Hello, ladies
and gentlemen. Thank you for standing by for the GDS Holdings Limited Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded.
I will now turn the call over to your host, Ms. Laura Chan, Head of Investor Relations for the company. Please go ahead, Laura.
Thank you. Hello, everyone. Welcome to the 3q 'nineteen earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online. A summary presentation, which we will refer to during this conference call can be viewed and downloaded from our IR website at investorsgdservices.com.
Leading today's call is Mr. William Huang, GDS's Founder, Chairman and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GSEFO, will then review the financial and operating results. 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 involves 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 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 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, Mr. William Huang. Please go ahead, William.
Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. A couple of weeks ago, we passed 3 years anniversary of our IPO.
Live as a listed company has been exciting. Sometimes it's too exciting, but it has made us considerably stronger. Today, we are reporting revenue and adjusted EBITDA, which is 3 times and 6 times what we reported for 3Q 16. Our total area committed is almost double what we focused at IPO. It's been an outstanding 3 year in terms of growth.
However, we firmly believe settle best is yet to come. As I go through our results, I will highlight our strategic progress in key areas. During We signed up customers for over 21,000 square meter of net additional area committed. Or over 57 megawatts of IP power, which should generate over $19,000,000 of annual recurring revenue when fully delivered. We had a net free order orders for over 10 megawatts from existing customers, a sign that all the sites is getting bigger We also won a 9 megawatts order from a new internet customer, a market leader in short video streaming, At the end of 3rd quarter, CPU, we reached 58,000 square square meter net add for year to date.
As of today, we are done in terms of meeting our full year sales target of 80,000 square meters. In the past few months, customer sentiment has become a lot more positive. Cloud adoption continues on a steep upward path. With market leaders reporting 65% to 100% growth. 5G deployment is starting to drive another wave of demand.
All of our focus is on next year and the 2020 sales pipeline looks very promising. We have posted on prior calls about the diversification of our customer base At the end of 2016, we had 3 hyperscale customers. Now we have 13 And in the current quarter, we signed a new hyperscale customer. Global technology company with a consumer focus. The combination of sustained demand from established customers plus new high growth accounts has enabled us to deliver 20,000 square meters net add per quarter.
There are still new customers and markets for us to penetrate. With all we are well positioned for higher level of sales over the next few years. 20,000 square meter of sales means starting 3 to 4 new datacenter projects each quarter. For us to do this, we need a larger development pipeline. As you know, it is difficult to see days to get approval for new data centers in downtown areas.
We continue to have some success organically and supplement our capacity with acquisitions. However, it is not nearly enough to satisfy our customer demand. We have, we have, therefore, involved our strategy to include large upturn sites. Our first major move was in Langham on the edge of Beijing. This is already proving a great success Within a couple of quarters, we have commitments from 3 different hyperscale customer customers for 100% of 3 data centers, long form 12 and 3.
While we still have inventory of land and power in long term. We are moving rapidly to secure even more resource. We aim to repeat this success in other Tier 1 markets. In we got approval today for new downtown capacity. In addition, seeing more land near our established edge of townsite in Kunshan.
We have also obtained substantial power capacity for another edge of turn sites in Chang Changshu. The power plus land at these locations will support around 90,000 square meters of new capacity. In the grid bay area, We have power plus land at a location near Guangzhou. We have leased shell buildings at 2 other locations near to our existing data centers. And we also have the Hong Kong 2 acquisition which I will talk about the next.
Altogether, we have a rather 230,000 square meter of develop capacity in these key Tier 4 markets, and we are not stopping. It is very strategic resource and positions us to respond to higher level of demand. We established operations in Hong Kong over 5 years ago relying on third party data centers to serve just a few of our many Chinese financial institution customers. We took the first step to upgrade our presence with the purchase of the Hong Kong 1 property in 3Q 'eighteen. The site is now cleaned and we will start construction of the new building.
The redevelopment timeframe in 3 years. Hong Kong is a gateway for the most of the international bandwidth connecting China. Our hyperscale and high growth customers use Hong Kong as a launchpad for their international service. They are pushing us to further increase our presence in the market. Our strategy is to always go where our customers have critical mass of demand.
We have therefore taken a significant step with the purchase of a second building for the redevelopment. Hong Kong II is located only 100 50 meters from Hong Kong 1, enabling us to realize investment and operational synergies. We view Hong Kong as integral to our Tier 1 market platform with proven demand from our China hyperscale customers and the presence of more than 200 of our Chinese financial institution customers in Hong Kong. We believe that the success We announced the last quarter, the formation of our partnership with GIC for remote Bluetooth projects for hyperscale customers. The initial focus is on 7 projects, which we have committed to develop and operate for one customer at 3 of their campuses.
We have almost completed the first project and expect to sell a 9% equity interest to GIC early next year. We have started to work on 2 more projects. It's enabled us to fulfill the broader requirements of our strategic customer outside of Q1 market. We see this as a real opportunities to strengthen our franchise, gain scale, and create additional value. We have therefore formed a group within GDS to focus on remote build to suit projects as a distinct product.
The 7 projects committed to date will require around $150,000,000 of equity. It's relatively small by GIC standards and they have given us their backing to scale up this partnership in a material way. We're already in discussion with a couple of other customers It's going to take time as these deals are complex. But I'm hopeful that over the next few quarters, We will have some more wins. With that, I will hand over to Dan for the financial and operating review.
Thank you, William. Starting on Slide 13, where we strip out the contribution from equipment sales and the effect of FX changes In 3Q 2019, our service revenue grew by 7.5%. Underlying adjusted NOI grew by 9.2%. And underlying adjusted EBITDA grew by 11.4% in consecutive quarters. Our underlying adjusted NOI margin reached 53.8% and our underlying adjusted EBITDA margin hit 45.9%.
Which is 7.9 percentage points higher than a year ago and 1.6 percentage points higher than the prior quarter. Turning to Slide 14. Service revenue growth is driven mainly by customers moving into the space, which they previously committed. Move in during 3Q 2019 was over 10,000 square meters. We're expecting a similar level of move in during 4Q 2019, On top of which, we will have around 7000 square meters of additional revenue generating space from Beijing 9 when the acquisition closes at the end of the year.
Our MSR has been pretty much flat over the past few quarters However, we're expecting a small drop in 4Q 2019. Slide 15 shows a quarterly trend in margins. 2019s be a great year for margin improvement, but with over 17,000 square meters coming into service in 3Q 2019, plus another 13,000 square meters in 4Q 2019, including the GZ6 acquisition which just closed. We expect to end the year with margins at a similar level. Turning to Slide 18.
Our CapEx picked up in 3Q 2019, due to a higher level of ongoing construction. In 4Q 2019, the initial consideration is due for the GZ6 and BJ9 acquisitions and for the purchase of the Hong Kong 2 property. Bringing total CapEx for 2019 to the level of our original full year guidance, namely RMB4.5 billion to RMB5 billion. At the end of the year, we will have around RMB 1,000,000,000 of remaining balance of purchase consideration for our acquisitions to date. Up to the end we had incurred over RMB300 million and paid RMB170 million for CapEx related to remote build to suit projects.
We've included a page in the appendix showing how we account for the GIC joint venture projects, pre and post sale. On Slide 19, currently the debt capital market environment in China remains supportive for us and we're taking advantage to get longer tenure and cheaper facilities. In 3Q 2019, We completed financing across 4 new projects and refinancing of 3 existing projects, totaling RMB1.4 billion. We're considering a number of options for financing our Hong Kong projects, including a sale leaseback of the redeveloped properties, or a joint venture. We have had a number of approaches from existing and new partners and are keeping an open mind.
Turning to Slide 20. Our backlog consists of binding commitments from customers. It has increased to over 104,000 square meters, representing 76% of our currently utilized capacity. It provides high visibility to our future growth. Our backlog is almost entirely made up of large orders from hyperscale customers.
They're all high quality counterparties and household names. 58% of the backlog or 60,000 square meters relates to data centers, which are currently under construction. The remaining 42 percent or 44,000 square meters relates to data centers, which are already in service. This part is moving in at the rate of about 10,000 square meters per quarter. To finish on Slide 21, after 9 months, our revenue is tracking towards the top end of the revised guidance range, which we provided last quarter.
For adjusted EBITDA, we are tracking above the top end of the revised guidance range. We are, therefore, once again, raising the EBITDA guidance range to RMB 1,800,000,000 to RMB 1,820,000,000. With regard to CapEx, we'll keep the original range unchanged. With that, I will end the formal part of our presentation. We would now like to open the call to questions.
If you'd like to ask questions.
We have the from Jonathan Atkin from RBC Capital Markets. Please ask your question.
Thanks very much. I was wondering, I see that the pre commitment rate has been the pre commitment rate has been steadily increasing despite the fact that your business continues to scale, at a higher rate. And I wondered what that says about the competitive environment. You mentioned deals are getting bigger. But any comments from your perspective about competitive supply, in general And then second question I had relates to Shanghai.
I think you said you did get some approval just today about downtown development. And how many, how many square meters or megawatts or cabinets are we talking about in terms of the ability to develop municipal Shanghai? Thank you.
So, John, I asked him the first question, this would have from the competitive point of perspective, I think the, our resource industry, let's say, result for health, health for development. If compared with this market share, our percentage, I think it's a very significant, more than our current revenue share. So that means in the future, our supply is much higher number than our competitor. The second question is, Dan,
about the recent allocation for
our capacity in Shanghai. Yeah, we, we got the actually, we got the approval, for 50, 5000 racks. It's, let's say, less calculated 2.5 square meter per rack. That means more than 13,000 meters roughly, right? So, but in Shanghai, there's a, there's a, this approval is quite diversified.
All the local player gathered some small piece of that. We had one of the largest one together approval. So this is not can definitely cannot satisfy our customer future demand profile. They want a larger scale, much more larger scale than what we get in the Tier 1 market. This is number 1.
Number 2, they want a campus type, which has visibility for the future expansion. So that's why we will continue to develop the Edge time side to make sure satisfy our customer, future demand. But what we can tell is our future our strategic customer future demand looks like looks like the number will be accelerated in the next few years. Yes. Thanks all.
Thank you. And then maybe just lastly on the new hyper scale logo, the 9 megawatt order, is that at a single location or is it across multiple metros?
Yes, it's a single location, John.
We have the next question Snaisel from Cowen And Company. Please ask your question.
Two questions, if I may. The first one, just given all the organic builds that you're doing and intend to do as we go into 2020 plus what sounds like some interest in some bigger M and A to help satisfy the demand. Just can you remind us what you're thinking in terms of potential equity raises or how you plan to finance these various projects, it'd be good to get some color on that. And then I guess secondly, you noted that you're already at 80,000 square meters for 2019. Just initial thoughts on 2020 to the extent you can share as it relates to revenue, EBITDA, bookings, etcetera?
Colby, I'll go first let me comment first of all on the M and A environment because we're very busy with a lot of organic build. We're still very focused on strategic M and A opportunities. There aren't platforms out there for us to acquire. There aren't many GDSs. There are single sites.
To date, we've done 7 acquisitions, one to close. Each acquisition has been one data center on a site. But there are some opportunities where there are several data centers on a site and maybe some expansion capacity. So that's what constitutes bigger opportunities. The last three and a half years, we've done 7 acquisitions.
So it's run rate of about 2 per annum. And that's been part of the 80,000 square meters net adds. It's provided us mainly with the capacity to support the sales. So that's been part of that kind of base case import it organic and semi organic. But if we were to do one of what I've just referred to as those larger acquisitions, that's going to be additive.
It's going to be on top of it in addition to that. To bring it back to your question about capital raise, we raised $600,000,000 earlier this year in March. And if we leverage that sixty-forty debt to equity, it means that we will have US1.5 billion dollars of financial resources to invest. In RMB, that's 10,000,000,000
RMB. Our
top end of our CapEx guidance range this year is 5,000,000,000. So you can say in a simple way that we raised enough equity capital earlier this year to support 2 years of investment at 5,000,000,000 per annum, which corresponds to an 80,000 square meters net add business plan. I did note when we did that capital raise, that it was not sufficient if we were growing at a faster rate and it was not sufficient if we were to do out of the ordinary M and A. So whilst neither of those is certain, I think William will make a comment about growing at a faster rate. Neither of those is certain, but it's clear that, if we were to do something, then we would need to consider a financing, would it be from the capital market or whether it be through one of our partnerships.
But it would be linked to a, transaction or linked to demonstrated level of sales. William, do you want to comment on the possibility of potentiality for a higher level of sales? Colby was asking for early thoughts about
It looks like, participating in that, we are more confident 19 to 80,000 square meter. That's for sure, I think, no doubt about that. But a lot of our with during the recent couple of months, we have talked to our customer. A couple of times, it looks like their next few years plan is looks like, will accelerate. So, there, as I just talked, in a very early this year, the sentiment is not good, but now it's totally, shipped everybody very, very positive.
So a lot of this start to execute their original plan And then even based on the 5G coming, the sound looks like they were more aggressive But we will see, we're hoping we can do more, right? But it's not right timing to commit more.
Yes, I mean, it seems like your biggest issue is not the demand. It's simply finding the space and then ultimately financing it. And it sounds like, other than Beijing, you still like in Shanghai and Shenzhen are looking for those bigger edge of city type developments and it seems like, to the extent you're able to get those we could see greater than those 80,000 square meters in some of those outer years. Does that sound right?
It is right, Colby. Obviously, there's always going to be a lot of things going on, which has not yet reached the stage where it can be disclosed. What we're showing, I think for the first time in our earnings presentation is yeah, effectively the, yeah, developable area, area held for future development. And very roughly, it corresponds to 3 year sales growth at the kind of current run rate. But we would like to have, considerably more than that.
We'd like to have double. In fact, we have no upper limit in our minds. The amount that we've had to invest to secure this resource is really quite small. Now our budget for land bank in China this year was RMB500 1,000,000 less than USD 100,000,000 U. S.
And we have not spent all of that by any means. And it's very valuable So we're going to keep on going. We are very well positioned in Shanghai. You said we still had, a lot to do. The site that William referred to in Changshu, we've been allocated several 100 megawatts of the power capacity, But once again, we're still looking to add more.
We have the next question from the line of Frank Lauan from Raymond James. Please ask your question.
Can you comment on the situation in Hong Kong, the unrest there, is that impacting your business and any thoughts on how it might impact your ability to develop in this site? And then, how many sites do you think that you will develop with the JV through the course of the next 12 months? Thanks. Yes,
we'll try and asking whether there's been any short term impact in Hong Kong or maybe impact our view in Hong Kong? Yes.
I think we'll our our logically is, follow-up our customer. That's our strategy to, to do the location expansion. So Hong Kong has become a very important portal for all our installed base. To expand into that to international market. That's always their first step.
As I mentioned, just now, I mean, there's or a lot of our hyperscale customer, plus more than 200 financial institution, mainly China based, they have the very, very clear demand in the next few years in Hong Kong. So We got we, our view is, the certainty is given by the was given by our customer. Not any situation. So we are very confident, the demand is a very, very strong in Hong Kong from our all the installed base customers.
Frank, the second part of your question, I can't give a precise answer to because we're not far enough along. For me to be able to quantify how many new remote build to suit projects we'll take on. Regarding the customer who we're developing these 7 projects for, definitely there will be, more projects awarded by them. And then for now, we just identified a couple of other customers who could be interested in working with us in a similar way. I'd say From 7 today, let's take a 2 year view.
It could be double or treble.
Okay, great. Thank you very much.
We have the next question from the line of Robert Gutman from Gunningham Partners. Please ask your question.
Yes, thanks for taking the question. Just a couple of things. Just a little bit about changes in the expansion table. It looks like Beijing was pushed out to next year from the second half of this year. Wondering the color on that.
Also the move in pace that you mentioned that you said it's looking like about 10,000 a quarter. I just want to verify that. It looks like a little acceleration from the past couple of quarters. Just want to verify that. And just more broadly, there's a lot of talk about on a macroeconomic level about China's GDP growth.
And I was wondering if you could just tailor that a little more specifically to the digital economy in China rather than expectations for the overall economy, whether that's accelerating compared to the rest of the economy?
Yes. Rob, so the first question, yeah, you picked up that sometimes we revise the ready for service periods for particular projects. I mean, remarkably, I mean, we're like 45 projects now. I've been here from number 1. And almost all, complete on time and within budget.
But inevitably, there's going to be sometimes a delay a few months or acceleration a few months. Normally, it's got nothing to do with us. It's out of our control. It may be to do with when power infrastructure is installed or or activated. So that's always really nothing to,
make a fuss about
the moving pace, the moving pace, This year has been slightly slower than last year. Last year was slightly faster than normal. I know given the macro that people are going to associate slightly slower with some slowdown in terms of our customers, business. But that has to be careful about how we analyze this because there's many factors that can affect the moving rates. It can be M and A can affect that statistic, how early customers commit, development time frame, And also within the flexibility, which our customer which our contracts give to customer, whether they choose to deploy a little bit faster, a little bit slower, when we review the contracts, which are actually in delivery right now, and I pointed out there's like 44,000 square meters of commitments, which relate to data centers already in service.
So when we review, where those contracts are at in terms of moving relative to the, minimum commitment in the contract, they're almost all far ahead
of the minimum
commitment. That indicates it's a healthy situation. There's some specific reasons, sometimes why a particular customer may move in a little faster and a little bit slower. But Nothing we can generalize. I can't generalize and say there was a slowdown or there was an acceleration.
The last question
was about the, the
macro situation Okay.
I think everybody talk about the China GDP, it goes to 6% although the 6% SKU is a very big number. But what I tried to say, recently, I just read a report. I mean, the analyst report is China's new economy, that means, say the digital economy. Represent a 15, 16% of the China, China GDP. And this growth rate is around 8.5% to 9%.
That means new economy very clearly, it's already been a new engine or driver. In China G Economy. So we're lucky we are in this space, not in the traditional space. So I think this is good for us to get confidence to growth our business in
We have the next question from the line of Hali Aran from JP Morgan. Please ask your question.
Hi, great results and for taking my questions. My first question is, I think you illustrated that the number of hyperscale labels gone up significantly over the last 2, 3 years. The top 2 customers are still roughly about 50% of area committed and occupy multiple data center is probably about high teens number of data centers each. As we add a lot of these new labels, especially in the last couple of years, could we have a a bit of a view 2 to 3 years out, is that top 2 customer number of 50 plus and area committed going to come down meaningfully. When you think about the next 2, 3 years of area committed or revenues?
That's my first question.
Your observations correct. The top 2 customers, if you aggregate them and you look over several quarters, you'll see that, 2 to 3 years, the absolute amount of new business that, we've, one from them has been very well sustained. So there's been no sense of any lessening, from them. And we believe it will be sustained it will hire going forward. In terms of the overall mix, we don't have any quotas.
We don't set any any limits. But we do target to add more, we call high growth accounts. And progress in that respect has far exceeded our own, expectations. If those high growth accounts, they may not be the kind of companies who place an order every quarter. They may place an order once every 12 months or once every 18 months.
But if you look at the growth rate of their businesses, they're capable of doubling or tripling to the size of their commitment with us. I would just have to hazard a guess about what the top 2 would represent in 2 or 3 years' time. I'd say 40% to 50%, so not far below where it is now. Well, that's good. It means that we have a very solid underpinning trial for our business.
Understood. Thank you. 2nd, could you talk a little bit about I think you mentioned, setting up a separate team to look at the remote side projects. And as you mentioned, the 7 projects could go to, 2x or 3x of that. Could you talk a little bit about how much resources this, kind of projects take, in form of sourcing, people, SG And A, etcetera?
And given that now you have growth on both these tracks, do you feel that there is some degree of bottom from our sourcing perspective as we look at the next 12 to 18 months and how do we think about, think about, smoothing that out
Yes. So, of course, asking how we execute and remote build to suit projects where how much resource it takes whether we have the capacity to do that. Yes.
Number 1, I think, Ian, not every remote particle, we will pickup. I think that we are quite picky, right? Number 1 fulfill our, deliver capability. Because we are still focused on the Tier 1 market. We always say we focus on our Tier 1 market.
And the 2, I think the, Since the designs are very simple, remote projects is standard And the operation effort is much less than multi tenant data centers in Tier One market. So we divest a lot of the tools to support our operation. So I think it's from the delivery point of view, it's more simple than a Tier 1 market. So we still believe we can take more, projects so far.
Okay, got it. If I could ask a very quick question to Dan, Dan, could you talk a little bit about what are you expecting on EBITDA margins in the next couple of quarters. We have seen a pretty strong increase in the last few quarters. I think you talked about Q3 being in the same range given a lot of new capacity and new move ins. But could you talk a little bit about, are we going to be in the same range over the next 2, 3 quarters given that we have a
Yes, Gokul, I've been on the low side in terms of my own forecast for margin over this year, which is pleasure and surprise. Looking at next year, very roughly, I think we still realized operating leverage at the data center level, we call the adjusted NOI margin. Maybe 1 percentage point, that order of magnitude. And then at the SG and A level, I think it would also could be about 1%. I mean, it could be more, but we ask ourselves whether we are actually under spending on SG And A, whether that's a bad thing, given the way the company is grown, we need to scale up and raise standards and so on.
And we are doing so in terms of people who are hiring and, focus on product and So I think, yeah, one percentage point on SG And A and 1 percentage point to the data center level would be 2 percentage points over the next years. This is just a very rough indication.
We have the next question from the line of Colin McCollum from Credit Suisse.
Yes, thanks and congrats on the strong numbers. I just had one question. You've alluded a couple of times, earlier to power quotas and, power commitments. And I just want to check sometimes we hear market noise is about limits on power, constraining growth. And I just would be very surprised if GDS would commit to building a data center in an area where you didn't already have the full commitment for the power you would need in that data center.
I imagine it's an integral part of the design, isn't it? So could you just touch on this a little bit? Is this one of those things that the market talks about in the way that you manage your business in reality, it's not actually a constraint for your business. Or is it something that you just have to do the hard work getting the arrangement with the rail and scale enterprises? In advance before you sign up for the commitments and do the construction.
Any color on that would be helpful. Thank you.
Yes, Connor. I'll go first. Finding the right kind of real estate industrial property in downtown area or land for zone for industrial use edge of town. Which qualifies for data center and is in a location which is going to, work for our customers that's difficult, but it's not as difficult as then getting sufficient power to be able to, operate a data center, utilize the full plot ratio and so on. When it's about getting power, there's really there's really 2 parts to it.
One part is having agreement with the power supplier, we call it the grid, for the supply of the power capacity. That is grossly straightforward, but there can be significant economic issues because we have to bear the cost of power infrastructure and the distance from the site to substation or the number of available substations and so on. Can affect the economics of the project quite materially. The second part of, obtaining power is the really critical and difficult part, which is obtaining approval from the government for the use of that power. You can call it carbon protof, or some other some other terminology.
In the, downtown areas, Beijing, Shenzhen, Shanghai, has become very restrictive. Projects are still being approved. We've had some success And when I mentioned just recently, we received an allocation in downtown Shanghai, but we and now I think other data center service providers realized that in order to obtain power, we needed to go outside, further further out, find locations where power is available, where the government is willing to allocate it. And that's why we put so much emphasis in today's presentation on the pipeline You can call this land with power or just developable capacity means it's land, real estate, and power. That's what makes it very valuable.
William, do you want to add anything to that?
Do you want to add anything?
Okay. We're not satisfied in my answer.
I'm satisfied as well. I mean,
just the way you do things, effectively, you're saying only would become real pipeline land, if you have both, right? You're not going to put yourself in this situation where you buy land and construct $100,000,000 projects and not have the power, right? Not something you're going to do, is it?
Actually, call it, it's the other way around. When you most of the land most of the land is being purchased from the government. It starts with an agreement from the government to allocate the power. The last thing is actually the purchase of the land So I mean, we maybe we chose our words a little carefully and perhaps they won't pick up the nuance, but we mentioned in Changshu that we've been allocated power capacity. We now have to go to the final step of actually purchasing land.
I mean, that's a standard process. But the critical part was to obtain power capacity.
So Google, I think I think I had one comment, I mean, we realize the, in the Tier 1 market, Downtown Tier 1 market, it's very difficult to get the power or coder. Even you get 1, as I mentioned, it's not significant, cannot satisfy our customer. So that's why we introduced, we involved our resource strategy from the focus on the downtown city to the edge of the city. So we are the first mover to, to better this resource in the edge town of the Tier 1 market. So we will maintain this advantage compared with our competitor.
We have,
the
next question from the line of Jonathan Atkin from RBC Capital Markets.
Thanks. I had just a quick follow-up on contract renewals, slide 33. I think that's that's a new a new slide for you. And, given the percentage of of commitment that's up for renewal over the next 2 years. I just wanted to get your assessment of the likelihood of of this revenue renewing, or whether there would be any kind of pricing adjustments?
Thank you.
John, I included that page the first time because investors often asked. And, I think it shows that we have over the next 5 years, we have a reservoir, some small part about our total contract portfolio, which is coming up for renewal. The denominator is our current area committees. We consider that that is growing at such a high rate these percentages will actually be will be smaller as the denominator grows. I think a lot of this contract renewal is enterprise related business.
Where our churn rate, as I like to say, has been statistically insignificant. Within, these numbers. There are a few, contracts which relate to our large internet and cloud customers, the business that we did at the end of 2015 or in early 2016. There's a not very large deployment, certainly not by today's standards. They were very big deals at the time, but now we've just got to be so so deals.
But they're in data centers, which are very centrally located, like in Shenzhen and Beijing, And I think the that kind of facility is very scarce I very much doubt that those large internal cloud customers are going to pull back. But frankly, if they did, it'd probably be a an upside opportunity in terms of being able to, release.
Yes. As we used to mention, all our Tier 1 market turns our strategic customer, they plugged their on ramp already in our data center. So it's quite a stickiness. For our, for all of our customers. So we are confident that we knew it will be not an issue.
Great. Thank you very much.
As there are no further questions, I would like to turn the call back over to the company for closing remarks.
Thank you once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website of the Piacente Group Investor Relations. Thank you all.
Thank you. This concludes This conference call, you may now disconnect your line. Thank you.