Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited first quarter 2018 earnings conference call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, head of investor relations for the company. Please go ahead, Laura.
Thank you. Hello, everyone. Welcome to the 1Q18 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'll refer to during this conference call, can be viewed and downloaded from our website at investors.gds-services.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman, and CEO, who will provide an overview of our business strategy and performance. Mr. Dan Newman, GDS CFO, 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 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.
Thank you, Laura. Hello, everyone. This is William. Thank you for joining us on today's call. 2018 has got off to a flying start. In the first quarter, we grew revenue and the EBITDA by double digits and again raised our EBITDA margin. This shows that we are delivering financial results. Growth starts with sales, and in this respect, we had another outstanding quarter. In 1Q18, we added over 20,000 sq m or 40 MW to our total area committed, a record level of new booking in a single quarter. 20,000 sq m is almost 50% of what we did in the whole of last year. This is the second consecutive quarter in which our new bookings reached this level. Furthermore, as we looked forward, our sales momentum is continuing, and we target to achieve a similar level of new bookings in the second quarter. How are we achieving this?
To begin with, we are fortunate to operate in a market where the digital economy is booming. Demand for high-performance data center capacity is accelerating, and it's challenging to generate new supply. It's obvious now that cloud adoption in China is taking off. AliCloud, the market leader, just reported another quarter of triple-digit growth. The upside is huge. The cloud market in China is still only 10% of the U.S. China is at the forefront of AI technology. It's a major focus area for our largest customers, and it's already being deployed across their platforms. China will be at the forefront of 5G deployment next year. Our customers are gearing up in anticipation. All of this is driving demand for high-performance data centers located in Tier 1 market at the edge of the network. As we always say, we serve the right customers.
Today, we have an 80/20 split between cloud and the large internet, and FSI and the large enterprises. We believe that our cloud and the large internet customers account for a very large part of market demand. That's why 80/90 of our new business is coming from existing customers. We are getting follow-on orders from them quarter after quarter. In 1Q18, we got new business from three of our top customers, which comprise two internet giants in China, plus a leading global cloud service provider. We believe that it's highly strategic to have these customers. They drive volume, scale economies, fill rates, and technology. Ultimately, they drive where the enterprise will go as well. We target to add more of these strategic accounts during this year. The new wins are coming soon.
On the enterprise side, we are also getting frequently follow-on business and continue to make progress in adding new logos. In 1Q18, we won expansion order from China's largest logistics company and from one of the largest global auto companies. At the same time, we increased customer count by 27 year-on-year. In the long run, we believe that the cloud pods in our data centers will be the main attraction for enterprise customers. We are developing our Cloud Connect hubs and will announce the product launch soon. Our customers remain firmly committed to the data center outsourcing in Tier 1 markets. Historically, the hyperscale guys have outsourced almost all their requirements in these locations. We are very confident this trend is going to continue. Our largest customers have high visibility for their future requirements. They are asking us to show them how we can fulfill increasing demand.
At the same time, it's becoming more and more difficult to source new projects in Tier 1 markets. It requires larger sites. It requires high power capacity, which is the biggest challenge of all. We recognized several years ago that maintaining continuous supply in all Tier 1 markets would be the critical success factor. I'm therefore particularly pleased to report our progress in securing more resources. Let's go to slide five. We started this year with 24,000 sq m under construction. In Q1 2018, we initiated an additional 18,000 sq m across one new project in Shanghai, two new build-to-suit data centers in Hebei, and the upsizing of a project in Shenzhen.
Since the end of Q1 2018, we have initiated another 20,000 sq m consisting of two new projects in Beijing, where the market is particularly tight, another project in Shanghai, and the acquisition of a very large data center under construction in Guangzhou. As of today, we have over 60,000 sq m under construction. Beyond this visible supply, we have over 100,000 sq m of net floor area secured for future development. This consists of some existing building shells, development agreements with the property partners, and the greenfield land, which we own. We also have a number of other high-potential projects which we are closing to securing. How are we doing this? Our resource strategy is very clear. We self-develop, and we acquire projects at the construction stage. We have large local teams in each market dedicated to finding qualified resources.
This task cannot be centralized because you need to know where to look, who to go to, and how to navigate the local regulatory environment. Our local teams are highly knowledgeable. Supporting these local presence, we have centralized data center design, procurement, and construction management teams. Over the years, they have accumulated a lot of experience evaluating multiple projects of many different kinds. They have the ability to quickly determine where a site or building will make a good data center and to put together the financial evaluation. We gain a valuable edge from the inputs of our sales teams, reflecting back what customers require. Our process and decision-making are robust and efficient. Finally, we are able to leverage our big-name customers to help deal with the challenges of obtaining power capacity. We also leverage industrial property owners to obtain power before we come in.
Our approach is to secure options on attractive sites while the landlord is pursuing the power. This approach paid off with the two new projects in Beijing, which we have just announced. As our business has scaled up rapidly, we have successfully maintained a balance between customer commitments and the capacity. In fact, our commitment rates are now at the highest ever levels. If there's one thing that I would like you to take away from this discussion, it is that GDS has the ability to capture higher and higher levels of customer demand, and to scale up our resource supply to fulfill it. With that, I will hand over the call to Dan for the financial and operating review.
Thank you. As William mentioned, in 1Q 2018, we achieved double-digit growth in total revenue and adjusted EBITDA, which was a good start to the year financially. Let's look more closely at this on slide 11, where we strip out the contribution from equipment sales and the effect of FX changes. In 1Q 2018, our service revenue grew by 11.7%, and our underlying adjusted EBITDA grew by 14.6% quarter-on-quarter. Turning to slide 12, the main driver of revenue growth in 1Q 2018 was the 5,000 sq m increase in area utilized, which was in line with our expectations. Monthly service revenue, or MSR per sq m in 1Q 2018 was within the range which we have seen over multiple past quarters. On a per sq m basis, selling prices are stable, and as the backlog is delivered, we expect MSR per sq m to stay within the established range.
As shown on slide 13, profit margins are on an upward trend. For now, it's mainly due to operating leverage on the corporate cost base. At the data center level, which is illustrated by NOI margins, there are two things going on. Data centers are filling up and reaching optimal profit levels, which typically means an NOI margin of around 55%. At the same time, as we are in rapid expansion mode, new data centers keep coming into service, causing a temporary growth drag. Slide 14 illustrates the breakdown of area and service between data centers which have stabilized and data centers which are ramping up. During 1Q18, two data centers moved across from the ramping up to the stabilized side. Shenzhen 5 Phase 1 went from 74%-100% utilized, and Beijing 3 went from 22%-82% utilized.
On the ramping up side, three new data centers were added in 4Q17, and one more in 1Q18. The three data centers which you see with single-digit utilization rates came into service just in the past few months. In 2Q18, there will be three more data centers coming into service, which means that the drag on NOI margins will continue for a while. Once again, this was fully factored into our guidance at the beginning of the year. At the corporate level on slide 15, we continue to realize operating leverage on our SG&A. In 1Q18, this was sufficient to offset the growth drag and raise the underlying adjusted EBITDA margin by nearly one percentage point. If we factor in the full delivery of the backlog, the current level of SG&A represents around six to seven percent of service revenue. Turning to our CapEx on slide 16.
Our run rate in 1Q18 of around RMB 800 million or $130 million would take us to the top end of our CapEx guidance for the full year. At the end of 1Q18, the cost to complete all the projects initiated up until that date was around RMB 1.5 billion or $245 million. On a sq m basis, unit development costs are stable at around $10,000 per sq m. But as we are gradually increasing the power density of new resource, the unit cost per kW comes down. This gives us the ability to share some cost efficiencies with our largest customers whilst protecting our rates of return. We target to continuously lower development costs through design innovation and supply chain management. We have got valuable input from our partner, CyrusOne, and we are looking at how we can create more synergies in these areas.
Now I'd like to update you briefly on the progress of our project development. Shanghai 5 Phase 1 no longer appears in the table on this page because it entered service in 1Q18. It's 100% committed. Shenzhen 5 Phase 2 was upsized by around 2,850 sq m after we were able to secure higher power capacity. There's a chance of further upsizing of this data center. The anchor customer for Shenzhen 5 Phase 1 is likely to take the whole of Phase 2. We're developing three built-to-suit data centers in Hebei Province for one of our largest customers. They are all 100% pre-committed. We don't currently have any other commitments outside of our Tier 1 markets. However, we will consider further opportunities like this if we can make the economics work. Shanghai 8 is a new project which we announced on our last earnings call.
It is now almost 50% committed. The Guangzhou 3 acquisition has just closed, and the two new projects in Beijing will add significant capacity in that market. We have a lot of demand for this new resource. Turning to slide 17. After completion of the follow-on equity offering in January, our cash position has risen to nearly RMB 3 billion, or $480 million. Around RMB 900 million is allocated for completing all projects initiated up to the end of 1Q18. The balance of RMB 2.1 billion is available for allocation to new projects, including those initiated in the current quarter, and for working capital purposes. We continue to rely mainly on project finance to leverage our investment in individual data centers. Typically, we target leverage at the data center level of 60% of total project cost.
Once data centers are stabilized, this translates into around three times debt to data center EBITDA, before allocating any corporate costs. The projects are attractive to banks because of our track record, strong counterparties, and long-term contracts. Our effective borrowing cost is now about 7%. At the consolidated level, our capital structure reflects the combination of all these project financings, and the credit metrics are skewed by debt incurred for data centers which are still ramping up or under construction. Turning to slide 18. At the end of 1Q18, our backlog had increased significantly from 40,000 sq m to almost 56,000 sq m, which is equivalent to 84% of our area utilized at the same date. Overall, we are fully on track to achieve our revenue and adjusted EBITDA guidance for this year.
Sales and resource development are running ahead of our business plan, but project timelines are still being finalized. We can be more specific about our CapEx expectations when we report 2Q18 results. With that, I will end the formal part of our presentation. We'd now like to open the call to questions. Ajay?
Certainly. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press pound or hash key. The first question comes from the line of Colin McCallum from Credit Suisse. Please go ahead.
Great, thanks for the opportunity, and well done on the growth figures. Just two questions from me, though. First of all, can I just confirm, Dan, that you are just maintaining the guidance that you gave at the end of fourth quarter, both on the revenue side and the EBITDA side? If I could just confirm that'd be helpful. The second question is just on the EBITDA margin. I realize that it was kind of flattered last year a little bit by the termination fee. Just wondering, is the margin a little bit light in the first quarter? Is that just a timing issue, or is there a real kind of increase in the rent and labor, which has affected the EBITDA margin on a more kind of structural level? If you could give us a bit of guidance on that, it'd be helpful.
Thank you.
Hi, Colin. First of all, yes, I confirm that we are fully on track to achieve the revenue and adjusted EBITDA guidance, which we gave on our last earnings call. As regards to EBITDA margin, I think our guidance implied an overall adjusted EBITDA margin for this year of around 36%. I'd say we are once again fully on track to achieve that. You could say a little bit light, but I can assure you it's-
Timing
fully in line with-
Yeah
what we were expecting.
Got it. Obviously, it's less than 36 in the first quarter, my question is there a timing issue there, Dan? Is it just a time of things coming on stream in terms of the-
Yeah
mix between completed data centers and those under construction? Is that what it is?
Yeah. That's why my discussion about the NOI margin, significant growth drag in the first quarter because of the three data centers which we brought into service In the fourth quarter of 2017, plus the one which we brought into service in the first quarter of this year. That will continue, to a degree, into the second quarter of this year because as you can see, there's another three data centers to come into service in the second quarter.
Got you.
After that, we will have a lot of resource in service, and it will enable us to deliver backlog. I think over the second half of the year, we should see a higher level of move-in, a higher level of increase in area utilized, and the operating leverage should begin to become greater.
Got you. Okay. That was it from me. Thanks a lot.
The second question comes from the line of Gokul Hariharan from J.P. Morgan. Please go ahead.
Hi, William and Dan and Laura. Thanks for taking my questions. My first question, you did allude to increasing difficulties in sourcing capacity, especially at high power. Could you talk a little bit about what is it doing to your cost? I think Dan mentioned that it is still at $10,000 per square meter right now in terms of per new capacity. Could you talk about what that would look like maybe in the next one or two years as you start to source even bigger projects? Second is, I see that you guys finally ramping up your meaningful capacity in Beijing next year. Could you talk a little bit about what is the competitive dynamics in Beijing, given that it's been a market where GDS has not been the early player compared to, say, Shanghai or Southern China.
Gokul, hi. I'll take the first question. There are no significant inflation pressures in terms of materials or construction costs. We are seeing some increase in industrial property rental levels. The obtaining power is not a cost per se. All we were discussing was the different approaches we've taken to solving that challenge. Net net, it's probably a good thing because it creates a significant barrier to entry and barrier to increased supply for those who cannot overcome this challenge. On a per square meter basis, we just talk about unit cost on a per square meter basis. I expect that it will remain around the level it is today, around $10,000. On a per kilowatt basis, it's been coming down because we build at higher power density, and we've been making gains in procurement through purchasing power and through design standardization.
We're still targeting to make significant further gains, very significant further gains, also through some design innovation. On a per kilowatt basis, definitely our cost, which I guess today is around $5,000 per kilowatt or $5 million per megawatt. On that basis, we expect it to come down significantly over the next couple of years. As power density increases, you see the same unit development cost on a square meter basis. We had a question about competitive dynamics in Beijing.
In Beijing, competitive dynamics.
Yeah.
I think so far, GDS. Yeah, you are right. We talked about it a little bit a couple of times. We had paid attention on to catch up the market share in Beijing. Currently, this year, we will deliver this promise, I think. I think in Beijing, most of the competitor in China, a lot of the competitor, they are in Beijing market more earlier than us. Since GDS, I think we leverage our. From sourcing point of view, I think we are more leverage our GDS current brand name. We see a lot of landlord, if they want to give the project to sell or rent to some right customer, GDS is in their top list. They believe GDS, they trust GDS. They believe GDS has the credibility and ability to deliver what they commit.
I think currently in Beijing, I think sales is not our issue. We can compete any competitor if we have the resource. In Beijing, the race is capacity and supply. We are catching up with that. In the recent couple quarter, I think GDS got a lot of deal to kill all our competitor.
Yeah, Gokul. The data center we call Beijing 4, that is quite centrally located. Our intention is to position that for enterprise and FSI customers. Frankly, in the past, when we have done that, we have been overtaken by demand and allocated it to cloud and internet. That is how we intend to position that. We will not be pursuing pre-commitment unless that situation arises again. The data center we call Beijing Five Phase One. As always, it is almost, or I would say it is 100% fully allocated to certain customers already. We are in a good position, frankly, to source some additional capacity in Beijing.
Okay. Thank you on that. Just one question. Now that we are getting closer to the Hebei project entering into service, could you talk a little bit about how quick the ramp-up is likely to be, given your pre-commitment is already 100% for pretty much all three phases? How quick is this ramp likely to be? Is it going to be significantly faster than the typical ramps that we have seen, given customer demand has been much higher in that particular data center?
Gokul. These are built to suit for a particular customer, the first one, we call Hebei 1, will come into service very soon in this quarter. The next two, Hebei 2 and 3, will come into service in the following quarter. The customer contract provides flexibility for the customer to move in. It's the normal arrangement. That's something which is fully factored into our project evaluation and our return calculations. If they move in faster, it's better, and if they move in slower, it's in line with our base case. That's their prerogative. That's the flexibility which they value and which we provide. I can't commit them to a certain move-in rate.
I try to add in. We are in our focus, we never expect the customer move in more fast. If they move in faster, it's upside, right? On the other hand, what we can see is that the kind of AliCloud grows very, very fast. We hope it'll give it more upside for us in the future. Right?
Sometimes it happens. Beijing 3 is one of the internet giants. It went from zero to 82% utilized in six months. Shenzhen 5 Phase 1, which is another of the internet giants, that went from zero to 100% utilized in nine months.
I can say the market trend, because the cloud player, the market trend, they grow very fast. I cannot say particular target, what's the moving schedule, it will fast or flat. Right?
Okay. Got it. That's very clear. Thank you.
The next question comes from the line of Jonathan Atkin from RBC Capital Markets. Please go ahead.
Thank you. Good evening. I was interested in a couple things. One is the Guangzhou 3 acquisition and any way to sort of quantify the contribution to revenues and EBITDA over time. Is that entirely going to be in 2019, or what are the impacts on 2018? On a broader topic, just what is the opportunity set for further acquisitions of that type going forward? Thank you.
Hi, John. Guangzhou 3 was a fantastic acquisition. It's a very large data center, but there's a bit of history behind it. When we acquired Guangzhou 1 data center, there was a commitment to a large customer to provide expansion capacity, which we had to assign back to the vendor. The vendor then developed this subsequent data center we call Guangzhou 3, and it end up being scaled at a much larger size than had been anticipated or by the contracts two to three years ago. The first phase is complete, and the customers will start to move in before the end of this quarter. It will make some revenue and EBITDA contribution. Of course, it has to reach a certain level of utilization before the data center EBITDA is positive.
That was factored into our guidance because I did say when I gave the guidance that there was one M&A deal, and this was it. The size of Guangzhou 3 significantly increases our presence in the Guangzhou market. I think it's very positive in terms of our ability to win more new business over this year for the remaining phases. In terms of other acquisition opportunities, yes, there are quite a number, and I commented on the last earnings call. Data center market is attracting investment, quite often from local entrepreneurs, people who have some knowledge or association with the data center industry to one degree of separation, construction or IT or equipment vendors. Their objective is to realize a development profit. We feel that we can justify paying them a small premium.
The Guangzhou 3 acquisition, once again, was on a cap rate implied by the pricing for the first phase customer contract of 13%-14%.
Yeah.
Thank you.
I think the acquisition, since the market is hot, a lot of the capital jump in. What we can see in the last couple of the year, a lot of the project player leveraged some advantage to develop one or two project. They will never think about they will be the real operator. Their purpose is to build a project and sell to the operator like us. We can see there's a lot of pipelines coming right now. We are very carefully to manage it, which we want. I think we know what we want. Not every project we like. Our acquisition still is our core strategy to acquire some nice project in a very good location. We also will evaluate their design and the construction, everything. I think there's a lot of potential acquisition is coming.
Thank you for that. Two quick ones. On the cadence throughout the quarter for margin growth, you talked about some further expansion drag during 2Q and then more operating leverage in the second half of the year. Should we be thinking about second quarter EBITDA margins being essentially the same as what you just reported or up slightly or down slightly? Then, more of an operational question, switching topics here, you talked about higher power density demanded by your customers. Do you find that your competitors, including companies like China Telecom, are responding to the higher power density requirements? Or is that something more unique to GDS? Thank you.
On the first question, John, I think the second quarter will be positive progress versus the first quarter. I think the progress will be greater in the second half of the year. On the question about power density, whether, I guess, maybe put a different way, are other people building the power densities that we're building? Are other people building two to 2.5 kilowatts per square meter? That's something that John was asking. I think John was asking are other competitors building two to 2.5 kilowatts per square meter of power density?
Yeah.
A few telecom carriers.
You're right. GDS has our customer profile. Most of our customer currently, big customers use the high power density. It's not every data center they are targeting those kind of strategic customer. I think the GDS, a lot of the player in the market, they still build some low density. We check.
Thank you very much
In the future, high power density is the trend.
Thank you.
The next question comes from the line of Robert Gutman from Guggenheim Partners. Please go ahead.
Hi. Thanks for taking my question. This was the largest quarter net increase in the area committed, but it's been accelerating consistently for the past since 4Q 2016. I was just wondering if you could talk about your expectations looking forward for the pace of how this develops through the year.
Okay. I think, as I just mentioned, in the first quarter, we delivered almost 50% of last year, whole year. Our original plan in the very beginning, Dan gave the forecast, the CapEx forecast is 45,000 sq m this year.
Yeah, about 40.
About 40. Yeah. In Q1, we completed almost 50% of the total year's target. What we can see the market, it is accelerating. We believe high chance we will accelerate this number compared with the guidance.
Yeah. Rob, if I can add.
Yeah, please.
William's prepared remarks said that we target to achieve something similar in the second quarter. That would imply that by the middle of the year, we should be close to or around the level we achieved in last year. I don't want to get ahead of ourselves. We roughly take this quarter by quarter. Certainly the pipeline on the demand side is there, and as we've probably explained at quite great length, we've got the resource supply. I think if we step back and think about in terms of what's happening technology with AI and 5G in China, these are such great focus areas.
IoT. Yeah.
I think that the chance of this being sustained or even higher is there.
Great. Thank you.
The next question comes from the line of Colby Synesael from Cowen and Company. Please go ahead.
Great. Thank you. Two questions, if I may. First off, CyrusOne, on their earnings call, noted that they're working on approximately 15 deals currently with GDS. I was wondering if you could just provide an update from your perspective on those deals and what you're seeing and what the opportunity is. Secondly, you mentioned in your prepared remarks that you're working on a Cloud Connect hub product, which you'll announce soon. Just curious if you could just give us a little bit more color on how you're thinking about that. How would you go about monetizing that, and how big of an opportunity or focus strategically is that to the company as we go forward? Thank you.
You want to talk about CyrusOne?
Yeah, CyrusOne.
Cyrus, probably ask to give more color about the deals that we're working on with CyrusOne.
Yeah, I think we keep working after CyrusOne became our shareholder. To keep working on refer customer to their. I think since the sales lead still need a lead time, sales lead time is there. As I will always say, some big deal is cooking right now. The both side, not just that we pushed the big, big customer to CyrusOne, they also pushed some meaningful customer to us or help us to, let's say, strengthen our relationship with our existing customer. The result will coming, I think, coming soon. I think maybe the next earnings call, maybe we will see some early result. This is from the, let's say, from the customer side, shared customer side.
We're also working on some program to try to manage our vendor together and to try to leverage our incremental scale, data center construction scale, to reduce down our cost. The first step is to understand the architecture and standardize both sides, some module, some component. This is in the progress. When this step move on, then we will go to the next step to reduce our procurement cost. That's our target, and we have a very aggressive plan to work together right now.
Question about Cloud Connect.
Yeah, about the Cloud Connect, actually, we already soft launched the product and test the product since last year. We will officially announce the product in the next few months. We are preparing that. Almost completed pre-testing the market. I think the good news will coming.
Yeah, Colby, I think it's too early for us to talk about how to monetize in terms of identifiable revenue. Yeah, I would say that strategically, this is very important to us. In the long term, we expect the enterprise part of our business to be a higher percentage, a higher proportion than it is today. I mean, don't forget, we came from 100% enterprise, and we've gone to 20%. We believe that the presence of all these cloud pods, you can call them on-ramps, in our data centers is a unique value proposition, which we can capture through the hubs. If it enables us to drive a higher proportion of enterprise business, even without charging for it, that will raise our returns and raise our margins and so on.
There could be a significant benefit simply through the customer mix, without there being any separately identifiable, separately billed revenue stream.
Great. Thank you.
Great.
The next question comes from the line of Frank Louthan from Raymond James. Please go ahead.
Great. Thank you. I apologize if this already got covered. Give us some color on how many new logos you added in the quarter. How was the growth there? Talk to us a little bit about costs for building. Are you seeing any material pressure on pricing for the construction of data centers, be it from labor or raw materials relative to the last 12 months? Thanks.
Yeah. Frank, it's Dan here. I mean, we're adding something like 25, 30 new customers, first time customers per quarter. That's been the rate, actually, pretty steady for one or two years now, four or eight quarters. The enterprise customer account number is going up. Our strategy is to attract and establish relationships with customers who we think are valuable or matter. We're putting a lot more emphasis on customer account number than we are on the revenue or the proportion that comes from that business. It starts with the relationship.
Yeah. I think in general, we are still targeted to grow our customer account at least a 25% increase every year.
Yeah.
I think the Q1 is on our chart.
Yeah. On the development costs, I know what you're referring to as I listen to our U.S. peers' calls. We're not experiencing the inflation that they refer to, either in material costs or construction or labor. The only thing which I actually referred to earlier is that, there is industrial property prices in China are going up. I think somebody once said, "Real estate is never expensive for a data center company," because it's not such a large proportion of our cost structure. At the same time, our new projects are a little further out on the whole than the projects we've done before. In those areas, industrial land prices may be a little bit lower. It's not a significant impact on us so far.
Okay, great. Thank you very much.
As there are no further questions, I would like to turn the call back to the company for closing remarks.
Thank you all 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 or The Piacente Group Investor Relations. Thank you all.
Ladies and gentlemen, this does conclude the conference for today. You may now disconnect your lines. Thank you