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Hello, ladies and gentlemen, thank you for standing by for GDS Holdings Limited's Third Quarter 2020 Earning Conference Call. [Operator Instructions] Today's conference is being recorded. I would 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 3Q '20 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.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 CFO, will then review the financial and operating results. Ms. Jamie Khoo, our COO, 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 result 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 today's 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, Mr. William Huang. Please go ahead, William.
Hello, everyone. This is William. Thank you for joining us on today's call. Two weeks ago, our shares started trading on the Hong Kong Stock Exchange, opening a new chapter for GDS. I'm pleased to say that we achieved all of our objectives for the Hong Kong IPO and the secondary listing. We attracted a high level of demand from new investors, including strong participation from China. We significantly strengthened our equity base with over USD 1.8 billion of net proceeds, adding to our competitive advantage in terms of financing. We established a liquid market in our shares in Hong Kong to complement trading on Nasdaq. And last but not least, we raised our profile and reputation among customers, government, partners and investors, which helped us to attract more business and secure more resources, further strengthening our market-leading position. Meanwhile, our business continued to perform strongly. During the third quarter of 2020, we added nearly 24 -- nearly 24,000 square meter or 46 megawatts of new customer commitments. During the first 9 months of 2020, our organic net add was over 72,500 square meters, more than we did in the whole of last year. In order to maintain our sales momentum, we added over 100,000 square meters to our secured development pipeline, including greenfield land for a major new edge of town campus near Shenzhen. We grew revenue by 43% and adjusted EBITDA by 48% year-on-year. And our EBITDA margin remained at 47%. At the beginning of this year, we targeted 100,000 square meter of annual net adds, consisting of 80,000 square meter organic plus 20,000 square meter from the Beijing 10/11/12 acquisition, which was pending closing. Today, we are clearly on track to achieve around 98,000 square meter of organic sales, plus 27,000 square meter from M&A, including nearly 8,000 square meters from a new acquisition in Shanghai during the current quarter. This gives us over 120,000 square net add for 2020, representing 20% outperformance. Looking forward to FY '21, we believe that the current level of organic sales is sustainable. Furthermore, with the potential acquisition of Beijing 14, which we announced in September, we already have visibility for another 20,000 square meter of M&A next year. As you can see from our disclosure, there is a consistent cadence of 3 to 4 -- 5 hyperscale order every quarter. Each of these orders represents a major development by one or other of our top customers. These developments are often planned in multiple phases, to be delivered over several years. This gives us a stronger foundation for our future sales. Turning to Slide 7. Over the past few years, we have made a lot of progress in developing meaningful relationships with fast-growing new customers. We had exciting breakthroughs, which we announced last quarter with ByteDance and PDD. We achieved -- we are actively pursuing multiple hyperscale opportunities with these 2 M&As. China's Internet sector continues to produce very large companies, which emerge very quickly. Typically, they begin by using the major public clouds, however, as they invest, they also start to deploy their own private clouds and they require all sorts of data center services. This is where we see incremental opportunities. Given the extensive presence of card service providers in our data centers and our multi-market platform, we have a unique value proposition in hybrid cloud. We are also starting to see financial institutions deploy hybrid clouds. We have a well-established customer base of over 230 financial institutions. As they evolve their IT architecture from the mainframe to server, we anticipate significant incremental opportunity. Over the past 5 quarters, we have stepped up our construction program from 84,000 square meters to 135,000 square meters of active developments. At the same time, our pre-commitment rate has remained solidly over 60%. We have talked repeatedly about why a secured development pipeline is a critical success fact. During 3Q '20, we added over 30,000 square meters to our data -- our area held for future developments. And during the fourth quarter, we have added another 70,000 square meters. We now have a total of over 400,000 square meters secured, and we will continue to add aggressively over the next few quarters. It really is that important. Turning to Slide 11. Following the success of our edge of town strategy in Beijing and Shanghai, we made a very significant move to set up a new edge of town campus in the Great Bay Area. We have acquired from the local government a greenfield site in Huidong, around 24 kilometers from the edge of Shenzhen. It is one of the key areas identified for data center development in the new infrastructure plan recently published by Guangdong province. Once fully invested, this -- the site will yield a net floor area of approximately 72,000 square meters, according to the initial design. We established our edge of town campus in Langfang near Beijing 2Q '18 -- '19, in 2Q '19. In less than 18 months, we have initiated 9 data center projects and secured over 67,000 square meters of customer commitments. In 3Q '20, we initiated our Langfang 9 data center, which contributed 25 megawatts new order. We also added to our land bank with the acquisition of Langfang land site 3 and further land acquisitions are in progress. On the edge of Shanghai, we have 2 locations, Kunshan and Changshu. During 3Q '20, we leased the 3 adjacent buildings in Kunshan with a total developable net floor area of 16,000 square meters. The first of these buildings, which we call the Kunshan 4 is undergoing conversion. Turning to the Slide 14. We announced the 2 M&A deals during 3Q '20, which added to our capacity in the urban area of Beijing. Today, we are announcing a new acquisition in urban Shanghai, which we call the Shanghai 19. It has total developable net floor area of 100 -- 12,800 square meters, of which 7,900 square meters is complete and fully committed. The total acquisition and development cost, including cost to complete, is RMB 778 million, is an attractive acquisition with good terms. We will continue to pursue this kind of opportunity, which adds to our presence in key downtown locations. With that, I will hand over to Dan for the financial and operating review. Thank you.
Thank you, William. Starting on Slide 18, where we strip out the contribution from equipment sales and the effect of FX changes. In 3Q '20, our service revenue grew by 14.1%. Underlying adjusted gross profit, which we previously called net operating income, grew by 12.7%, and underlying EBITDA grew by 12.5% quarter-on-quarter. The Beijing 10/11/12 acquisition closed on June 5, 2020. Excluding the contribution from this acquisition in both the second and third quarters, our service revenue grew by around 8%, and our adjusted gross profit grew by around 7% quarter-on-quarter. Turning to Slide 19. Service revenue growth is driven mainly by delivery of the committed backlog. Net additional area utilized during 3Q '20 was 16,589 square meters, continuing the recovery we saw in 2Q '20. We expect similar levels of movement in the fourth quarter. MSR was RMB 2,519 per square meter per month. Without Beijing 10/11/12, it would have been slightly higher at RMB 2,533. Turning to Slide 20. Our adjusted EBITDA margin remained around 47%, and we're still benefiting to a small extent from government concessions. Turning to Slide 23. Up to the end of September, our CapEx year-to-date stood at RMB 6.6 billion. In 4Q '20, we expect another RMB 3.4 billion of CapEx, including acquisition consideration for Beijing 9, Beijing 13 and the new Shanghai 19 deal and payment for the Langfang and Huidong land. This is what gets us to our RMB 10 billion CapEx guidance. Up to the end of September, we have paid cumulatively RMB 640 million of CapEx for managed BTS, build-to-suit, projects that we intend transferring to GIC. During 4Q '20, we expect to transfer the first project by way of selling 90% of the equity of the project company. The proceeds will reverse a small part of the CapEx, while the assets and liabilities of the project company will be deconsolidated. Looking at our financing position on Slide 24. Pro forma for the cash proceeds of the Hong Kong IPO, we had RMB 18.7 billion of cash on our balance sheet, and our net debt-to-EBITDA ratio is 1.2x. Given our ongoing levels of organic and inorganic CapEx, and assuming the Beijing 14 acquisition closes in 1Q '21, this ratio will go back up to around 4x within a couple of quarters. As in past, we will allocate and reserve cash to capitalize new investments in our business plan, and we'll then leverage those investments to ensure an efficient overall cost of capital. Given William's comments about the sales outlook, and the importance of adding to our land bank and our ability to keep on generating attractive acquisitions like our recent deals for Beijing 13, Beijing 14 and Shanghai 19, we will not be short of opportunities. While we are not changing our financing approach, we will strive to enhance our debt capital structure. We have an aggressive plan to refinance a substantial portion of our existing onshore RMB-denominated project debt to achieve longer tenors and lower cost. We have multiple refinancings going on right now with 10- to 15-year terms, back-ended repayment profiles and all-in costs of below 5% based on the current loaning prime rate. Finishing on Slide 26 with our revised guidance. For the full year of 2020, we are raising the bottom end of our original guidance for both revenue and adjusted EBITDA and keeping the high end unchanged. We now expect total revenue to be in the range of RMB 5.7 billion to RMB 5.75 billion, and adjusted EBITDA to be in the range of RMB 2.66 billion to RMB 2.67 billion. The updated estimates imply an increase of 38.3% to 39.5% year-on-year in total revenues and 45.8% to 46.4% year-on-year in adjusted EBITDA. Our CapEx guidance of RMB 10 billion for the full year remains unchanged. We'd now like to open the call to questions. Operator?
[Operator Instructions] Your first question on queue comes from the line of Jon Atkin from RBC.
I'm interested on the commercial front. What are you seeing in terms of customer demand on the hyperscale side? Are they wanting to maybe think about building more of their own capacity going forward? And if so, does that affect you at all? And are the Internet companies that up till now have been pursuing a cloud-first strategy, is there any trend that you're seeing where they're beginning to shift their IT onto their own equipment and perhaps signing deals with -- more frequent deals with data center companies such as yours?
So Jon, this is William. The first question is, are the customers building by themselves? So far, we didn't see any change right now. I think the -- especially, I mean in the Tier 1 market, which we focus, we didn't see any change. The second question is...
Are Internet companies using data center companies to host their own private clouds?
Yes. There's a very, very significant change as I see a lot of the larger Internet companies, their IT became more complicated. So they usually use the cloud when this grow up during their grow-up period. Now it looks like they -- more and more, they use the hybrid cloud strategy. So that's why we see this as a very -- we are very excited for the future demand from this portion.
And maybe just a brief one for Dan. As we kind of think about the drivers for 2021, what you're seeing in terms of your development pipeline, what you're seeing in terms of your late-stage sales pipeline, what are the kind of factors to keep in mind as we think about top line growth and then what the EBITDA contribution might be for 2021?
Thank you, Jon. We have made some comments today to set initial expectations for our sales organically -- and potentially, inorganically next year. I think this is higher than what we've said previously. If you're talking about revenue and EBITDA next year. Of course, that lags the sales by at least 1 year to 2 years. What we can look at there as a kind of indicator is how much new capacity is coming into service, because the capacity which we have under construction is 60% to 70% leased pre-leased, pre-committed. So as new capacity comes into service, that means there is potential to deliver significant incremental backlog. In 2020, new capacity coming into service is being pushed to the fourth quarter. You'll see there's a significant amount of new capacity coming into service in the fourth quarter of this year. And then we laid out the delivery schedule in the earnings presentation. You see there's over 50,000 square meters of new capacity coming into service in the first half of next year. Now typically after new data centers come into service, not much happens in the first quarter. It takes a couple of quarters before the movement starts to build up. But I think that this quantum of new capacity coming into service will increase what we call the backlog related to area in service. And then that will flow through to further step up in the quarterly net addition to area utilized, which drives revenue. When we talk about EBITDA, then it becomes a matter of MSR, trends and margins. I'm sure some of your colleagues are going to ask me about it at the moment, but maybe I'll answer now. I think the MSR is going to continue to decline very slightly as it has been doing. Over a period of time, it seems to average out at around 1% third quarter. And we've discussed the factors behind that is not indicative of what's happening to returns. In fact, it may be contrary to what's happening to returns. EBITDA margin has increased significantly this year. It's still slightly elevated due to the benefit of we received from government concessions. I think next year, the target is to achieve maybe another 1% -- 1 percentage point increase in EBITDA margin over and above what we achieved this year. I say target because we also have in our plan quite a number of corporate initiatives around smart data centers, around ESG, around renewable energy, branding and corporate communications and so on. So there will be some increased costs associated with that. But in due course, there will also be increased investment return from that expenditure. But I'm just a little cautious on margins next year because we do plan to increase our corporate expenditure.
Your next question in queue comes from the line of Colby Synesael from Cowen.
A few, if I may? RMB 1.8 billion in proceeds from the Hong Kong listing. Obviously, quite a bit. Has this changed the company's view on market expansion? Are you intending or focusing on going into more markets in China, perhaps with the new proceeds or just given where you're seeing demand going? And also, as part of that, you're interest in going outside of China with new builds. And then my second question, just quickly, you mentioned the opportunity to refinance debt. You have a variety of different, I guess, refis in process. Can you give us an idea of what the total interest expense savings you think you might be able to achieve when all is said and done.
Colby, I'll answer the first question. I think, definitely, we are -- we've raised RMB 1.8 billion net proceeds. I think this is through our next 5 -- our view, our ambition in the next 5 years. I think we see a tremendous demand in the -- inside China and also overseas like Southeast Asia and Hong Kong. I think even in China, we think -- we believe that more new markets were coming -- become more important, except there our -- previous 4 key markets. So I think we do have the plan to expand our business, still strengthen our business, get more market share in the current Tier 1 markets. Also, we do have a very, very solid plan to move to some new important markets in China. But in the meanwhile, we see -- as we talked during our roadshow Hong Kong IPO, we do see a lot of the solid demand from our installed base is in Southeast Asia expansion. So this is -- we are actively developing those business plans. So that's why I think that we are quite excited at this moment to look forward to the next couple of years.
William, do you think that we could see you going outside of China in 2021?
It's too early to say. We will see. We actually developed the plan to evaluate all the demand and all the -- evaluate all the business partners in Southeast Asia. So I think maybe in the near future, maybe the beginning of the next year, we will tell you the -- to you guys the -- what exactly the plan is. So I don't want to say -- it's too early to say but I could tell you, we are developing the master plan right now.
Colby, if you just isolate out the refinancing part of what we're doing, I would say that the cash interest saving, it's several hundred million RMB per annum. In terms of how it gets reflected in our accounts when we refinance, in some cases, we have to write-off the amortized portion of the front-end fees that we've incurred on the initial financing. So it may not become immediately apparent in the first half of next year that we have reduced the effective interest rate but if you give us a few quarters, I think it will become apparent later next year. And then in addition to refinancing, there's the incremental financing, which I believe we'll be able to do on these better terms. It's a significant improvement on what we've been doing in the past. It's a continuous improvement. But it's not that long ago that we were doing project financing at an all-in cost of around 7%. The synergies we've got in execution right now will work out around 5% or even less.
Your next question comes from the line of Gokul Hariharan from JPMorgan.
First of all, now that we are developing a bigger and bigger edge of town portfolio in the -- at least the 3 main locations, could we talk a little bit about how the demand is looking at the city center, the more older data center versus what you are developing at edge of town. Are we seeing any kind of differences in terms of demand, be it power density, your other -- other requirements? Second is I think 2020 seems to be the year where CapEx, a lot more of the CapEx is being spent on inorganic. As we think about the next couple of years, how should we think about organic versus inorganic? Do you feel that inorganic is going to be a bigger portion of the capital outlay as we think about the next couple of year and some of the opportunity that you've talked about?
I think the question is demand for the downtown data centers?
Yes. I think the very direct answer is the demand from the -- for the downtown, that's edge of town, right?
No, more central.
More central, still maintain very strongly. So I think there, we are -- that's why we keep acquiring edge of town data centers when we also divest -- when we divested edge of town the campus. So this is a -- this strategy will continue. We will build our large scale -- hyperscale campus in the edge of the town. In the meanwhile, we will still continue to build data center and acquire data center resource in urban town. So we -- the demand is very clearly very strongly.
Yes. I'll just...
I'll go ahead, whether there's a difference in demand. That's all.
Demand in terms of urban town centers.
Well, it's the same customers. Yes. Maybe a typical architecture is the edge of town site is a hub which will then be connected to a number of downtown sites. So downtown is the edge. I know we call it edge of town in terms of the customer's architecture, the downtown is the edge, and the edge of town is the heart. Downtown, as you know, is really challenging. We have to be creative to create new resource, and we've done a number of acquisitions, in fact, to give us large quantities of new supply in Beijing and now, Shanghai. It would be easy to abandon downtown because it is so challenging and time consuming, but then we would be failing our customers. It's part of the value that we provide to our customers that we have a total solution, both the edge of town and the downtown and in all markets. So your question about organic versus inorganic? William made a comment, the current year's run rate for organic, it's going to lead us to around 95,000 square meters. I know William said 98,000 square meters, but it wasn't implied in, it's 95,000 is what -- is where the math comes out. And William said that next year, we can say it already, that that kind of level is sustainable and we have visibility to that because we have a certain quantum of multiphase audits, which already give us highly certain new business next year and even the year after. So the inorganic part is mainly driven by our desire to create more capacity downtown. In each market, there are a number of independent project developers. They always have been and they continue to be, and we monitor them. Now the Shanghai 19 acquisition, which we're announcing today, is a case in point. It's a company -- it's a project that we've been aware of in Shanghai. It reached a stage of completion where we were able to move forward and make the acquisition. But we've been -- I'd say, we've been aware of this project and a number of others from inception. That's why I think -- that's why we have a pipeline. That's why I believe that we can sustain M&A at the kind of current levels as well. Beijing 14 is not a done deal yet. We haven't entered into a definitive sale and purchase agreement. If that goes ahead as we planned, then it will give us 20,000 square meters of M&A for next year already and more than 12 months to do some more deals.
[Operator Instructions] Your next question on queue comes from the line of Tina Hou from Goldman Sachs.
If I may just ask 1 question, then it would be, I think, William, you mentioned in your presentation that you've been pursuing multiple hyperscale opportunities with ByteDance and PDD. So I was just thinking if you could provide more color on that. What -- like what location these projects may be is edge of town, downtown or build-to-suit? And then the sort of expected time line that these can be decided and come online? And also, maybe in like 3 to 5 years, what kind of revenue contribution do you see from these 2 customers?
I think number one, I think we started to build our business relationship with these 2 new logos is -- started from last quarter. I think the -- given time, we do expect to build a more stronger relationship with them. And I think according to their current position in China, our resource platform, our data center platform in China, which is quite unique, and it will contribute a lot of value -- create a lot of value for those kind of customers in the future. I think those customers, their demand, urban town plus edge of town hyperscale builds, right? So I think the -- we are well prepared for actually their future demand already. So I think we are confident we will have more business with them. So I can say it's too early to talk to some detail because it's -- we communicate with those kind of account very, very closely. So I think I'm very confident to get some new deals from them in the near future.
Your next question comes from the line of Frank Louthan from Raymond James.
I wanted to just ask a more general question talking about demand and how things may have changed a bit. And in particular, the digitization trends that you would have seen, say, a year ago, now that the dust has settled a little bit, can you characterize what sort of the pace of those trends are with end users in China now versus what they were, and how much that may have accelerated?
Yes, Frank, William asked me to respond. Yes, it's hard to isolate the difference that going through the COVID period has made. Clearly, not just in China but around the whole world, we were required to adapt and adapt to new technology so that we could work from home and do everything from home, do IPOs from home. And that's accelerated a structural shift. Our dialogue with our customers and the new business is based on, at least, say, their 3-year forward plans. So what happened doesn't get reflected in some short-term change. But clearly, our new business has gone to a higher level, and I think that doesn't just reflect our success, but it reflects there's more opportunity in the market. And definitely now, some of this is being driven by 5G. Particularly, say, IoT and smart city type applications. Both for cloud, large Internet and also for enterprise customers. Do you want to add to that?
Yes. I think, Frank, I think the trend is not only triggered by the COVID, right? I think it's -- logically, it's -- the whole logic is in China, the digitalization is overwhelming to evolve. And I think the cloud, as we mentioned again and again, cloud is still in the early stage. So we will see in the next 5 years, cloud still -- cloud players still will be a major key driver to drive the data center demand. In the meanwhile, as I just mentioned, I think a lot of the new Internet, large Internet companies are still being produced in China, like a [ Baker ], like a [ Taizhou ], like PDD, right? If you look at the last 5 years, they are nothing, right? Now they became a $10 billion company, more than $10 billion company. And I think this is -- so that means the Internet is still developed and penetrated to different segments, penetrated different vertical industry. So I think there's still a big space for the Internet company to grow. So I think this will -- and now a lot of Internet companies start to use, not just using a public cloud, they're using -- they adapted to the hybrid cloud architecture. This will trigger a lot of cloud demand plus a lot of data center colo or hyperscale data center demand. So I think we are very confident. In the meanwhile, I just mentioned that the -- like the traditional financial institution plus enterprise, they also start to transfer their architecture from the traditional architecture to the cloud base, hybrid cloud base. So this will create another wave of the demand for data center. So in my view, they are the 3 drivers: cloud, Internet, enterprise, in the next 5 or even 10 years will be the key demand -- key driver to drive the demand. So that's why we've raised such a big money that we try to catch up, this way, right? But I would add a little more. And as Dan mentioned, the 5G is just implemented right now. But we believe after 2 years, 5G will trigger more IoT stuff, will trigger more new application and also will be another potential key driver to drive data center demand.
I mean what are some of the key applications you think that come out of 5G? What are you seeing right now?
Yes. I think there's a lot of the -- so far, I think it's too early to talk about it, but you -- we will see a lot of the IoT stuff. We talked to a lot of the traditional industry. They all talk about IoT stuff. And I think the very clear, 5G will drive the new application to implement to all the supplies, all the varied chain, this is a varied chain, including the manufacturing and traditional retail, traditional industry. So I think this is not very clear now, but the market talks about a lot of the development right now.
Your next question comes from the line of James Wang from UBS.
Congratulations on a good result. So first question from me is, I remember in the second quarter result, Dan mentioned there were a few locations that experienced some delays in activation of power supply. So I'm just wondering whether these are resolved now. And maybe a broader question on this is, as the number of projects under construction grows, is it getting more difficult to execute with the same level of precision as the past, and then there may be more slippage in capacity delivery over time? And then my second question is about the Huidong project. Just wondering whether -- how supply has already been secured for that project? And also, what the customers you have in mind for that location. And also, we're hearing, for example, there's potential overbuilding in parts of Guangdong. So perhaps a bit more color on the demand and supply situation in that particular region as well.
Okay. Thanks, James. Yes, the reference I made was actually just to a couple of sites. We can control, to a large degree, the construction, but the provision of the power infrastructure and the activation of power depend on supplier and sometimes, there's some small delay. But that was fixed, I think, by the end of September. It may happen from time to time, but it adds actually a few months. A few months matters, particularly when we have delivery schedules for customers. But life can't be perfect, right? So the degree with which this affects us is pretty small. Your second comment, though, is very opposite. I think we have the largest data center construction program in the world. I tried to benchmark it against some other very well-known large-cap global players. It looks like we have almost double the amount of capacity under construction. And operationally, execution is difficult. There are lots of challenge, lots of complicating factors. I'd like to stress this as you brought it up because I think generally maybe analysts and investors underestimate this when they talk about competition and people's plans, and it's easy to say it. It's not easy to do it. But we've been scaling up for 10 years. We started with 3 data center projects. And we went through 10 years of increments. And now we have around 20 projects more or less permanently under construction. So I think we've shown that we can handle this sufficiently and keep execution issues down to a minimum. Your last question about Huidong, yes, we bought the land from the government. That means that the deal was to acquire the land. And together with the government's commitment of the, call it, carbon quota, the right to use power capacity and to coordinate with the state grid to provision what actually is the Southern grid, right, to provision the power supply. The land is actually located in an industrial park, which is actually called a data center park. So it's an established location from that respect. Overbuild, oversupply. Well, we've always heard that, right? Meanwhile, our commitment rate was 95%, and our pre-commitment rate is 60% to 70%, which you won't find any data center company in the world which has that level of commitments and pre-commitments. A site like this is actually very close, we can say, to the edge of Shenzhen, right? It will be first in queue and very attractive to hyperscale cloud. And so we'll announce an anchor customer in 1 or 2 quarters.
Your next question on queue comes from the line of Edison Lee from Jefferies.
I guess the number one is about your comment on the growth in hybrid cloud demand. And I suppose that the hybrid cloud demand is going to come more from enterprises rather than large-scale Internet companies. So does it mean that your proportion of retail in the business is going to go up? I know that you guys don't want to try to distinguish between wholesale and retail. But I'm just trying to get a sense of the breakdown of the demand coming from large Internet giants and traditional enterprises, and how that's going to impact your pricing and also your utilization rate going forward?
So I think the demand profile, as I just mentioned, and the key demand still will be the cloud service provider in the short term. But we do see the Internet companies, they -- since they adopted their architecture to the hybrid cloud, I think the demand will be more fast, to grow more fast. In terms of the enterprise customers, as you -- everybody knows the enterprise customer, they are much -- their sales lead time is longer than other Internet company and cloud player right now. And we do see the change of their architecture. So we see some solid enterprise customer -- very solid demand from the -- some of the world's largest financial institutions. So I think this will be the trend. Number one, this is the trend. Number two, I think, in the short term, the demand still will be the: number one, cloud; number two, the Internet company; and the number three is enterprise customer. So in terms of the new customer -- new enterprise customer demand, investment, I can tell you that 4 years ago, we have the 350 customer name, right? But now we have almost 700 year-to-date, right? Yes right, almost 700. That means we have doubled our customer number, mainly driven -- the number is mainly driven by the enterprise customer. We never stopped to invest in new customer in the enterprise area. So we will still continue to invest. And the good thing is that they are not traditional enterprise, they start to use the hybrid cloud. We think that we will get the benefit from the next few years.
Yes, right. We use hybrid cloud in reference to large Internet companies, which maybe sounds pretty unusual. But that's what we're seeing. It reflects the range of applications and data that they have, the range of their requirements. For example, video streaming might rely more on, say, CDN, which -- for which they will use a public cloud. But there could be other business areas, other data and applications, which requires large concentrations of service, in which case, they put that on private cloud. And then there's traffic migration between the two. So I think it is right to talk about hybrid cloud as reference to the opportunity with large Internet customers. We haven't provided any targets, I hesitate to do so. But on a 3- to 5-year basis, we do aim to increase the proportion of, call it, retail, financial institution and enterprise from where it is today. And that's despite what we expect to be the continued very high-volume growth from cloud or Internet.
Can I ask 2 follow-up question. Number one is, if the -- I mean for these traditional enterprise customers, do they have more demand or do they want more to be in the core Tier 1 cities? Or are they happy to be at the edge of town locations? So how does that impact your capacity expansion plan? And number two, is that if you have more of these traditional enterprise customers on the retail business, does it mean that your utilization rate will likely ramp up more slowly than before because you need to go out and find these enterprise customers in the retail model?
Yes. You're right on that last point. And the enterprise deployments are mainly downtown. There may be a limited number, which in the kind of 1,000 square meters-plus order size, which could go to edge of town. We do see some order size like that, but it's not yet part of our customer mix for edge of town. So I think the enterprise business does require downtown. And the sales cycle is longer and it's more intensive. We are increasing our sales resources to cover that segment. But we also have a lot of follow-on sales potential with our established customer base. I mean William said 700, our 700-odd customers is 250 -- almost 250 financial institutions in that mix. And that's been built up over more than 15 years. We were sort of first-mover in providing business continuity and disaster recovery, a very high-quality customer base there, and there's a lot of potential, particularly as they start to change their IT architecture to make new sales to those long-established customers.
Your next question comes from the line of Hongjie Li from CICC.
I have one question concerning on the power supply. I saw we have multiple pipelines for next year in our construction program, especially in Langfang. So how do see the power supply over there? Will the power delay impact power delivery? And also in other urban area in edge of town, except for the government project, they have other ways to guarantee our supply over there?
So, sorry, to the line is really unclear. I'm just checking was Laura. Maybe we could hear what your question once more.
I think she said the power supply in Langfang. Will that affect our delivery next year?
Okay.
Yes. I think the Langfang -- Langfang is a city has some unlimited power capacity, number one. But number two is we are a first-mover in Langfang. We definitely secured the power capacity for the future development. I think this is our first-mover advantage. I think the power supply will not impact our delivery in the Langfang area in the next couple of years. Is that your question?
[Operator Instructions] Your next question comes from the line of John Choi from Daiwa.
I have a quick question related to your -- I think initially, management, you guys mentioned about your ESG efforts, like, next year you'll spend a bit more but you're still able to expand 1% EBITDA margin. I think with the recent carbon neutral initiative by the government, what is our plan for on the renewable side? And how will that impact our cost in terms of developing? And would that have any impact in our MSR? And just quickly on Dan, I think you mentioned about your -- the act was inorganic. It seems to me that inorganic has been stepping up since in the past 12 months. Is it because the projects are being more mature in the in-town cities or the prices have been coming off? Is there any trend that you could share with us?
John, thanks for initiating. I think, John, the most recent one to initiate on GDS, a very good report, if I may say. Yes, we'll publish our first ESG report next year. And until then, I don't want to come out and set any expectations because I think there's a lot of irresponsibility in this area where companies talk about targets without giving any time line or any metrics, and it just looks to me like marketing. We've established a team. We have, and we are enhancing our expertise in the power sector to try to manage this better. And it requires ingenuity and creativity to be able to increase the proportion of our data centers, which use renewable energy. And we're working hard to do that and take it very seriously. You said the inorganic portion seems to have stepped up. And we've done, I think, with the Shanghai 19 acquisition, which we announced today, that was the 11th acquisition which we've done since -- the second quarter of 2016 was the first M&A deal. There's been around 2 deals per annum. Just some of those deals have been larger. For example, one of the deals in 2019 was Beijing 10/11/12. So it's like 3 data centers. And the deals that we've done in 2020, like Beijing 13 was 20,000 square meters. In fact, we have soon to announce that we've been able to upscale that quite significantly. And Beijing 14, which hopefully will move forward and find definitive agreements and close next year, it's also 20,000 square meters. So I think we're still doing around 2 deals per annum. And I hope to maintain that or, if not more. Let me then comment about acquisition multiples. We're seeing 2 kinds of M&A opportunity in terms of stage of development. Most of our deals have been projects which are under construction or at least when we sign a sell and purchase agreement, there is still a substantial amount of work to be done to complete those projects. And in that case, we've been buying projects at single-digit multiples of estimated stabilized EBITDA, factoring in what we pay and the cost to complete. Shanghai 19, you can kind of do the math from what we've disclosed definitely fits into that category. But then there's been a couple where we've acquired data centers which were already complete. And as I mentioned before, there's more competition for those kind of opportunities, including from financial investors. We will do those deals when we see very strong strategic rationale. Of course, the multiples are double digits now. But I'm interested to see when the REIT market in China develops, which won't be long now in respect to data centers. I'm interested to see what kind of cap rates data center REITs will command. And my expectation is it's going to be way below the level at which we've done our deals, even the more advanced or mature deals.
As there are no further questions, I'd like now to turn the call back over to the company for closing remarks.
Thank you, everyone, 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 Piacente Group Investor Relations. See you next quarter.
Thank you, presenters. This concludes this conference call. You may now disconnect your lines. Thank you.