITDA margin was fractionally down in the last quarter at 45.6%, However, for the full year, our underlying adjusted EBITDA margin was substantially higher at 44.7% compared with 37% in FY 2018. Turning to Slide 16. Service revenue growth is driven mainly by customers moving in to the space which they previously committed. Moving during 4Q 2019 was 18,000 square meters, including 7800 Square Meters from BJ9.
DJ 9 is an acquisition which we entered into last year. It is not closed yet pending a final CP. As an intermediate step, the existing customers have entered into new contracts directly with us, and we've taken over operation of the data center under a management contract. Our MSR was quite stable over the course of 2019, However, we expect a slight drop in 2020, mainly due to customer and location mix, acquisitions and the timing of moving. Slide 17 shows the quarterly trend in margins.
In 4Q 2019, underlying adjusted NOI margin decreased by one percentage point, mainly due to 45,000 square meters of new capacity coming into service in the last two quarters. In addition, under the PGA9 arrangement, we are getting a low double digit profit margin until the deal closes, which is a slight drag. The decrease was partially offset by leverage on SG And A, which went down to 7.8% of service revenue, compared with 8.4% in the prior quarter. Adding to our 4Q underlying adjusted EBITDA margin, was just more 0.3 percentage points lower. Therefore, 20 We expect around a 1 percentage point improvement at the NOI level and a further 1% from leverage on SG And A.
But the quarterly trend could be a bit up and down. Turning to Slide 20. Our total CapEx in FY 2019 was $5,300,000,000, including $1,500,000,000 related to acquisitions of data centers, property and land. In 4Q 2019, we paid for the Hong Kong 2 site, the Shanghai 14 Building and looks to consideration for the 12 6 acquisition. Up to the end of last year, we'd also paid out RMB 270,000,000 for Builders Institute joint venture projects, which will be reversed when we saw the night present the equity interest to GIC.
The majority of our CapEx consists of plants and equipment, which is essentially the same in each data center, and the cost is easily benchmarkable. We've been able to reduce our unit CapEx for P and E by 3% to 4% plan over the last few years and expect to continue doing so. The remainder of the CapEx relates to the building, which can be leased or owned, and to the external power infrastructure. The unit CapEx for this part can vary depending on the specifics of each project, but on average has stayed at around the same level. On Slide 22, we ended 2019 with gross debt or $16,200,000,000, or $2,300,000,000, around 80% of which was in the form of mostly local currency denominated project term loans and finance leases.
This debt is structured to fit around the project cash flows and is substantially covered by our multiyear contracts with investment grade customers. The term loans are covenant light or have no covenant at all. The remaining 20% of our debt is made up of the CD at Holdco level. Which is unsecured and has a remaining term of over 5 years and have working capital facilities, which we have rolled over numerous times. In 2020, we're guiding for RMB 7,500,000,000 of CapEx which is elevated due to payments for pending data center and property acquisitions.
Assuming a conservative financing ratio, of 40.60 equity to debt. We will need RMB3 billion of equity, and RMB 4,500,000 of debt to finance our CapEx. For the equity part, We are sitting on $5,800,000 of cash, thus we expect positive operating cash flow this year. For the debt part, most of the facilities are already in place. We have RUB 2,500,000,000 committed but undrawn, leaving about RMB 2,000,000,000, which we are working on right now across 7 facilities with local and foreign banks.
To put this remaining requirement into perspective, last year we secured nearly RMB6.5 billion of new debt 30s. The banking market in China is very supportive. We have a great track record as a borrower, and a diverse trade banking relationships. I could see no reason at all why this should not continue. Finally, we established partnerships with Ping An and GIC to ensure that we have access to diverse funding sources and are not reliant on the public markets.
Regardless of the current situation, we are always considering alternative funding options with these and other potential partners to optimize our capital structure and cost. Turning to Slide 23. Our contract backlog has been increasing each quarter. We ended FY 2019 with 108,000 square meters, equivalent to 70% of our revenue generation area. Part of the backlog related to data centers in service, The amount has remained in the 40,000 to 50,000 square meter range over the past 5 quarters, driving organic move in of around 10,000 square meters per quarter, which implies about a 4 to 5 quarter move in period.
The remaining part of the backlog relates to data centers under construction. The amount has increased significantly from just over 31,000 square meters at the end of 2018 to just over 57,000 square meters at the end of last year. There are two reasons for this. 1, as Woody mentioned, customers are pre committing earlier and to a much greater extent. 2, as you can see from the table on page 21, we're undertaking more greenfield projects.
Where the construction period is around 6 months longer. As the backlog related data centers and service increases, We would expect the quarterly move in to increase. However, this is subject to the timing of project completion and other factors in the current uncertain operating environment. To finish on Slide 24 without guidance, We are nearly at the end of the first quarter of 2020. So before I talk about our outlook, I should mention what we have already seen in the year to date.
The COVID-nineteen epidemic is affecting us in 2 main ways. Construction and move in. At the end of January, construction across our 16 self developed and build to suit projects came to a halt for Chinese New Year. I did not presume until recently, due to government restrictions. We're not experiencing significant problems with our supply chain, as we had placed orders well in advance.
Nonetheless, we've lost a couple of months, which we will try to make up. The kind of delay which we've experienced will not materially impact our financial results in the current year. Moving is a much more material issue in the short term, as it's the primary driver of our revenue and profit price. The first quarter is usually a seasonally seasonal low crowd business, and this was reflected in our original forecast assumptions for the current year. As of today, it looks like our 1Q 2020 move in will end up a few or several thousand square meters short of our original target.
Nonetheless, we should still be able to achieve 1Q 20 revenue and EBITDA growth in the mid to high single digits quarter on quarter. Looking forward, the situation is that we have a large amount of capacity in service ready and waiting for our customers to move in. Our customers want to move in, but there are still many operational limitation and uncertainties in their supply chains particularly with regard to IT Hardware. China appears to be our path to recovery, but this will be affected by what is happening which supplies for insight and outside of the country. Given the lack of visibility about the pace of recovery, It took the view that we should revise down our movement assumption by several thousand square meters incrementally per quarter.
We've not changed any other assumptions in our forecast. Putting us into our model, We are guiding for revenue of RMB5.63 billion at the midpoint, implying 36.6 percent growth year on year, and adjusted EBITDA of RMB 2,610,000,000 at the midpoint, implying a 43.1% growth year on year. These growth rates are around 5 percentage points lower than what we originally intended to guide. Our sense is that this guidance is conservative, but appropriate in the circumstances. We believe that the risk to the upside is greater than the risk to the downside.
I mentioned already our CapEx guidance, of around RMB 7,500,000,000, of which RMB 2,500,000,000 mainly relates to the pending acquisitions BJ9, BJ101112, and the building in Minhahn District Shanghai. I'd like to reiterate that all of our fundamentals remain intact. Customers have not changed their plans. And despite the tough conditions, we expect our business performance to be highly resilient. We are as confident as ever about our medium and long term growth prospects.
With that, I'll end the formal part of my presentation. And we'd now like to open the call to questions. Operator?
You. Please proceed with your question. Your first question comes from the line of Yang Liu from Morgan Stanley. Please ask your question.
Hello, good evening. This is Yang from Morgan Stanley. I have two questions. The first one is for William on government policy. We noticed that the recently central government in China encouraged the data center as a new infrastructure for the first time And what are you expecting in terms of the future policy support?
Can we see more, power quota or more funding support or, and whether this kind of policy will change the investment to return profile this industry? And the second question is for the new booking target. I'm not sure if the acquisition announced in December last year, Was this split to 2019 2020? Or is all of the around 20,000 meter will fall to 2020 new booking? Thank you.
I answered the first two questions. I mean, yeah, you're right. The first data center, it's was was calculated by the central government as a new strategic infrastructure in China right now. It's mainly driven by the 5G strategy, right? So I think the effect to us, it's now it's early, it's still early to say what happened, what's the new policy we launched specifically?
But what I we are we are invited by the central government to discuss how to help you guys, right? How to give them the more advice, how to divest the, growth this industry. So what I can tell you is that there's a broad topic that we discussed with the central government I have to say we are the only data center vendor being invited. So number 1, I think what I can what we talk about is the how to released some, carbon culture, in a, a Tier 1 market. To release the supply a little bit.
But government still have the concern about the total carbon holder deployed deployment. So we had discussed how to, properly to release some carbon quota, to data center industry. Number 2 is, I mean, we talk about this summer, topic is about around how to reduce the power cost in the future and help to reduce the the long interest rate, this is all discussed. So In general, I think it's positive for us. And Central Government want to help, to develop this industry.
But so far, I still say, now it's the stage it's too early to say some, a, a, a, a, a, a, a, a scene right now. That's my view. Yes.
The second question is. Yes. Hi, Yang. Last year, we entered into 3 acquisitions, 2 were included as part of last year's new business, Guangzhou 6 closed Beijing 9, we took over the way I described. The 3rd acquisition, which we call Beijing 101112, announced in December, We're working hard to close that hopefully by the middle of this year.
So when we talk about our 100,000 square meters sales target for this year, it was the it will be 80,000 square meters organic and 20,000 square meters through that specific M and A deal, 8000 square meters organic is, is significantly more than we've done before organic. And we believe that 80,000 square meters organic is sustainable. So that's the new normal. Beyond 80,000 square meters, it's either M and A or maybe it's on our side, yes. Yes.
Yes. I added a one point also talk about the to the central government, how to release, how to, how to, close some inefficiency, small data center in house legacy. To enforce to force the use of professional data center like us
Got it. Thanks a lot.
Your next question comes from the line of Jonathan Achin from RBC.
Thank you. So Dan, you just sort of answered one of my questions, which is about the $100,000 being the new norm. And I wondered, do you think you could potentially do more than that, given the boost in demand that you're seeing from the current environment, either organically or through M And A. And then I wondered if we could also pivot a little bit to the the changes that have been taking place at CyrusOne and any impacts on board membership and just the overall relationship? I do know that Tesh their new CEO has spent a lot of time in China, but if you could maybe comment on CyrusOne that would be interesting.
Thank you.
Actually have a good community role as part.
Yes. I think, we didn't change our view. Actually, last quarter, when we talk about the market demand, we still, sit on that view, the China data center market has accelerated. It's not that it will not impact by the virus because we believe that virus stuck is shortened impact. So from the midterm long term, we still think the the total market will accelerate.
This is number 1. That means we have the chance to do more in the future. But this year, this 1st half year, maybe a little bit of time, but it will not change. It will not change our view. For the future market, because we believe the linearization is a, it's a, it's an overwhelming chain, in China, even in global market, right?
I think the number 1, we still maintain the relationship with the CyrusOne. We still have some deal to talk about it together. It will not change the Gary step down or anyone who would deal with the institution that deal with the individuals, right? I think that anyone not shared our relationship with CyrusOne but few help each other, cash and Johnson, called me after the announcement. And Gary also, we had the conversation with Gary.
So I think the number 1, we're not a change in the boss seat right now. And Gary is a respect, a profession in the industry, always bring that variable opinion in for GDS. So we are we appreciate that. And on the other hand, I think we, as I said, we deal with the institution, not personally. So I think the, cellphone and GDS situation will be not changed.
Thank you. And then I wanted to maybe talk about any or ask you, have you seen any differences in the pace of deliveries and construction by the west of the industry. You talked about how the virus has affected you. From essentially a labor standpoint and slowdowns related to that. But has that been affecting competitors equally or more so?
I'd be interested in your perspective on that. And then you also mentioned again the increase in demand and how does that influence your thinking about entering new markets in the past, you've sort of alluded to a couple of new municipal metros in China that you would think about investing in? Is the appetite for that equally as strong now or has customer demand trends changed your thinking on that? Thank you
Does it play to William? Yes, so first question is, whether competitors have been affected like us or to that sort of greater extent.
I mean, how I'll come back to you?
Being affected by it in the current situation, have they been affected, in terms of their construction timelines, their needs and
I think in general, I mean, the current situation is equal for all of our competitors right? And I think this is number 1. So the advantage for GDS is we have we have a scale. We are a more easy, more well managed internally in my view, right? So in terms of another construction point of view, I believe we are we managed better than the other competitor.
This is a this is a my view.
Yes. And the second question for John, so whether we see increasing demand in other markets, new new markets and whether we have appetite to go for those places?
Yes, I think that we are we intend to go. We are ready go any new cable market, right? So we still didn't change our we didn't change our view we will go to some new market. As we mentioned last couple of quarter, Hong Kong market, Chongqing market and something new, like 19 and Hanzhou is our target in the future. And, on the other hand, we also think about the based on our current installed based customer requirement, we are serious talk about, think about how to go to the Southeast Asia.
Thank you very
Your next question comes from the line of Colby Synesael from DDS. Please ask your question.
From Cowen. 2, if I may. Number 1, I think you guys said in your prepared remarks, you gave some color on what leasing was looking like. I can't couldn't tell if you were talking specific to the first quarter or the second quarter, both. So I was hoping you could kind of just dig a little bit deeper into what you're currently seeing And then secondly, as it relates to the, the move in rate, and I appreciate that you're being more conservative in that number right now, but Would you expect at some future point?
And I appreciate you're not going to tell us what quarter that is or you might not know what quarter this is, but would you expect for all this to kind of catch up In other words, would you expect at some point, we're going to see a very sizable quarter or 2 to kind of make up, if you will, for the lost ground considering these these developments are actually still going on. And at some point, everything is going to get completed. And also when we get to a point where all the installs are kind of back on track, And if so, if that's the case, would you expect them to see a notable impact on outer year expectations? Or is this really kind of focused on a slower 2020, but by 2021, we're kind of back on the trajectory that we may have previously been assuming?
Yes, good. Thanks, Colby. On the first one, as we're near the end of the first quarter, we already know what we've done from the sales point of view in the first quarter, and it's a we just said comfortably over 20,000 square meters organic. And we already have a, I would say, very good idea of what we're going to be able to do in the second quarter on top of which, hopefully, the, EJ 101112 acquisition will close in the 2nd quarter. That's 20,000 square meters there as well.
So if you add all that up versus a full year target of 100,000 we said we're going to be a long way, which I'm turning in more than halfway, maybe quite a bit more than halfway, towards that target. I just mentioned that because we know that as a fact and, to give some confidence, in what we're saying in terms of our sales target. The second part what you said is quite, might possibly be the case. We looked at different scenarios, we spoke to our customers, I listened to the other earnings calls, people not predicting what the shape of the recovery is. We could have assumed there'd be very little movement in the 2nd quarter and an enormous ramp up in the 3rd fourth quarter.
We just as it We'd slide in the end just to take a haircut to the numbers for each quarter. It's only a few thousand square meters. And the reduction, the resulting reduction in revenue and EBITDA was kind of the same, whether you looking at a B shaped, U shaped, or whatever. Interesting statistics that I'll throw out, the last, I guess, like, 5 or 6 weeks, from just before Chinese New Year until a few weeks ago, there was no move in. So the amount of capacity that was being utilized in our data centers was static.
But during that time period, our customer's palling usage went up by nearly 4 percentage points, which means in simple terms that they're running their servers at higher utilization rate, higher than normal and higher than they would normally do given their operational parameters. And that's indicative of, requirements to deploy more capacity. That's why we said customers want to move in. It does. So it's really a question of whether they can.
I believe that most of the current inventory of services really being deployed. So, the next wave of moving is dependent on the production and the supply. If that comes through quite quickly or in size, then yes, I would actually expect quite a sharp ramp up in moving. Yes, and that might be what we describe as risks to the upside.
Your next question comes from the line of Gokul Hariara from JP Morgan. Your line is open. Please ask your question.
Thanks for taking my questions. Hope everybody is safe. Just first question on you talk a little bit about, maybe William, on, how you're seeing the dynamic of better than in demand due to work from home and mortgage to consumption, etcetera, versus the relative lack of ability to execute on move in or not having a component, like some place that Tencent also indicated yesterday that they are facing some degree of tightness in terms of some capacity, some hardware or the other. Could you talk about how your customers and you are dealing with this And what are they doing to kind of mitigate that? Are there any kind of near term measures?
Is it able to mitigate that? And how does that, What are you expecting this? How is it going to manifest over the couple of months. I think are we kind of past the peak of that or are we still going to be in that kind of a phase in the next couple of months as well? Second question I had was on, some of your remote sites.
I think if you can take Langpang as a case study, you already have one data center under service. Could you talk a little bit about how the dynamics are shaping up in terms of operating a data center in remote location, and how you're able to manage capacity ramp up and how the dynamics are for this kind of data center compared to, city center kind of data center And one last question, if I may, on the financing side, I think you clearly explained where you stand in terms of availability of financing both equity and debt. This is an industry which saw a lot of financing come in over the last couple of years for your competitors as well. Private equity as well as other sources of financing. Can we talk a little bit about industry wide in terms of what you're seeing on financing pipeline Are they still intact?
Do we see some degree of compression on financing on an industry wide basis?
Julien? Yes. First question, sorry, first question was, what can be done about the issues in the supply chain. Customers got any solutions. We got any solutions to Yes.
I think
I mean, that's so much. Or what's the question?
Good question. Is there anything, any solution, to that problem? Anything else?
Yeah, we can do nothing frankly speaking. We are not in this industry, right, in server industry. I think what I what I heard about it, our customer is that, try to get more server as much possible in the current market, right? So I think they pushed
a lot of
the supplier to to get some inventory in the other country or other market to try to mitigate the impact of the supply. That's what they are doing. But so far, we don't know what's the percentage they can achieve, right? So in general, they are doing their best right now with what our customer told us. So looks like Q2 maybe, will catch up the revenue a little bit.
That's my view, current view.
Okay. 2nd question is about operating land time. Maybe I'll go first supplement. Yes. So, to Google, the Beijing Municipal government started to introduce for frictions on, new data center approval, I think, at the end of 2016, and became apparent in 2017 that would not be possible to maintain sufficient supply to fill demand, within the within the urban area And we started then, to work on the backup plan.
I'd say it took us about 2 years of discussion and interactions and so on, with the land bank government, resulting in a framework agreement, which addresses, yeah, allocation of substantial amount of power, in fact, substantial amount of the power, which is available in that area. And the sale of the sale of greenfield land and investment. That, that, yeah, we chose Langhang because The telecom carriers had already established major data center hubs in that market. Therefore, the connectivity, at least from that part of Lampang, not the whole of Lampang, but that part, into Beijing is very good. So in terms of latency, it's only a small drop off, versus the latency within Beijing.
But in order to proceed, we really had to cover 2 bases. 1 was the government and 1 was our customers. And we had to convince our largest customers because at a place like this, looking for just one order from a customer, you're looking for a customer to deploy a major amount of their own capacity. So at the end of the framework agreement, we're in a position to acquire the greenfield land and start the development, but we already got our customers wound up. So we found that we needed to accelerate our time to market.
So in actual fact, The first thing we did was acquire the land, which is for Langhang 3, 4, and 5. It should have been 1, 2, and 3. But because of the time to market requirements, we leased a number of buildings, we leased 9.1, we leased 9.2, we leased land plan 6, we leased these land plan 7. And that's why we have 5 data centers in that area or 100% committed. I mean, going forward, the intention and the better approach would be to have all of our development on the greenfield sites on the campuses.
So here, it was just out of out of necessity. Yes, your third question about, financing Yes, I'm clear about our own position. I mean, we have, yes, we have access to the public market from time to time. But we also have access through to partners and, some very significant institutions, PRC Institutions, who've also expressed an interest in working with us. So I think there's a lot of scope, in that approach, to sourcing equity and other value add As far as the competition is concerned, I mean, no one is anywhere remotely close to our scale.
There's been a limited amount of private equity participation by foreign PE and domestic PE, you know, from the case histories of our acquisitions that there's quite a few projects that are being undertaken with no equity And in fact, no, no formal debt either, just, reliance on credit from suppliers. So I don't think that on the whole, our competition is particularly well capitalized or financed, but I don't mean to damn the ball. I'm sure that there are good companies amongst them.
Yes, Gogo, I added more color to the, your, your second question. I mean, original, our plan is to supplement a supply to the bidding surprise, right? I think the people, because we realized a couple of years ago, we realized the carbon cost is getting more tight in the tumor market in the lower city. And the demand is huge, right? So in the first, in the first original paint, we tried to convince our customer to move a little bit shifts a little bit to the demand to the edge of time.
But now customers like us realize those product is different. They have the same latency sensitivity criteria. From our customer. But our customer want need a more big scale and a more big power capacity they want to deploy more big power density. Now we've realized this type of the campus and hyperscale campus.
It's an independent product. This is to fulfill our customer latency sensitive but a high visibility for the future supply and a high scale development and a high scale power capacity. This cannot be replaced in the urban time. That's my view. That's the insight now it becomes a new product.
In our view, right?
Your next question comes from the line of Jan Wong from Macquarie. Please ask your question.
Hi, management. Congratulations to the strong results. So I guess my first question is, in the past, GDS is, you know, doing a very excellent job in managing the financial leverages. I do see you guys are guiding a very strong CapEx spending in 2020. I guess I want to follow-up on the previous question on, do we funding this CapEx shortly on from the loans bank loan side or we need additional equity raising this year.
And my second question is, so can management share some colors on whether the pandemic is actually helping more or slowing down the utilization ramp up, in the first quarter. Thanks. Okay.
On the first question, our approach is to raise equity capital ahead of requirements so that as we initiate new projects we can allocate from our our the capital we have in hand to capitalize new projects on an individual basis. And we try to maintain around sufficient capital to capitalize around 2 years' worth of new projects, right? End of last year. We ended last year with $5,800,000,000 of cash. I mean, most of that effectively is the equity for future projects.
I said that we would need about $3,000,000,000 of equity for new projects in 2020. So that means we need to use about half of that. But then there's also operating cash flow coming through. So yes, we are it would look like we have sufficient equity to get us through, 2 years. The debt side, in In normal circumstances, is just about execution, is about having relationships and a track record, and sound project fundamentals and so on.
Situation we're in actually is that, we require about, 4,500,000,000 of additional debt, to finance our CapEx this year. But we already have 2,500,000,000 of it in committed but undrawn facilities. And the remaining $2,000,000,000, actually, we're working on $3,000,000,000 of new debt facilities right now, some of which are almost done. So there really isn't any financing risks to what we're planning to do. At least for the next 1 to 2 years, So the second question is whether the virus impact is actually slowing things down or speeding things up.
I suppose probably could say there's a difference between slowing things down in terms of moving, but maybe speeding things up in terms of demand.
Right. I think it's future. I mean, if they're moving a little bit and stay on the current point What we can say is the service supply chain looks like uncertain, right? So it will impact our moving our customer moving this quarter or maybe a little bit in the next quarter, But what we can tell is, in China, inside of China, the manufacturer is recovered right now. So I think it is a little bit positive for the Q2, as I mentioned just before.
But for the demand side, I think that everybody know, this current situation A lot of the internet saas per year, a lot of the internet per year and a lot of the e commerce per year, a lot of the application, we're well educated to the interdisciplinary market. So I think that long in the mid term, long term, maybe it will drive more demand in the future.
Your next question comes from Arter Eli from Ziti.
Hi, good morning, good evening. This is from Citi. I have 2 quick questions, maybe to Dan. So the first question is, can you talk about the contract renewal schedule The reason we ask this question is we recall like the IPO stage, you talk about countries sometimes call with 4 years or even longer. Are we in the middle of the negotiation with the times and dive into the detail in the Tier 1 city or in the retailer client Was the pricing trending up or can we get the beta EBITDA margin for the new contract?
I will start my question. Thank you.
Thanks, Arthur. On page 36 of our earnings presentation is a summary of the amount of capacity, which we have coming up for renewal in each year. In the current year, it's 23,000 square meters of capacity. It's 8.9% of our total, committed area. And it's around the same similar level in each of the next few years.
If you delve into the individual contracts and who are the customers, there's very little cloud or internet business coming up for renewal it's mostly enterprise business. And there's contracts, 1, 3, 5 years. So they renew more often. And they and they renew automatically, quite, quite, quite, quite, quite typically. So I think, this question arises from analysts and investors.
I know what you'd like to get at, which is to see some benchmarks for what the pricing will be when we do get to have renewal, significant renewals with the large cloud and internet customers. But that's not going to happen this year. So I won't be able to give you any empirical evidence of that. But going back to what William said about our kind of layout now or configuration in terms of sort of downtown and edge of town, If customers, don't want to pay the price, for the downtown, we have an alternative option, the edge of town. Certainly, we believe that downtown capacity has increased in value a lot.
And maybe our ability to achieve higher selling prices there So that is something which we can certainly offer to customers. I think the second question was Yes, if you talk about the price, actually, you mentioned EBITDA margin. Actually, we had to talk about the price together with the unit CapEx and then in terms of a return investment. So for us, we look at it in a very fundamental way. So we talk about IRR.
We can't really talk about it in terms of EBITDA margin because that doesn't really tell you what's happening in terms of the project returns. So the unit CapEx has been coming down. I said the majority of it, the P and E has been coming down by about 3% to 4% per annum. The MSR revenue per square meter, at least if you take a little bit like 2 or 3 years, come down, I think, by about 5% per annum. So you can see that the the degree of decline, is quite close, and what that tells you, is that actually our returns must be pretty well sustained.
If the yield and the investment costs, are moving in line with each other. And that is indeed the case. So if an IRR from an NOI yield point of view, we're still achieving same kind of returns in the last 2 to 3 years, which is exactly what we target to do.
I can answer your question. I mean, take a more color on that. And then number 1, our customer now, dear, dear, they how they look at the data center right now is a same view with us. Number 1, they need an urban town data center because in the future, it was adopted to the Edge data center for it's it will benefit for for the edge data center demand. On the other hand, edge part always fulfill the mission critical system as we mentioned before.
So I think the, in the future, edge account data center was more valuable. If our customer like to, low latency that can tolerate a little bit latency issue and they want to have a big scale, close to the Tier 1 market, we can offer edge of town product to them. If they want to just pursue the cost effective, I think they already we already set a model to build to suit for that for, for our customers in the remote area, right? This is 3 different products, which we, structured well structured to our customer.
Thank you.
Your next question comes from Frank Louthan from Raymond James. Please ask your question.
Great. Thank you very much. Can you, looking back to your comments earlier on the government's position, on data centers is critical infrastructure. Do you think will that new position make the industry more competitive? Is it going to encourage new entrants or relax foreign company's ability to own and operate data centers?
And then to your comment you just made sort of on pricing and your cost inputs, Do you think your costs go up in the short term if labor is in short supply? Thank you.
And the first one is, whether government policies could lead to greater, more competition,
I think our view is that If we if government release more flexible, more flexible to release the common quarter in a Tier 1 market, we believe if you look at it in GDS in the Beijing market, for example, in Beijing market, we lost up a lot of the deal last couple of years because we can shrink the carbon quota, the carbon quota. So if the government release the current quarter to more current quarter. And we believe We will do more business. We'll get a more market share in the Tier 1 market because if the carbon coated barrier is equal, that means customer will more focus on their more focus on the value of the service provider. So our customer, our major customer, they are now looking at the service vendor is not just the capacity.
They all, they have to, they have a lot of the, different criteria. That means if the carbon codes vary, getting lower, That means that the other criteria will be more focused on from our customer. So we are well positioning in our other value, right?
Frank, on the labor costs, and I'm not sure if you're talking about the cost of revenue or how it affected construction costs. On the cost of revenue side, most of our staff headcount by number is in data center operations. It's, mid to high single digit percentage, of our revenue. So it's not not the biggest cost item. It is one of the parts of our cost structure in which we get getting quite a bit of operating leverage because whilst there's certain number of people who have to be dedicated to each individual data center, there's also quite an amount that can be centralized.
So we don't see anything out of the ordinary in terms of inflation there. Most of our people are back at work, actually. Yes, I think our data centers are pretty staffed. On the construction side, the initial delays were caused by doubling restricting activities. And then once construction resumed, construction workers who came from other parts of the country had to go through quarantines.
So it took some time for the number of workers on-site to reach the full complement. Actually, it's still not there. I think it's 29,000 to 6000 construction workers employed by our contractors, of course, our sixteen sites, maybe 75% back in place. So I think this is a fundamental shortage, it's just a transitory thing as, as people come back to their place of work.
Okay great. Thank you very much.
As there are no further questions, I'd like to now turn the call back over to Lara for closing remarks.
Thank you all once again. Joining us today. If you have other questions, please feel free to contact GDS Investor Relations through the contact information on the website or the Piacente Group Investor Relations. Thanks all. Bye bye.
This concludes this conference call. You may now disconnect your lines. Thank you.