Hello, ladies and gentlemen. Thank you for standing by for the GDS Holdings Limited Q2 2022 earnings conference call. At this time, all participants are in listen only mode. After management's prepared remarks, there'll be a Q&A session. Today's conference call is being recorded. I'll 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 Q2 2022 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 our business strategy and performance. Mr. Dan Newman, GDS Chief Financial Officer, will then review the financial and operating results. Ms. Jamie Koo, our Chief Operating Officer, is also available to answer questions. 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 includes 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. Please go ahead, William.
Thank you. Hello, everyone. This is William. Thank you for joining us on today's call. The world is undergoing a lot of uncertainties and is very unpredictable right now. For the companies in China, it's an extremely challenging year, especially the tech sector. Our customers are impacted by the economic slowdown, the COVID lockdown, and the supply chain shortage. This is reflected in their weaker than normal business performance and the results. However, GDS business is resilient and defensive. Despite the challenges, we are still delivering solid results, growing revenue by 24% and adjusted EBITDA by 18% in the Q2. At the same time, we continue to make significant progress in the execution our growth strategy by further developing our customer franchise as demand diversifies across the cloud, Internet, and enterprise verticals.
Stepping up our international expansion and establishing a new data center fund as the channel to access private capital. We have strengthened our position in absolute and relative terms for future recovery and the value creation. Even in a softer demand environment, there are still significant new business opportunities. As a result of our customer targeting and market presence, we are well-placed to compete. In the Q2, we won three new hyperscale orders. The first came from a global cloud customer who we are already serving in mainland China. This latest order was for our Hong Kong One data center. As a result of this deal, we now have the largest global cloud and the largest China cloud as our anchor customers in Hong Kong One, which is quite an achievement.
The second was from a China cloud customer for capacity at a location near Beijing, where they already have significant presence. This is a typical land and expand order. The third was from a major Chinese bank for capacity in Shanghai. Continuing the trend which we highlighted for the last few quarters. Financial institutions and the large enterprise clients once again accounted for around 40% of new bookings in 2Q22. During the first half of this year, our new bookings was 31,000 sq m . For the full year, we are confident of achieving 70,000 sq m of net additional area committed. We may be able to do more, but it depends on deal timing. This is a transitional year. Going forward, we still target 80,000 sq m and then up to 90,000 sq m of annual new bookings.
However, within this number, we expect a change in the mix with perhaps 15%-20% coming from our regional business. GDS business is focused on Tier 1 markets, which was affected by lockdowns. Nonetheless, we still achieved over 13,000 sq m of net additional area utilized in the Q2. Based on feedback from our customers, we expect utilization to continue at a similar level for the next few quarters. However, in the medium term, we believe that utilization will return to historic levels. We have a large backlog totaling 240,000 sq m , which underpins our multiyear growth. Our backlog is solid. Our data centers are concentrated in Tier 1 market, where future supply is limited.
Customers have secured this resource because it is very strategic for them. We will continue to deliver the backlog. It is just a matter of time. To adjust to the current slower environment, we have scaled down our capacity delivery schedule. In the first half of 2022, we brought 16,500 sq m of capacity into service. In the second half, we plan to bring another 31,000 sq m into service. As compared with our original plan for FY22, we have pushed back nearly 39,000 sq m of completions into next year and beyond. Our home market customers are putting increased emphasis on international expansion, particularly in Southeast Asia. We are also putting a lot of time and effort into scaling up our and accelerating our regionalization strategy.
In Hong Kong, we have accomplished the difficult task of establishing a five-year pipeline of purpose-built data center capacity clustered in a prime location. Our first data center, Hong Kong One, will come into service in the next few months. It is almost sold out with landing Chinese and global customers. We are now working on anchor customers' orders for Hong Kong Two. In Southeast Asia, we have secured hyperscale capacity at campuses in Johor, Malaysia, and Batam, Indonesia. All of our campuses are now under construction. The sales pipeline for this capacity is even stronger than what we expected. The customer profile is varied across verticals. It includes both Chinese and global names. There are a few deals which we are confident of winning this year, which will demonstrate strong proof of concept.
With demand from Chinese and global customers, Southeast Asia is one of the fastest growing data center market in the world. We believe that our regional business, including Hong Kong, will become a second growth engine for GDS alongside Mainland China. As part of today's earnings release, we announced the formation of an RMB 6.7 billion, equivalent to $1 billion, Mainland China Data Center Fund. It is important for us to have access to capital from a very variety of sources, public and private, onshore and offshore. This data center fund will significantly enhance our financing strategy and benefit all of our shareholders. To finish up, we have been through difficult times and the cycles in the past year, in the past.
The challenges that we are experiencing now are for short term, while data center industry is for long term. During this time of uncertainty, we continue to build up our position by expanding our customer base and enhancing our market presence both in and outside China. We believe we will be well prepared, both in terms of business operations and the financial capabilities when the recovery happen. We remain very confident about our future. I will now pass on to Dan for financial and operating reviews, as well as to expand in more detail about the fund.
Thank you, William. Starting on slide 14, where we strip out the contribution from equipment sales and the effect of FX changes. In 2Q 2022, our service revenue grew by 2.6% and underlying adjusted EBITDA grew by 0.2% quarter-on-quarter. Our underlying adjusted EBITDA margin was 46% compared to 47.1% in the previous quarter. Turning to slide 15. Service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 2Q 2022 was 13,659 sq m . Around 8,300 sq m was in Tier 1 markets affected by lockdowns, and the remaining 5,300 sq m was from BOT projects in unaffected remote areas.
In the second half of 2022, we expect a similar level of move-in as we saw during the first half. Monthly service revenue per square meter was RMB 2,265, down by 1.4% compared to the previous quarter. The decrease is mainly due to dilution from move-in at BOT projects. This dilution effect will continue in the second half as we deliver most of the remaining BOT backlog. However, for FY 2022 as a whole, we still expect MSR to decline by around 4%-5% year-on-year, in line with our original expectations. Turning to slide 16. Our underlying adjusted gross profit margin was 50.9% for 2Q 2022, compared to 52.4% in the previous quarter.
The extreme hot weather this summer has resulted in a higher seasonal PUE than we normally see in the second and Q3. Furthermore, power tariffs are now up the maximum permitted 20% across our Tier 1 markets. In 2Q 2022, utility cost was 30% of service revenue, compared with 28.3% in 1Q 2022 and 26.9% in 2Q 2021. There's no sign yet that tariffs will come down in the near term. Therefore, we expect the combined effect of higher power consumption and higher power tariffs to continue being a drag on our margins in the second half of the year. Turning to slide 17. We think about our CapEx in three parts. Mainland China organic, acquisitions, and regional expansion.
For mainland China organic, we spent RMB 2.7 billion in the first half of 2022 out of our full year budget of RMB 6 billion. As William mentioned, we've scaled back our project delivery. However, while CapEx is generally linked to capacity expansion, there is a significant portion that has to be front-ended for installation of power infrastructure at new campuses. Accordingly, it will take time for our mainland China organic CapEx to come down. We expect mainland China organic CapEx to be several billion lower next year. For acquisitions, in the first half of 2022, we paid just over RMB 3 billion in consideration. We will pay another RMB 1 billion by the end of the year. As of now, there is no material acquisition consideration that will be payable next year.
For regional expansion, which includes Hong Kong and Macau as well as Southeast Asia, we spent just over RMB 1 billion in the first half out of our original full year budget of RMB 2 billion. Regional CapEx is likely to step up by RMB several billion next year given the expected new business wins. For the whole of 2022, we will most likely still hit our original CapEx guidance of RMB 12 billion before taking account of any potential capital recycling through the data center fund. Turning to how we fund this CapEx. We think it makes sense to take a different approach for our regional business and our mainland China business, given the differences in the capital markets, investor base and valuations.
There's a lot of money chasing digital infrastructure in the region, and GDS Regional is a very attractive investment opportunity.
We believe that we have already created significant value from our initiatives in Hong Kong and Southeast Asia. Accordingly, we have set up an international holding company under GDS Holdings to hold all of our projects outside of mainland China. We will use this international holdco as the equity capital raising vehicle for our regional business. As a first step, we intend offering a small minority stake to private equity investors who we believe can add value. We've started work on the process and aim to get this done in the next couple of quarters. For our business in Mainland China, excluding acquisitions, our objective is to become self-financing within a few years.
With buildup in operating cash flow as more data centers reach stabilization and substantial front-end CapEx already incurred, the gap to free cash flow breakeven is narrowing down.
Turning to slide 18, in order to enhance our access to capital, which is a competitive advantage in uncertain times, we've been considering structures which enable us to bring in outside equity investors at a project level in Mainland China. We find that there is strong interest, particularly among real estate investors, in this kind of participation. Further to this strategy, we recently entered into a framework agreement with an investor, which is a sovereign wealth fund, for the formation of our first offshore Mainland China data center fund. As envisaged by the framework agreement, the fund will have RMB 6.7 billion, equivalent to $1 billion of committed capital, with 70% coming from the investor and 30% from GDS.
The investment objective of the fund is to acquire data centers in Mainland China, either from our own portfolio or from third parties through M&A transactions. GDS will manage these data centers under long-term contracts. We are looking to seed the fund with a few projects in which we have invested significant capital, but which are still several years away from stabilization. This will allow us to recycle capital and accelerate monetization while maintaining our recurring income model with management fees. Our target is to complete the formation of the fund and inject at least one project by the end of this year. Meanwhile, we are also in discussions with some domestic financial institutions about an onshore version of this fund structure, although these discussions are currently at an earlier stage.
Looking at our financing position on slide 19, at the end of 2Q 2022, we had RMB 9.2 billion or $1.4 billion of cash on our balance sheet, and our net debt to LQA adjusted EBITDA ratio was 7.2x on a consolidated basis. However, as shown on slide 20, we should really look at our leverage in two different categories. Our in-service portfolio, which is 96 committed and 68 utilized, has a net debt to LQA adjusted gross profit ratio of 4.2x. As these data centers reach full utilization, the leverage ratio will come down closer to 3x. We have another portfolio which includes area under construction and area held for future development.
For this part of the portfolio, we believe that it makes more sense to look at the ratio of net debt to fixed assets, which is a reasonable 53%. Once we have completed the regional equity capital raise and some capital recycling through the fund, we expect our consolidated leverage to come down. Turning to slide 21, as at the end of 2Q, we had total capacity in service and under construction of 667,000 sq m . Against this, we had total area committed by customers of 588,000 sq m . Assuming that we deliver all the backlog and sell out remaining inventory, our area utilized or revenue generating capacity would increase by around 90%. The total cost to complete all existing projects is around 9.8 billion RMB or $1.5 billion.
It is a relatively small amount of CapEx to generate a large amount of growth because we have already made most of the investment. On top of our existing projects, we have secured another 457,000 sq m of pipeline held for future development. It's land and buildings with project approvals and energy quota, predominantly in Tier 1 markets, which we believe is a very valuable asset. Turning to slide 22, after evaluating the impact of COVID lockdowns and slower economic growth, we are revising our original guidance for 2022 revenue and adjusted EBITDA. We now expect revenue of RMB 9.25 billion-RMB 9.4 billion and adjusted EBITDA of RMB 4.2 billion-RMB 4.28 billion.
Our CapEx guidance of around RMB 12 billion remains unchanged, but could be lower if we inject any data centers into the fund by year-end. We'd now like to open the call to questions. Operator?
As a reminder, to ask a question, please press star one. For the benefit of all participants on today's call, please limit yourself to one question. If you have more questions, please re-enter the queue. Our first question comes from Michael Elias with Cowen. Your line is open.
Great. Thanks for taking the questions. Two, if I may. First, you know, I just wanna touch a little bit on the China data center fund and get a better sense of what the mandate is. You know, is this really just a capital recycling vehicle of your stabilized assets or pre-leased assets, or is this really a vehicle for you to go and do more outside M&A? That's my first question. Second question is, you know, in the U.S. we've seen over the years kind of a decline in returns for build-to-suit type deals. I'm just wondering, as we think about your BOT projects, how would you characterize the willingness to pursue incremental BOT projects and any color you can give around the return expectations there? Thank you.
Okay. Yeah. Thank you, Michael. The mandate of the data center fund is actually broad. It includes acquiring data center projects from GDS at all stages of development, and also acquiring data centers from third parties through M&A transactions, which, where the fund would be the direct buyer rather than buying from GDS. Having said that, from our perspective, for the first phase, you know, we're focused on injecting a small number of projects from our own portfolio in order to hit a certain level of capital recycling.
We're looking at something like $300 million-$500 million in terms of injection equity value in existing state either by the end of this year or if not by the end of this year by the end of the Q1. Thereafter, I think we're more open-minded. We consider further injections from our own portfolio and also to consider what opportunities there are in the market. Certainly, it's very welcome to have this fund to give us a reserve of capital for third party M&A which of course we did not have before. Second question, William, about our appetite for kind of BOT type projects in remote areas, Michael saying given the level of returns.
I think historically we did a lot of the build-to-suit, which we think the return is quite good, right? In the last two years, I think that we rejected a couple of the deals, I mean, because the returns getting lower. I think we still will be disciplined to do the business, which we think is suitable. We have the ability to accept those kinds of deals at any time, but it depends on our options, right? I think this is our position.
Thanks for the call, guys. Appreciate it.
Our next question comes from Tina Hou with Goldman Sachs. Your line is open.
Hi, management. Thanks for your time. I have also two questions if it's okay. The first one is regarding your overseas business in the ASEAN markets, especially Malaysia and Indonesia. Would you characterize it more similar to Tier 1 markets in China or more like BOT projects type of thing? I believe previously our strategy in ASEAN is more to go out with our domestic customers, but now we see that Hong Kong data center has also secured a global number one cloud customer. Wondering in the ASEAN market, are we open more to international customers as well? If yes, how do we compete with other global data center platforms in those markets? This is first question.
Second question is, also regarding the China data center fund. You mentioned that you are looking at injecting some like a ramped up projects. Wondering how do you choose from all of these different locations in Tier 1 edge of town, downtown and also like BOT projects? Thanks.
Okay. I answer the first question about the regionalization. I think the number one, how we look at the regionalization, we still maintain our strategy in the Tier 1 market, right? Southeast Asia is big, right? We know we understand the Singapore around Singapore market is the most attractive market in the Southeast Asia, even in the world. If I remember, I mean, the Singapore data center market is representing almost 50% of the total Southeast Asia. The situation is in last two years, Singapore government stopped to allocate the power, right? That means if you look at it, Singapore market, the demand is very strong from the global multinational, even from China.
I think this is a very attractive market for us. If you look at it, the next three years, in Singapore, there's very, very limited supply, almost zero in next three years. The demand is still there. Our strategy is build our data center close to Singapore. I think that we still treat this as a Tier 1 market and a very clear, certain demand in next three or five years. That's our strategy. We think our data center strategy still works in this region. Hong Kong obviously is another top market in Asia, right?
I think we're in last five years, we built a couple of years. It's very difficult to build the land bank and in a very good location in Hong Kong. We successful to achieve that. We see the demand continues rising in Hong Kong. It's from the. It's just like what happened in Singapore. It's not only from China, it's also from the global. We are well positioned to catch up this trend still. These two markets, we are very confident, and I think the location is good. Talk about how to compare with the multinational company in this region.
I think GDS has become a. We have after 20 years we built up our very world-class capability to do the data center business. Number one, I think we are more familiar with the customer. We are more familiar with the region. So in terms of to build our market presence, I think we are still maintain the first mover in this region. So this is number one. We always take first mover advantage, which I think this is our strength. On other hand, we have because we build a large scale in the last couple of years.
We can build more cheaper, more faster, and we deploy our operation capability more faster, more cheaper than anyone else. That's our strengths. We have the all kind of the capability to compete with any a competitor in those region. We are confident.
Okay. Tina asked, how do we select projects for the fund? You know, as I responded to Michael earlier, the mandated fund is very broad. For the seed projects we selected and proposed, it still has to go through a process with the investor. We selected and proposed projects in a category which we called pre-core. These are all, you know, projects which are under construction, maybe a small part is in service, partly pre-committed, and at least say three years away from being complete and fully stabilized, at least based on, you know, our current projections.
From a financial perspective, these are projects where we've already invested considerable sums of money, and we believe created value because the value creation comes through forming these projects and getting the customer commitments and so on. Where we are gonna be years away from having, you know, revenue, EBITDA or certainly fully stabilized EBITDA. It feels like, you know, maybe the public equity market doesn't value these situations. They probably don't value our Southeast Asian business either. From our perspective, it was kind of getting, you know, hopefully the biggest bang for our buck, you know, taking these projects and recycling the most capital with the least EBITDA in the next few years.
You know, maybe that will sort of help to highlight the value while still having a kind of recurring income model going forward. You know, after these seed projects, as I said before, you know, we're open-minded. We may do other kinds of projects. But that was our thinking for the first phase.
Yeah. I think this fund will allows GDS is in a position to very flexible to accept the different capital. The allowing GDS can more flexible do more valuable business and acquisition as well.
Understand. Thanks, William and Dan.
Our next question comes from Jonathan Atkin with RBC Capital Markets. Your line is open.
Yes. Hi. This is Bora on for Jonathan Atkin. Thanks for taking the questions. First, on M&A, can you comment on what you've been seeing in terms of multiples, if you've been seeing any movement up or down? How target rich is the M&A environment in edge of town, versus, say, municipal sites? Then secondly, on your progress in Indonesia and Malaysia, when could that start to become a bit of a needle mover, generating revenues? Are there any other markets in the region that you will consider, or is that it for now? Thank you.
Yeah. Okay. Hi, Bora. First of all, target rich. I think that's a good way of putting it. I think there's. It's a highly fragmented market. You know, we're much bigger than any other player, but there's a long tail. There's a lot of companies with small portfolios. There's a lot of companies who are kinda like single project companies. You know, in theory at least, there's a lot of potential targets. But then it comes to what is the driver for doing the M&A, and, you know, what is the strategic rationale?
Of the nation, yeah.
Yeah. We, y ou know, in the past, we were very focused on building up our resource pipeline. We also valued situations which enhanced the customer franchise and, you know, in the past also would give us scale. Now we don't see that, you know, any particular acquisitions. You know, it's obvious to us whether they make, you know, whether there'd be a very strong strategic rationale, but therefore there has to be a strong financial rationale. I can't say, you know, really, you know, where market multiples are. You know, we have our own view about what makes sense. You know, it has to be highly accretive to us. So it's not so much about, you know, what is the market multiple, it's what makes financial sense to us.
That's why we take a disciplined approach and wait to see those opportunities which do satisfy our financial natural criteria. For Indonesia and Malaysia, I don't think you have to wait for revenue to move the needle in terms of valuation. Bora, yeah, I think probably apparent to many investors that we've already created value with what we've done. Maybe when we do the regional equity capital raising and put a value on the business, that will illuminate a number for investors. Also, when we're able to announce some significant business wins, which is not very long now before we're able to do that.
I think, yeah, business wins and regional capital raising. I think, you know, I would hope that that moves the needle in the next few months or couple of quarters at the most. Yeah.
On the targets, was that more on the edge of town or municipal sites or both?
On our business targets?
Yeah.
Bora, I think we have an ambition to do more business globally, right? Because we absolutely maintain the strongest position in China already, right? Now we are seeking to build a business outside of China as well in the same time. I think now, our step is number one is Hong Kong, which we did, and we're well positioned. Number two is Southeast Asia, which we think it's good timing to step in. We, in the meanwhile, we also look at the other Asia market.
I think we will look at the M&A market, right, if we think timing is ready.
Thank you.
Bora, in China M&A targets.
In China, M&A China, I think the fact is that in China M&A targets, is getting more, I think. The question is that, we still wait. We have a lot of patience because we try to create value for our shareholder. Now I think they are still in the transition. The seller, a lot of the data center owner, is started to lower their expectation, which we think is not, still not meet our expectation. I think we still wait. Wait for that, right?
Thanks for the color, William and Dan. Appreciate it.
Our next question comes from Yang Liu with Morgan Stanley. Your line is open.
Thanks for the opportunity. I have two questions here. The first one is on the demand in China, because we recently observed that Chinese telcos, their public cloud or their cloud revenue is growing rapidly. The previous internet companies, their cloud business is slowing down. I would like to ask what's the management view? They observed that Chinese telcos, their public cloud or their cloud revenue is growing rapidly, while the previous internet companies, their cloud business is slowing down.
I would like to ask what's the management view in terms of the future demand or from the cloud vendors in China, whether the strong telco cloud means that demand will shift to their own data center as well. The second question is regarding the China Data Center Fund. As GDS is also a investor in this fund, could you please update us in terms of what is expected return of the fund? Thank you.
Okay. I think China market demand obviously in this year slowed down, right? Another angle is that you will see the market is still very active, and the demand is shifting. It's shifting from the traditional cloud service provider to, I think, the very clear trend is, it's happened in the last couple of quarter already. I mean, from the traditional cloud service provided to the lot of the internet company. So I think this is shifted. This is the trend is very clear. I mean, so I think the.
If you look at in the last two or three quarter, even this quarter, our internet or the order from the internet and the enterprise is getting bigger and bigger, right? This is a very clear trend. We are well positioned on that because we have a very broad customer base built on last 20 years. This is number one. In terms of the three telcos cloud jump up very rapidly, I think we noticed on that, but I think this is not the takeover or the like Alibaba, Tencent's market share. I think. A lot of the cloud service providers, they have a different way to calculate it, this cloud revenue.
This is what my understanding. I think they maybe take a little bit, but not that much.
Okay.
Yeah.
Yeah. Actually, the fund will look at projects on a, you know, individual project basis. The expected return is not for the fund as a whole, it's for individual project investments. There, of course, it will depend on the stage of development. I can't be specific because it will vary from, you know, investment project to project. But I would just highlight that from our point of view, structuring the fund, it was critical importance that we maintained our management role. I don't mean just as fund manager, I mean as data center manager.
You know, the projects that go into the fund will, you know, carry with them our long-term management contract from which we will generate fee income, which is, you know, if it works out as we expect, you know, will give us a profit share of the project. As a fund investor, you know, we will sell to the fund at an equity valuation and then reinvest best in the fund at that valuation alongside the investor, so that, you know, the cost basis for our investment in the fund could be enhanced.
Yeah.
By our management fee. It really, you know, depends how things work out. If it works out well, of course, we would get an enhanced return from our participation in the fund, plus the management fee profits.
Yeah. I try to add more comment on your first question. I think that a lot of the investors currently said more focused on the Alibaba, Tencent cloud capacity, cloud growth. I think they missed one thing. I think this cloud they slow down not means the market slow down in the same way, right? What I try to mention again is that this trend already happened in the last couple of quarters, is a switch to the internet and enterprise. They build it by their own private cloud. This trend is already happening in a few quarters, maybe in a few years, in one or two years. Before people didn't pay more attention on that.
I remember I mentioned it in the last couple of the earnings call already.
Yes. Thanks for the color.
Our next question comes from Frank Louthan with Raymond James. Your line is open.
Great. Thank you. A clarification and then a question. Just to clarify, will your capital injection and the BOT deals be in cash or the donation of facilities? Then the question, how many of your data centers fit the profile of what you might donate into that to be recycled? Secondly, can you quantify the impact of the power on your margins, either in absolute levels of EBITDA or just the margin for the year? Thanks.
Yeah. Frank, we will sell to the fund 100% of the equity which we own in each project. That's a sale transaction we will realize again. We will book again. Although in structuring this, you know, we are trading off the front-end gains, you know, against, you know, the level of future recurring management fee income because, you know, there is a trade-off. Having executed the sale of 100% to the fund, we will take 30% of the sale proceeds and reinvest that into the fund. In effect, this is releasing 70% of our equity in the projects at a valuation, plus having a continuing 30% investment with the management fee income.
How many of our projects fit this? For a billion-dollar fund, which is what this has been sized at, for fund one, I mean, we would have no difficulty you know, allocating just from our own portfolio if that's what we chose to do. Indeed, the investor you know, at this point in time has expressed appetite in scaling up this venture. That remains to be seen. Yeah, it really does depend.
You know, for now we're just focused on this initial batch of seed projects that we hope will establish this mechanism and recycle a certain amount of capital, show our shareholders what value there is there and how we can manage our capital in this environment. You know, we're not. We don't have any definite plans beyond this initial seed projects. It remains to be seen.
Okay. The EBITDA impact?
EBITDA impact will be minimal next year and even the year after. You know, we've selected projects that, I mean, if we go ahead with these projects, they won't be stabilized based on our existing projections until the Q4 of 2025 or the Q1 of 2026. That means over the next three years, there is a you know ramp up of EBITDA in 2023 and even in 2024, it's not that much.
I try to add on. I don't think it absolutely will impact our future EBITDA because based on our strengthening financial position, we can do more deal, right?
Yeah.
Maybe it can bring more revenue monthly.
Yeah. I mean, it's mitigated by the management fees.
Yeah.
There's the question of what we do with the capital, right?
Yeah.
Our next question comes from Xinyi Wang with UBS. Your line is open.
Hi. Thank you for the opportunity to ask a question. My question is on the ASEAN projects. Notice that those projects in Johor, Batam will be ready for service by 2024. What's our expectation on the say regional CapEx for maybe next year or until like 2024 or even further? Also would you please share with us what's our expected say IRR or pricing on these say Singapore Plus projects? Thank you.
Yeah. I gave some numbers in the prepared remarks, and these are actually, I just emphasize this is all based on existing business plans, it's not like a guidance, right? What I said was that our China organic CapEx, which is about RMB 6 billion this year, probably come down by RMB 1-2 billion next year. Our regional CapEx, which will be about RMB 2 billion this year, could be RMB 4 billion next year. I mean, you know, we talked about raising capital through the international holdco for the regional expansion. What we have in mind at this stage is to raise around $300 million, but it does depend on, you know, the proposals we receive, valuations and so on.
You know, we may choose to take it in smaller bites, break it down into a series of transactions. You can see with that level of CapEx, RMB 4 billion, you know, we're gonna need around $200 million-$300 million of equity to see us through the next 18 months or so.
As there are no further questions, I'd like to now 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 with the contact information. See you next time.
This concludes this conference call. You may now disconnect your line. Thank you.