Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited third quarter 2016 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.
Hello, everyone, and welcome to the third quarter 2016 earnings conference call of GDS Holdings Limited. The company's results were issued via Newswire services earlier today and are posted online. A summary presentation, which we will refer to during this conference call, can be viewed and downloaded from our IR website at investors.gds-services.com. Leading today's call is Mr. William Huang, GDS Founder, Chairman, and Chief Executive Officer, who will provide an overview of the business. Mr. Dan Newman, GDS Chief Financial Officer, will then review the company's third quarter 2016 operational and financial 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. Securities Exchange Commission. 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 chief executive officer, William Huang, who will start this discussion on slide three. William, please go ahead.
Thank you, Laura. Hey, everyone. Thank you for joining our first quarter earnings release conference call as a NASDAQ-listed public company. Our initial public offering on November second was an important milestone for our company. It enhances our brand, and it increases our transparency. This will help us extend our market leadership position. Turning to slide four. We are very pleased to report a record quarter with robust financial and operating results, as you can see on slide four. Let's move on to slide five that highlights our sales achievement. We have added nearly 70% to our total area committed year-over-year. This accelerating growth is primarily driven by strong demand from cloud service providers, which has taken off as gigantic companies like Alibaba and Tencent have made it their strategic priority.
From what we know about our customers and where they are at, there is a long runway ahead, and the incremental demand is huge. We are just in the early stage of cloud development here in China. In addition, we won two significant new customers, which added to our outstanding portfolio of market-leading customers. One is a top-tier internet giant in China, and the other is a top three technology company from the U.S. We also won substantial new business from our existing customers. Turning to our data centers on slide six. Our construction plan is moving forward very smoothly, on schedule, and within budget. Our current projects will add around 37,000 sq m of capacity, which is already nearly 35 pre-commitment. We continue to look for opportunities to increase capacity to meet growth demand.
In closing, I'm thrilled about the tremendous data center opportunities in China and the rapid escalating demand we are seeing from our internet, e-commerce, and cloud customers. As a first mover and a market pioneer in China, we are well-positioned to capture the opportunities, grow the business, and deliver shareholder value. With that, I will now turn the call over to our CFO, Dan Newman, who will discuss our financial results and additional key operating metrics. Dan, please.
Thank you.
Thank you, William. Hello everyone. Slide eight summarizes our third quarter results. Service revenue grew by 57% year-over-year and 14% sequentially in the third quarter of 2016. Our adjusted EBITDA margin hit 26.2%, a sign of our operating leverage. On slide nine, you'll see the total area committed increased 70% year-over-year and 31% sequentially to 58,000 sq m. Total area utilized increased 63% year-over-year and 7% sequentially to 34,000 sq m. As a result of the strong sales growth, contract backlog, the difference between area committed and utilized, nearly doubled. Contract backlog is an important metric as it provides visibility to our future revenue growth. Out of our 24,000 sq m backlog as of September 30th, 2016, around 11,000 sq m relate to area already in service and 13,000 sq m relate to area under construction.
Based on minimum contractual commitments, the backlog will be largely delivered within the next four to five quarters. We always plan on the basis of contractual minimums, but in practice, we consistently see our customers moving in ahead of schedule. Average selling price or ASP for the backlog as measured per square meter, is in line with what we are achieving for our current revenue generating space. At this point, I'd like to update you on a customer development. We recently became aware that one of our customers intends to terminate its contracts with us as a result of a merger between the customer and one of its competitors in China. This customer represented 3.7% of our total area committed and 3.6% of our area utilized as of September 30th, 2016, and was based in our Shanghai number 1 and 2 data centers.
We are working through the details, but we expect the customer to terminate either at the very end of 2016 or early in January 2017. We are entitled to a termination fee equal to around nine months revenue from the contracts. We have strong demand for our Shanghai data centers, and as a result, we are confident we can resell the space terminated by this customer by mid-2017. In sum, the contract's termination is not material to our business, and it will not negatively impact our 2016 and 2017 financial performance. We'll provide an update on our resale progress at the time we report our fourth quarter 2016 earnings.
Turning to slide 10, the increase in our service revenue over the previous quarter was mainly due to an increase in area utilized as customers moved in and an increase in revenue generated by our Guangzhou number 1 and Shenzhen number 2 data centers, which commenced operations during the second quarter of 2016. Our monthly service revenue per square meter decreased to $401 for the third quarter of 2016 compared with $413 for the second quarter of 2016. This slight change is a function of lower billing for new utilized space during the transitional period at the start of new contracts. Slide 11. Adjusted EBITDA was $11.7 million in the third quarter of 2016, an 82.7% increase over the third quarter of 2015 and a 65.2% increase over the second quarter of 2016.
Adjusted EBITDA margin was 26.2% in the third quarter of 2016 compared with 22.5% in the third quarter of 2015 and 20% in the second quarter of 2016. Excluding IT equipment sales and related costs, adjusted EBITDA margin for the third quarter of 2016 was 27.4%. Utilization rate of area and service was 70.4% at the end of the third quarter of 2016 compared with 56% at the end of the third quarter of 2015 and 66.2% at the end of the second quarter of 2016. Our capital expenditures on slide 12 increased in the third quarter of 2016 to $58 million, mainly due to the accelerated development of our Shanghai number 3 data center, the cost of completing the newly acquired Guangzhou number 1 data center, and the initiation of our Shenzhen 4 project.
For our data centers under construction as of the end of the third quarter of 2016, we need to incur an additional $255 million to complete the construction and full fit-out. We have achieved an overall pre-commitment rate of 34.5% for data centers under construction, which reflects the strength of demand. We have significant demand in hand and contracts in process for the available resource that is scheduled to come into service between now and mid-2017. Turning to our balance sheet and liquidity on slide 13. As of September 30th, 2016, gross debt was $589.6 million, of which 83% was long term. We had cash of $119.8 million. The net proceeds from the IPO were a further $180 million, net of underwriting discount and IPO related expenses.
Pro forma for the net IPO proceeds, our net debt to last quarter annualized adjusted EBITDA ratio at the end of the third quarter of 2016 was 6.2 times. We recognize that our leverage level is higher than you would typically see for mature market data center businesses. A lot of our debt is project-based and tied to the cash flows of those projects. As a result, we can manage higher nominal debt levels, and we are confident of our ability to manage debt at these levels and higher going forward. We will not be providing forward-looking guidance as part of today's earnings conference call. We intend to provide forward-looking guidance for 2017 at the time we report our fourth quarter 2016 earnings.
Thank you once again for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on our website or The Piacente Group Investor Relations.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.