Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited fourth quarter 2017 and FY 2017 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 Chen, Head of Investor Relations for the company. Please go ahead, Laura.
Thank you. Hello, everyone. Welcome to the 4Q 2017 and full year 2017 earnings conference call of GDS Holdings Limited. The company's results were issued via news file 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 investors.gdsservices.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. Thank you for joining today's call. We have now completed one full year since our IPO, and it was a year of great achievements. We made tremendous progress across our business, delivering all that we said and more. Our market position today is even stronger than a year ago. We see a substantial high level of demand for data center capacity in China, and the growth estimates has been raised. Our business outlook is the best that we have ever known. The first highlights of 2017 was our sales performance. Total area committed by customers increased by almost 70%. The net addition to our contract portfolio is worth over $200 million in terms of annual recurring revenue.
With an average contract life of around five years, this represents over US$1 billion of total revenue secured in a single year, which we believe is an industry record. What is more, the sales momentum is continuing very strongly into 2018. We always say that we serve the customers who matter. As a demonstration of this, over 80% of our new business in 2018 came from existing customers. A critical fact behind this sales achievement was our ability to continuously expand capacity. We started the year with 13 self-developed data centers in service or under construction and ended it with 20. As of today, we are up to 23. Sales and capacity growth is flowing through to our financial results. We started the year with a backlog of 24,000 square meters. We delivered the backlog, driving total revenue growth of over 50% and adjusted EBITDA growth of nearly 90%.
We ended the year with an even larger backlog of 41,000 square meters, providing high visibility for future growth in 2018 and beyond. Every one of our projects is fully funded. We successfully completed nearly US$1 billion of debt and equity financing during the year, including the follow-on offering in January 2018. We have a strong capital base to support our business plan. Last but not least, we strengthened our relationships with key customers, including Alibaba and Tencent, who formally recognized us as their preferred supplier. We also established new strategic partnerships with highly influential industry leaders, namely CyrusOne in the U.S. and the State Development and Investment Corporation in China. Let's look forward, I will start by discussing our market opportunity. It's slide five. 2017 was a year when the cloud really took off in China. Our digital economy is booming.
Enterprise IT is moving on to the cloud at a very rapid rate. The leading cloud service providers are growing at almost 100%. Nevertheless, our public cloud market is still in its early stage and only around 10% of the U.S. and less than 2% of the total IT spending in China. Cloud is paving the way for new technology, which are more and more compute and data intensive, such as machine learning and artificial intelligence, which are huge focus areas for research and investment in China. China is also gearing up to leading the world in large scale 5G deployment, which will make the Internet of the things a reality. To find out how all of this translates into data center demand, we only have to talk to our large customers. They are at the leading edge of cloud and the new technologies in China.
From what they have shared with us, they see their requirements for data center capacity going to higher and higher levels. They are looking to us to grow our supply in sync with their requirements. Let's turn into the slide six. In our view, the optimal business model for the data center industry is to serve high volume cloud and internet companies co-located with high value enterprises. GDS is already there. Over the past few years, we targeted capturing demand from all the hyperscale cloud service providers and from the large internet companies, which own the most valuable data. These customers give us a continuous growth, high filling rates, scale economies, and a leading market position. They also give us the highly strategic connection points into their platforms, which are key to driving enterprise colocation.
As a result of this targeting, cloud plus internet has grown from 47% of our business three years ago, to 64% one year ago, to 79% at the end of 2017. We already serve most of the customers who matter in China. They keep coming back for more capacity, and as they roll out their platforms in all the Tier 1 markets, we keep winning additional cloud connection points. For example, just in the last quarter, we got 2 more POPs from the Baidu Cloud and 2 more POPs from AWS. The hyperscale cloud and the large internet companies typically deploy their platform in Tier 1 markets for latency sensitive data and application, and in remote low cost locations for the rest. In Tier 1 markets, they require multiple data center in geographically separate zones and a neutral place to connect with their customers and partners.
This is where GDS comes into the picture. We create value for our customers by providing the right resource in the right place at the right time. Historically, our customers have also 100% of their requirement in Tier 1 markets. From what they have discussed with us, this remains their objective. In remote locations, our customers can still build by themselves. However, they have started to look at outsourcing this part of their requirements as well. While our business remains focused on Tier 1 markets, we are prepared to follow our most important customers where they need us to go. Providing that we can structure the investment to make adequate returns. In this context, we recently agreed to build and operate three data centers for one our largest customer at a remote site in Hebei province in the far northwest of China.
On the enterprise side of our business, the key metric which we focus on is customer account growth. In 2017, we added almost 30% to our enterprise customer base. We have had particular success in the e-payments vertical, hosting all the leading service providers such as Alipay, WeChat Pay, UnionPay, as well as the Central Bank settlements and clearing system for e-payments. Going forward, a major driver for the enterprise customer franchise will be the unique ability to connect through our hub to all the major cloud platforms in our data centers. We also see potential for creating connection hubs for the financial service ecosystem. We have already soft launched our cloud connector hub, and in the next one or two quarters, we plan to upgrade and fully launch this service, initially focusing on the Shanghai market. Let's move to slide seven.
One of the benefits of serving the larger customers in China is that it gives us insight into what is coming. We foresaw the accelerating demand curve and stepped up our efforts to secure more resource supply. There is a significant barrier to entry in securing qualifying real estate and the sufficient power in Tier 1 market in China. This is why supply is only just keeping up with demand. We have successfully dealt with this challenge through our dedicated local team in each market, partnering with government's real estate-related property developer for build-to-suit data center shells, delivering significant benefits for the local economy and achieving optimal levels of power efficiency to address environmental concerns. At the beginning of 2017, we had just over 60,000 sq m in service and another 25,000 sq m under construction.
During the year, we initiated five new projects and acquired two data centers, one of which was under construction and one which was operational. By the end of the year, our area in service had increased by 66% to over 100,000 square meters, and we had reloaded the development pipeline with 24,000 square meters under construction at year-end, and another 15,000 square meters initiated in January 2018. While we are adding all this supply, we are also sustaining exceptionally high commitment rates, 90% for area in service and 50% for area under construction as of today. In addition to what you see, we have a significant pipeline of resource which we have not yet activated. At the end of 2017, we had an estimated 46,000 square meters held for future development, which is mainly additional phases of existing data centers.
We have also entered into four MOUs for leasing building that we expect to provide us with additional 46,000 square meters. Let's move to slide eight. Our business is in a great position. Over the past year, we have extended our market leadership. We are the only platform player in China, far ahead of any other in the carrier-neutral sector. We have close relationships with the customers who matter, and they are always looking to outsource. We operate in a market where pricing is stable and the returns are at acceptable levels. Continuing our strategy to be the home of the cloud in China, how do we build for here? First of all, we must keep up with the accelerating demand from our existing large-scale customers by scaling up our resource supply. Second, we will use our resource advantage to establish relationships with additional strategic customers who we are targeting.
Third, we will enhance our Cloud Connect product to grow our enterprise business. We believe that the cloud connection points in our data center give us a unique opportunity, which will become more and more valuable as enterprises adopt hybrid cloud and multi-cloud solutions. Fourth, we will lower unit development costs through design and procurement initiatives. This will make us even more cost competitive and help protect our return. We are looking at various innovations around standardization, block redundancy, ultra-high power densities, and intelligent power management. Fifth, we will leverage our partnership with CyrusOne for cross-border business opportunities into China and out of China. With SDIC for entry into the new market. We will also seek another innovative approach to investment outside the Tier 1 markets. With that, I will now hand the call over to Dan for the financial and operating review.
Thank you, William. Total revenue and adjusted EBITDA both came out higher than the flash financials, which we disclosed in January, and higher than the top end of the guidance for last year. Let's look more closely at this, starting on slide 12, where we strip out the contribution from equipment sales and the effect of FX changes. In Q4 2017, our service revenue grew by 16.7%, and our underlying adjusted EBITDA grew by 17.9% quarter-on-quarter. For FY 2017, our service revenue grew by 58.7%, and our underlying adjusted EBITDA grew by 111.7% year-on-year. Turning to slide 13. The main driver of revenue growth in Q4 2017 was the 11,000 square meter increase in area utilized, out of which 5,000 square meters came from the backlog and 6,000 square meters came from the acquisition of Guangzhou II data center, completed in October.
The monthly service revenue, or MSR per square meter over the past four quarters has been within a defined range and remained so in Q4 2017. The average selling price in the backlog is similar to our current MSR, as the backlog is delivered, we do not expect the MSR to change materially. As shown on slide 14, profit margins are on an upward trend, but it is not a straight line. 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, we are in rapid expansion mode, with new data centers acting as a temporary growth drag. In Q4 2017, we brought a lot of capacity into service.
Three data centers, Beijing III, the first phase of Shenzhen IV, and Shanghai IV, which together account for around 17% of our total area in service at year-end. The fixed cost of these data centers is what impacted NOI margins in Q4 2017. Slide 15 illustrates the mix of our portfolio by stage of development. What is important to note is that we have high commitment rates across the board. As data centers come into service and fill, NOI margins will trend up to benchmark levels. It is just a matter of time. At the corporate level, as shown on slide 16, we continue to realize operating leverage on our SG&A. In Q4 2017, this was sufficient to offset the growth drag that I was just talking about. Accordingly, underlying adjusted EBITDA margins were higher in Q4 2017 than in Q3 2017.
SG&A, excluding depreciation and amortization and stock-based compensation, hit 13.4% of service revenue. If we factor in full delivery of the backlog, the current level of SG&A represents around 8% of service revenue. Turning to our CapEx on slide 17. In 2017, we accelerated our investment activities, adding seven new projects, including two through acquisition. Our full-year CapEx paid was just over CNY 2 billion, compared with CNY 1.1 billion in 2016. For the self-developed area in service, our unit cost averages out at under $10,000 per square meter. This capacity has an average power density of nearly two kilowatts per square meter. The unit cost per megawatt averages out at under $5 million.
For the area under construction, if you do the math, unit cost per square meter appears to work out slightly higher. This is because the power density of this capacity is also higher at nearly 2.3 kilowatts per square meter. In addition, the cost includes front-end power infrastructure and building shell and core costs, which will support several later phases of development. After taking this into account, the unit cost per megawatt for this part of our portfolio is actually lower, about 5% lower. I would like to update you on the progress of each project which was under construction at year-end. Starting with Shanghai Five, phase one, it will enter service soon, and it will be close to fully committed by the end of 1Q 2018. Shenzhen Five, phase two, is reserved for expansion by the anchored customer in phase one.
We expect to formalize the commitment from this customer in the near future. Hebei 1, 2, and 3 are the data centers which we are building to suit for one of our largest customers. They are all 100% pre-committed. Shanghai 6 is pre-committed 45% by China's leading online travel company. Shanghai 7, which is not actually shown here, is being built to suit for us on the same campus as Shanghai 6. We will include it as under construction when the shell and core are handed over, and we begin to incur CapEx later this year. We are trying to accelerate Shanghai 7 as we have pending demand for it. Chengdu 2, phase 1, is an expansion project at our Chengdu campus. It is already 25% pre-committed by a major cloud customer. The pre-commitment rate will increase significantly in 1Q18 with demand from another major cloud customer.
Shanghai 8 is a new project which we initiated in January this year. It is located close to our existing Waigaoqiao campus. Anchor customer commitments are coming soon. Turning to slide 18. There has been a significant change to our financing profile since we last reported results at the end of Q3 2017. The $150 million CB, which was outstanding, has been 100% converted. We received $100 million proceeds from the equity issuance to CyrusOne in October 2017, and then a further $205 million net of underwriting commissions from the follow-on offering in January 2018. We refinanced about RMB 700 million of bank borrowings, which were due in 2018, with new facilities with longer maturity. In addition, we obtained another RMB 300 million of short-term working capital loans. What does all of this get us?
Our approach to data center financing is to inject equity into each development company and leverage it with project debt. All of the projects which we have announced to date are fully financed with equity and debt. Most of the equity which we raised in the last few months is still available for allocation to new projects, which we expect to initiate through this year and next. As we move forward, a similar approach will be adopted to financing these projects. The credit market in China has been quite tight for a while. Despite this, we successfully secured RMB 3.9 billion, equivalent to over $600 million, of new debt facilities during 2017. This gives us a strong basis of confidence for the debt financing ahead. We have an excellent track record in the onshore banking market.
In addition, we are actively considering alternative sources of debt, either to lower cost or extend tenor. Around 65% of our debt is floating rate linked to the People's Bank of China 5-year rate. This is a semi-market rate which is quite stable. We believe that we can comfortably deal with the changes in the interest rate environment. Slide 19 shows our backlog buildup over the past year. At year end, our backlog stood at nearly 41,000 sq m, worth over $190 million in terms of annual recurring revenue, which is equivalent to 63% of our last quarter annualized service revenue. Delivery of the backlog provides high visibility for revenue growth, which brings me on to the subject of guidance on page 20. When we look forward 1 year, we start with a very stable base of area utilized or revenue-generating space.
Our churn rate is exceptionally low, only 0.6% in 4Q 2017. Over the course of 2018, we have only 8,700 sq m, roughly 8.5% of our total area committed, which is coming up for renewal. On top of this installed base, revenue growth is mainly derived from delivery of the backlog in place at the start of the year. The timing of delivery, and hence revenue recognition, depends on when new data centers come into service and when customers move in. Based on our current view of these factors, we expect full year 2018 total revenue to be in the range of CNY 2.46 billion-CNY 2.56 billion, implying a growth rate for total revenue of over 55% at the midpoint of the range.
We expect adjusted EBITDA to be in the range of CNY 905 million-CNY 935 million, implying year-on-year growth of close to 80% at the midpoint of the range. Our total revenue and adjusted EBITDA guidance imply similar percentage growth rates for 2018 versus 2017, as for 2017 versus 2016. We expect full year CapEx for 2018 to be in the range of CNY 2.6 billion-CNY 3 billion. The increase year-over-year follows on from the higher level of new customer commitments in 2017. The range takes account a potential upside in our current year sales performance. We are not providing official guidance for sales. However, based on what we have already done in the year to date and our high probability sales pipeline, we are confident of beating the 41,000 sq m of net additional customer commitments which we achieved in 2017.
We expect to make significant progress towards this target in the first half of 2018. To give you some feel for the quarterly cadence of our financial results, move-in during the first quarter is normally at a lower level due to the major Chinese New Year holiday. Thereafter, increase in area utilized and hence revenue growth will accelerate, with higher growth in the second half of the year. This cadence is consistent with prior years. Finally, I should mention that our guidance includes the assumption of one further acquisition of a data center under construction, a deal which we are very close to signing. As with our prior acquisitions, we expect the terms to be highly accretive. Our criteria for these deals are very stringent, but we are seeking more opportunities, and project acquisition will remain an integral part of our capacity sourcing strategy.
With that, I will end the formal part of my presentation. We would now like to open the call to questions. Operator?
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. If you'd like 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 the pound or the hash key. We have the first question from the line of Jonathan Atkin. Please ask your question.
Thanks very much. I wanted to follow up on the last point that Dan Newman made about acquisitions of either shell capacity or maybe fully built out data centers. It sounds like the guidance contemplates one of those projects. Can you tell us a little bit about what does the supply look like for those sorts of M&A activities through the year? Is it too numerous to count, or are they kind of situational in certain metros that provide? I'd be interested in a perspective on that. The other question I had relates to the Cloud Connect hub. It sounds like you're starting to deploy it. Are there additional product features that you are looking to introduce, and how would you characterize customer demand for that product, or is it still at a very early stage? Thank you.
Hi, John Atkin. On the subject of acquisitions, when we look at the industry landscape, people often ask us about competition, one feature of the last couple of years has been quite a lot of new entrants who are typically developing one data center or two data centers and looking simply to make a successful project and maybe then to capture the profit from it. This is what is giving rise to the acquisition opportunities. Frankly, the pipeline of those opportunities is getting larger. We have very stringent standards. The data center facility needs to fit with our customer profile. That's not often the case. We screen out a lot of these opportunities. What we're left with there is good promise, I would say, for further acquisitions.
We like to do them while the data center is still under construction, so that we look at it really as an alternative strand of sourcing capacity. Yeah.
The second question, John, let me answer your question. Last year, we already say we deployed the Cloud Connect solution to our customer. It's very early stage product, and after almost a half year of testing, and we try to develop more function to our customer to let it improve our user experience. This is more software defined technology. I think in the next one or two quarter, we will officially launch this product. Still, I say this is also align our strategy to try to build up our whole other cloud, and let the customer connect our cloud in our data center more convenience and the user experience much better than before.
Thank you. Then a last question about the speed with which customers are moving in, so kind of the backlog to revenue conversion. When you have a ready for service date at a site and there's a substantial amount of pre-commitment, what is the approximate time lag between delivery of the data center and then occupancy of that committed space?
John, this is a characteristic of the contracts with the hyperscale cloud and large internet customers. As you can imagine, a very large customer does not deploy 100,000 servers on one day. They secure capacity, and something that they find very valuable is having flexibility about the timing of the move-in. Now, that's something that we are prepared and organized to give them, and it's part of our skill to manage the timing and phasing of our own CapEx to minimize the sunk cost before they move in. The contracts, if you base it on the delivery schedules, which are really a kind of fallback or minimum, the contracts often give the customers flexibility for 12 to 18 months. We can't forecast on that basis because almost every single contract is actually at a move-in, which is ahead of the contractual minimums.
What we have to do is form a view based on what the customers tell us about their intentions. I would say, on the whole, they fully move in within, say, four to five quarters.
Right.
Thank you very much.
We have the next question from the line of Gokul Hariharan. Please ask your question.
Yes, thanks. Thanks for taking the question. Hi, William and Dan. My first question is on the strategy to move towards tier 2 cities as well as some of the more remote areas. Could you talk about the competitive landscape that you encounter? I think we remember that a lot of the telcos had actually invested in a lot of the smaller tier cities as well as remote areas over the last few years. How do you think about the competitive landscape? It seems to be pretty different from what you encounter in the tier 1 cities.
Yes, Gokul. I just preface this by saying overwhelmingly, our business today and our strategy is based around tier 1 markets. We are responsive to our customers, and we will go where they want us to go. I really think the major distinction is between tier 1 markets and remote locations. In remote locations, there's nothing. There is no competitive landscape. It's simply a question of build to suit. Tier 2 markets, we're not really sure what tier 2 markets are. We formed this partnership late last year with State Development Investment Corporation and the two fixed line telecom incumbents, China Telecom and China Unicom. I think one of the objectives of that was to pool our strengths. We're not going up against the telcos. We are partnering with them.
We found that quite an appealing way of establishing a presence in some new markets. Initially, only Tianjin is confirmed, but there could be one other city in a few quarters' time. Going forward, we may expand in those markets ourselves, but it's a very low risk way of establishing our market presence. I think partnering with SDIC and the telcos, I'd go as far as to say that the success is pretty much assured.
Yeah. I think to echo Dan's explanation, I think our strategy to the tier 2 market is partnering with the SOE, because it's always easy to get the municipal government business commitment. It will reduce our risk to get into this market.
Okay. Just one other question. On the CapEx guidance of CNY 2.6 billion-CNY 3 billion, does that budget for acquisition cost as well or is that primarily self-built data center CapEx?
Yeah, it includes one acquisition that I referred to because that acquisition is imminent. When we acquire a data center which is under construction, essentially we're paying the cost to date, less any liabilities, and then incur directly the cost to complete, plus a relatively small premium. That is included in the CapEx guidance for one data center. Going back to, I think, the first question from John Atkin, there are potentially more than one. There's only one that is definite enough to include in the CapEx guidance as of today.
Understood. Yeah, that's all I had for now.
Thank you.
We have the next question from the line of Robert Gutman from Guggenheim. Please ask your question.
Hi. Thanks for taking the questions. First, I'm not sure if you broke out the revenue from the acquisition, the data center acquisition that you made, and the expected revenue from the one pending. Secondly, I was wondering, it seems like there's been this 30% year-over-year increase in Enterprise logos. How long do you see that continuing at that pace?
Yeah. The acquisition was completed in October, and it was unusual because actually this was an acquisition of a data center that was already operational. I just explained the circumstance. It was next door to one of our existing data centers, which we acquired nearly 2 years ago. Actually, we had intended to acquire the second data center, the one we call Guangzhou II, at the same time. We had to wait because there were certain criteria around power capacity and redundancy that were not satisfied. By the time we were able to complete the acquisition, the data center was fully operational. Yeah, it did contribute. I think if you want to estimate the revenue contribution, it's a couple of months. The revenue per square meter for that data center is below our average. Revenue per square meter doesn't indicate return.
I can tell you the cap rate for that acquisition was something like 14%. Yeah, I can leave it to you to make that estimate. William, it's about sustainability of Enterprise customer growth, 30% per annum.
Hey, Robert, this is William. As I mentioned earlier, we know, we understand the optimal model of data center businesses to prioritize to increase your hyperscale customer, plus to increase your retail customer, which we call valuable Enterprise customer. To keep grow our Enterprise customer is one of the sales strategy. If you look back last 3 years, almost every year, we continue to grow our customer number at 30% annual rate level. I think in our resource plan, we still leave a lot of the capacity to let the sales bring the valuable Enterprise customer. This is our target, and we hope, we expect we still can maintain 25%-30% of the annual account member growth in the next few years. This is very strategic and protect our investment return.
That's great. Thanks. If I had one follow-on, could you just update us a little bit on some of the initiatives or provide some color on the interaction with CyrusOne?
Yeah. I think after CyrusOne became our shareholder, I brought our team to visit their data center and we discussed all various business stuff in terms of the design and construction and supply chain management and the cross-border refer customer. This is all the objective we try to achieve. We put this cooperation as a two base. First is case by case. We already start to work together to try to let CyrusOne help us to improve our design for cheaper and build more fast. The business already starts to work with one very valuable customer already. On the other hand, we also help our Chinese customer to go to the CyrusOne data center in the U.S. I believe these two low-hanging fruit will happen in a few months. This is all case by case right now.
We do have the midterm cooperation try to achieve to reduce our cost and try to standardize our design partially and get the scale to improve our procurement power, where we'll maybe integrate their procurement and our procurement scale to squeeze our vendors together. This is our midterm target. We also start to design some new data center in China with CyrusOne's support, because maybe it's our pilot case to deploy the new design, introduce the new design to the China market. This all stuff is already initiative.
Thank you very much.
Given six months or 12 months, this effort will contribute to company pretty good business benefit.
That's great. Thank you very much.
We have the next question from the line of Suzy Sue from Citigroup. Please ask your question.
Hey, hello, this is actually Asalai. First of all, congrats for record level of the customer commitment and also growing backlog. I have a question on your presentation, page eight, leverage our partnership. You mentioned that the SDIC, actually you signed an agreement with them and enter into the tier 2 market. From the street angle, I wonder why they choose the GDS. It's because you guys have uniqueness or because something interesting? The second is how we benefit from this alliance. Should we think of it's a service revenue and lower CapEx and higher margin? The third question is probably to Dan, is like how you think of the timing of start to model these things. Thank you.
Okay. Dan, I answer the question. Maybe you can cover some of what I haven't covered, all right? I think the why choose GDS, I think in China market, it's obvious if they smart enough. They do smart, right? I think, first of all, SDIC, they are traditional state-owned investment giant to invest in all the different kind of the infrastructure, including the power, right? I think this type of business is which they're seeking for some new business. They also have the government reputation. I think they have evaluated their partner almost one year, before we signed the MOU. Their criteria is very simple. They wanted a data center company who has the full suite of the capability from the design and the construction and the site selection and the operation.
They also like GDS has the track record in the market, has the best track record in the market, well recognized by the customer. This is a key criteria what they seeking the partner. After one year evaluation, I say they made a decision to work with GDS and also invite China Unicom and the China Telecom to try to form a JV type of company together. Our target is to build a data center in Tianjin first. We still discuss another couple of the location, which we can build our data center and serve to the state-owned company and the government system, to host government system. This is what our plan. Currently still in discussion where we start the project and how many project we should put in this year or next year. Yeah.
Yeah. Thank you, William.
Thank you.
I'm sorry. I apologize, sir. If the participants have any question, please press star one again, or we could move to the next question. Thank you, sir. Can we move to the next question? Thank you. We have the next question from the line of Colby Synesael from Cowen and Company. Please ask your question.
Great. Thank you. This is Michael, on for Colby Synesael. Two questions, if I may. Earlier you mentioned the cloud took off in China in 2017. Can you help us understand where China stands in the cloud adoption cycle relative to the U.S.? Second, I believe you mentioned earlier that 50% of the area under construction is pre-committed. Can you help us understand the mix of customers that are pre-committing this space and, if it's a specific vertical or it's more broad-based? Thank you very much.
What's the first question?
Yeah. First question was about where's China in the cloud adoption curve?
Yeah. I think as I mentioned, last year is a very big year for the China cloud took off. I think if you look at what Alibaba, Tencent, they announced the number of the cloud revenue growth, it's all in a three-digit growth period. I think this is just a start because Based on my observation, last year, the total Alibaba Cloud will be reached to the, because their financial year is the end of the first quarter of this year. I think the total revenue will be close to $2 billion, and they are 50% of the market share. They are the market leader. Compare with U.S. market, as I mentioned, it's just 10% of the U.S. peers.
If you look at Amazon, their cloud revenue last year has reached to the CNY 20 billion already. Microsoft's already reached to CNY 20 billion already. Alibaba, it's around CNY 2 billion. It's quite an early stage, but it's moved very fast. This is the fact. We also see a lot of the financial institution, they start to use the cloud. This is a signal that mean that they are in the testing period. I think in this year or next year, I believe a lot of the enterprise will adopt to the hybrid cloud model.
Yeah, a question about the backlog and pre-commitment. Most of the backlog, almost all of it, is the top 5 or 6 cloud service providers and internet companies in China. The sales cycle and the delivery cycle for enterprises is relatively short. Enterprises may only commit to a data center 3 months before it comes in service or it's not pre-commitment at all. Naturally, the backlog which relates to enterprises is never going to be that large, because they take delivery within pretty short order. It's really the hyperscale and large internet which has created this huge backlog. Almost all of the new business from that segment is pre-commitment. In fact, we said on some previous earnings calls is that, we're doing joint resource planning with our largest customers. They're asking us to align our resource plan with their requirements.
They often evaluate and give feedback on projects that we're considering taking on. By the time we do decide to move forward, we already have a soft commitment from them. When we disclose pre-commitment, that's contractual or legally binding. We actually have a commitment that we consider to be real quarters before that. Okay.
All right. Thank you very much.
As there are no further questions at this time, I would like to turn the call back over 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.
Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.