Hello, ladies and gentlemen. Thank you for standing by for GSD 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. Lara Chen, Head of Investor Relations for the Company. Please go ahead, Lara.
Thank you. Hello, everyone, and welcome to the 1Q 'eighteen 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 built and downloaded from our website at investors. Gdservices.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's 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. Privacy related litigation with 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 perspective as filed with the U.
S. SEC. 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 up to a fine start.
In the first quarter, we grew revenue and 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 1Q 2018, we added over 20,000 square meters or 40 Megawatts to our total area committed.
I recall level of new booking in the single quarter. 20,000 square meters is almost 50% of what we did in the whole of last year. This is the 2nd consecutive quarter in which our new bookings reached this level. Furthermore, as we look forward, our sales momentum is continuing and we target to achieve a similar level of new bookings in second quarter. How are we achieving this To begin with, we are fortunate to operate Demand for high performance data center capacity is accelerating and it's challenging to generate a new supply.
It's obvious now that cloud adoption in China is taking off. Ali Cloud, 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 US. China is at the forefront of AI Technology, its 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 One Market at the edge of the network. As we always say, we swapped the right customers. Today, We have an eighty-twenty 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 the market demand. That's why eighty-ninety of our new business is coming from existing customers.
We are getting follow on orders from that quarter after quarter. In 1Q 2018, we got new business from 3 of our top customers, which comprise 2 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 attack technology. And ultimately, they drive where the enterprise will go as well. We target to add more these strategic accounts during this year and 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 1Q 2018, 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 counted by 27 year on year. In the long run, we believe that the cloud pops in our data centers will be the main attraction for enterprise customers. Hops and will announce the product launch soon. Our customers remain firmly committed to the datacenter outsourcing in Tier One markets.
Historically, the hyperscale guys have almost all their requirements in these locations. And 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 asking us to show them how we can fulfill increasing demand. At the same time, it's becoming more and more difficult to solve new projects in Tier One markets. It requires larger sites and 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 factors. And therefore, particularly pleased to report our progress in securing more resources. We started this year with 24,000 square meters under construction. In Q1 2018, we initiated an additional 18,000 square meters across 1 new project in Shanghai. 2 new build to suit data center incubate and the upsizing of a project in Shenzhen.
Since the end of Q1 2018, we have initiated another 20,000 square meters consisting of 2 new projects in Beijing where the market is particularly tight. Another project in Shanghai and the acquisition of a very data center under construction in Guangzhou. As of today, we have over 60,000 square meters under construction. Beyond this visible supply, we have over 100,000 square meters of next floor areas secured for future development. This consists of some existing building shares 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 security. So how are we doing this? Our resolve strategy is very clear. We self developed and we acquired projects at this construction stage. We have large local teams in each market dedicated to finding qualified resource.
This task cannot be central rights, 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 this local presence, we have centralized data center design procurement and the 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 our sites or building will make a good data sense and to put together the financial evaluation.
We gained a valuable edge from the inputs of our sales teams reflecting back what customers requirement required. Our process and the decision making are robust and efficient. Finally, we are able to leverage our big name customers to help deal with the challenges of altering power capacity. We also leverage industrial proxy owners to opting power before we come in. Our approach is to secure options on attractive side, while the landlord is pursuing the power.
This approach paid off with the 2 new projects in Beijing, which we have just announced. As our business has scaled up Lastly, 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 is no if there is 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 operation operating review.
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 percent quarter on quarter.
Turning to Slide 12, The main driver of revenue growth in 1Q 2018 was the 5000 square meter increase in area utilized which was in line with our expectations. Monthly service revenue or MSR per square meter in 1Q 2018 was within the range, which we have seen over multiple past quarters. On a per square meter basis, selling prices are stable and as the backlog is delivered, we expect MSR per square meter to stay within the established 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 2 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 are stabilized and data centers which are ramping up. During 1Q 2018, 2 data centers moved across from the ramping up to the stabilized side. Shenzhen PHY Phase 1, went from 74% to 100% utilized and Beijing 3 went from 22% to 82% utilized.
On the ramping up side, 3 new data centers were added in 4Q 2017 1 more in 1Q 2018. The 3 data centers which you see with single digit utilization rates came into service just in the past few months. In 2Q 2018, there will be 3 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 and A. In 1Q 2018, this was sufficient to offset the growth drag and raise the underlying adjusted EBITDA margin by nearly one percentage point If we factor in full delivery of the backlog, the current level of SG and A represents around Turning to our CapEx on Slide 16. Our run rate in 1Q 2018 of around RMB800 million or $130,000,000 would take us to the top end of our CapEx guidance for the full year. At the end of 1Q 2018, the cost to complete all the projects initiated up until that date was around rmb 1,500,000,000 or $245,000,000. On a square meter basis, unit development costs are stable at around $10,000 per square meter.
But as we are gradually increasing the power density of new resource, the unit cost per kilowatt comes down. This gives us the ability to share We target 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 Shanghai 5 phase 1, no longer appears in the table on this page because it entered service in 1Q 2018. It is 100% committed. Shenzhen-five phase 2 was upsized by around 2850 Square Meters, after we were able to secure The anchor customer presented by phase 1 is likely to take the whole of phase 2.
We're developing 3 built to suit data centers in Hervey Province for 1 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, is now almost 50% committed.
The Guangzhou III acquisition has just closed and 2 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 RMB3 billion or $480,000,000. Around RMB 900,000,000 is allocated for completing all projects initiated up to the end of 1Q 2018.
The balance of RMB 2,100,000,000 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 investments in individual data centers. Silically, we target leverage at the data center level of 60% of total project cost. Once data centers are stabilized, this translates into around 3 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 is still ramping up or under construction. Turning to Slide 18. At the end of 1Q 2018, our backlog had increased significantly from 40,000 square meters to almost 56,000 square meters, 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 2Q 'eighteen results. With that, I will end the formal part of our presentation. We'd now like to open the call to questions.
You. The first question comes from the line of Colin Mackelim from Credit Suisse. Please go ahead.
Thanks for the opportunity and Will Don on the growth figures. Just two questions for 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? So both on the revenue side and the EBITDA side, if I could just confirm that, that would be helpful. And then the second question is just on the EBITDA margin.
I realized that it was kind of flattered last year a little bit by the termination fee. But just wondering, is the margin a little bit light in first quarter? Is that just a timing issue or is there a real kind of increase in the rent and labor, which has affected EBITDA margin on a more kind of structural level, if you could give us a bit of guidance on that would be helpful. Thank you.
Yes. Hi, Colin. First of all, yes, I confirmed that we are fully on track to achieve the revenue and adjusted EBITDA guidance, which we gave on our last earnings call. And As regards to EBITDA margin, I think our guidance implies overall the adjusted EBITDA margin for this year around 36%. So I'd say we are once again fully on track to achieve that.
So if you say it a little bit light, but I'm sure you it's fully in line with what we were expecting.
Got it. I mean, obviously, it's less than 36 in the first quarter, but my question is, is there a timing issue there, Dan? Is it just the time of things coming on stream in terms of the mix between completed data centers and those under construction. Is that what it is?
Yes, I think you yes, that's why my discussion about the NOI margin, a significant growth drag in the first quarter because it was the 3 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. And that will continue, to a degree into the second quarter of this year because as you can see, there's another 3 data centers to come into service in the second quarter. After that, we will have a lot of resource in service and it will enable us to deliver backlog. So I think over the second half of the year, we should see a higher level of moving level of increase in error 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 JP Morgan. Please go ahead.
Yes, hi, William and Dan and Laura. Thanks for taking my questions. My first question, you did, elude to increasing difficulties in sourcing, capacity, especially at high power. Could you talk a little bit about what is the doing to your cost? I think Dan mentioned that it is still a 10 k per square meter right now in terms of per new capacity.
Could you talk about what that would look like, maybe in the next 1 or 2 years as you start to source even bigger projects? 2nd 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 the ASH and I or, certain channel.
Okay, Koko. Hi, I'll take the first question. There are There's 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.
And all we were discussing was the different approaches you've taken to solving that challenge. And 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, if we just talk about unit costs on a per square meter basis, I expect that it will remain around the level it is today around US10 $1000. On a per kilowatt basis, it's been coming down because we build a higher power density And we've been making gains in procurement, and through purchasing power and through design standardization. And we're still targeting to make significant further gains, very significant further gains, also through some design innovation.
So on a per kilowatt basis, definitely our cost, which I guess today is around $5000 per kilowatt or USD 5,000,000 per Megawatt. On that basis, we expect it to come down significantly over the next couple of years. But as power density increases, you see the same unit development costs in a square meter basis. Okay. And then the question about, competitive dynamics in
Beijing. In Beijing? Competitive of that dynamic. Think it's so far. I think the engineers, yes, you're right.
We are we talked about a little bit a couple of times. We pay attention on to catch up the market share in Beijing. And currently, we are with this year, we will deliver this promise I think. So I think in Beijing, most of the competitors in China, a lot of the competitors there their Beijing market model than us. But since the GDS I think we leverage our, from sourcing point of view, I think that we are, we are not a leverage our GLS current brand name.
And we see a lot of landlord when if they want to give the project to sell or rent to some right customer GDS is the top in the top list. And they believe GDS, they trust the GDS. They believe GDS has the credibility and the ability to deliver what they commit So I think that currently in Beijing, we are not a compute I think sales is not our issue. We can compete any competitive if we have the resource. So in Beijing, the race is capacity.
It's a surprise. So we are catching up with that. In the recent couple of quarters, I think GDS got a lot of deal to kill all our competitors.
Yes, Coca Cola, the data center we call Beijing 4, that's quite centrally located. And Our intention is to position that for enterprise and FSI customers. Frankly, in the past, when we've done that, We've been overtaken by demand and allocated it to cloud and internet, but that's how we intend to position that. So we won't be pursuing pre commitment unless that situation arises again. So the data center we call Page 5, Phase 1.
As always, it's almost, well, I would say it's 100% fully allocated to certain customers already. And 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're getting closer to the eBay 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 cases. How quick is this ramp likely to be significantly faster than the typical ramps that we have seen given customer demand is mean much higher in that particular data center?
Yes, Gokul, these are built to suit for a particular customer and first one, you call her day 1, we'll come into service very soon in this quarter. And the the next 2, Herbei 23 will come into service, in the following quarter. The customer contract provides flexibility for the customer to move in. So it's the normal arrangement but 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.
So that's that's that's the flexibility, which they value and which we provide. So I can't commit them to a certain move in rate.
Yes, I'll try to add on. I mean, so we are in our focus. We never, expect the customer moving more fast. But if they're moving faster, I mean, it's upside, right? And on that hand, what we can see is that the kinds of article grow very, very fast.
So we hope it'll give it more upside for us
in the future.
Yes, I mean, sometimes it happens. So Beijing III is one of the internet giants. It went from 0 to 82% utilized in 6 months. And Shenzhen 5 phase 1, which is another of the Internet giants, that went from 0 to 100% utilized in 9 months?
Yes. I can say the market trend, I mean, because the car player, the market trend, they are, they're all very fast. But I cannot say particularly, I mean, a project, what's the moving schedule is it will fast or flat, right?
The next question comes from the line of Jonathan Atkin from RBC Capital Markets. Please go ahead.
Thank you. Good evening. So I was interested in a couple of things. One is the Guangzhou III 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?
And then on a broader topic just what is the opportunity set for further acquisitions of that type going forward? Thank you.
Hi, John. 1-two zero three was a, fantastic acquisition as a very large data center, but there's a bit of history behind it. When we acquired GuangzhouONE data center, there was a commitment to a large customer to provide anchor capacity, which we had to assign back to the vendor. And the vendor then developed this, subsequent data center, we call Guangzhou 3 and end up being scaled at a much larger size than had been anticipated by the contracts. 2 to 3 years ago.
The 1st phase is complete. And the customers will start to move in before the end of this quarter. So it will make some revenue and EBITDA contribution. Of course, it has reach a certain level of utilization before the data center EBITDA is positive, but that was factored into our guidance because I did say when I gave the guidance that there was 1 M and A deal, and this was it. And the size of Guangzhou III significantly increases our presence in the Guangzhou market.
So I think there's a 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 commented on the last earnings call, data center market is attracting investment quite often from local entrepreneurs, people who have some knowledge or association in the data center industry So one degree of separation, construction or IT or equipment, equipment vendors, that their objective is to realize a development profit. And we feel that we can justify paying them a small premium. The Guangzhou III acquisition, once again, was on a cat rate implied by the pricing for the for the 1st phase customer contract was 13% to 14%.
Thank you. I think the acquisition, since the market hops, so a lot of the capital jump in. So a lot of the what we can see in the last couple of the year, I mean, a lot of the project players leverage their some ability to get back to 1 or 2 projects. And they will even think about they will be there will operate. So their purpose is to build a project and sell to the operator like us.
So we can see there's a lot of partners coming right now. So but we are very carefully to managing, which we want. I think we are we know what we want, not every project we get we like. We are our acquisition skews our core strategy to acquire some nice projects in the a very, very good location. So and this is we also will evaluate their design and the construction everything.
So I think there's a lot of potential acquisition is coming.
Thank you for that. So two quick ones on the the cadence throughout the quarter for margin growth, you talked about some further expansion drag during 2Q and then more operating leverage the second half of the year. Should we be thinking about 2nd quarter EBITDA margins being essentially the same as what you just reported or up slightly or down slightly? And then more of an operational question, switching topics here, you talked about higher power density for your, to demand it by your customers. Do you find that your competitors, including companies like China Telecom are responding to the higher GAAP power density requirements, or is that something more unique to GDS?
Thank you.
Yeah, on the first question, John, I think, yeah, the second quarter will be positive progress. Versus the first quarter. But I think the progress will be greater in the second half of the year. And on the question about power density, whether I guess maybe put it in way, Our other people building the power densities that we're building, the people building 2 to 2.5 kilowatts per square meter. That's something that John was asking.
I think John was asking, I'd rather competitors building 2 to 2.5 kilowatts per square meter of our density.
Yes. Yes, you're right. But this you're right. I mean, because GLS has our customer profile. Most of our customer currently, a big customer use the high power density.
So it's not every data center they are talking those kinds of strategic customers. So I think a lot of the player in the market, I mean, they still build some low density. Thank you.
The next question comes from the line Robert Gutman from Euggenheim Partners. Please go ahead.
Hi. Thanks for taking my question. So This was the largest quarter, net increase in the area committed, but it's been accelerating consistently for the past since 4Q 'sixteen. I was just wondering if you could talk about your expectations looking forward to the pace of how this develops through the year. Okay.
I think as I just mentioned, we are we already in the first quarter, we are delivering almost 50% of the last year full year. So our original, I mean, plan in the very beginning, Dan hit the forecast, the CapEx focus is 45,000 square meters this year. About 40,000,000, yes. So in Q1, we completed almost 50% of the total year target. So it's what we can see there is market.
It is accelerated. So we believe high chance we will accelerate this number. Compared with the guidance.
Yes, Rob, if I can add, in his prepared remarks, it says that we target to achieve something similar in the 2nd quarter. So 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, but Certainly, the pipeline or the demand side is there. And as we've probably explained at quite great lengths, we've got the resource supply.
And 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. I think that the chance of this being sustained or even higher is there.
The next question comes from the line of Colby St. Sales from Cowen And Company. Please go ahead.
Great. Thank you. Two questions, if I may. First off, Service 1 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 And then 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. I'll probably ask, to give more color about the deals that we're working on with CyrusOne.
Yes, I think we are we kicked to working on after Cyrus Swann became our shareholder to team, keep working on refer a customer to their teacher. I think since the sales lead still need the lead time, sales lead time is is there. So as I always say, some big deal is cooking. It's cooking right now. And both sides, not just that we pursued the big customer to service 1.
They also put some meaningful customer to us or help us to to, let's say, strengthen our relationship with our existing customer. So the result will come in. I think Coming so I think maybe in the next earnings call, maybe we will see some early results So this is from the, let's say, from the customer side, share customer side. From the 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.
But the first step is to understand the architecture and to standardize both sides some module, some component. So this is in the progress. So when this step move on, then we will go to the next step to reduce our procurement costs. So that's our target. And then we have a very aggressive plan to work together right now.
So about the cloud connects, I would like to say, actually, we already, a software launched product and tested the product since last year. And we will officially announce the product in the next few months. We are preparing all those completed the pretesting the market. So I think that good news we're coming.
Yes, Colby, I think it's too early for us to talk about how to monetize, in terms of identifiable revenue. But 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, 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 pots, you call them on ramps, in our data centers, is, unique value proposition, which we can capture through the hubs.
And 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. So the benefit could be there could be a significant benefit simply through the customer mix, without there being any separately identifiable separately build in revenue stream.
Great. Thank you.
The next question comes from the line Frank Lewaton from Raymond James.
Already got covered. But give us give us some color on how many new logos you added in the quarter. How is the growth there? And then talk to us a little bit about costs for building. Are you seeing any material pressure on pricing for the instruction of data centers either from labor or raw materials relative to the last 12 months?
Thanks.
Yes. Frank, it's Dan here.
I mean, we're adding something like 25, 30 new customers, first time customers per quarter. And that's been the rate actually pretty steady, for for 1 or 2 years now, 4 or 8 quarters. So the enterprise customer account number is going up. And our strategy is to attract and establish relationships with customers who we think a valuable or matter. So we're putting a lot more emphasis on on customer account number than we are on the revenue or the proportion that comes from that business.
I mean, it starts with it starts with the relationship.
Yes, I think in general, we are still target to grow our customer account as at least a 25% increase every year. So I think a quick one is on our chart.
Yes. On the development costs, I know what you're referring to as I listen to our USPS calls, but we're not experiencing, the inflation that they referred to either in material costs or construction or labor. The only thing that I actually referred further to earlier is that there is industrial property prices in China are going up. But as I think somebody once said, real estate is never expensive for 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.
So in those areas, industrial land prices may be a little bit lower. So it's not a 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 what right, all the Piacente Group, Investor Relations. Thank you all.
Ladies and gentlemen, this does conclude the conference for today. You may now disconnect your lines.