GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's first quarter 2021 earnings conference call. At this time, all participants are in listening 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 1Q21 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 investorsgdservices.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 Koo, 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 Security Allegations 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 a company's perspective 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 note that GDS earnings press release and this conference call can include discussions of unaudited debt financial information as well as unaudited non-debt financial measures. GDS press release contains a reconciliation of the unaudited non-debt measures to the unaudited most directly comparable gap measures. I will now turn the call over to GDS founder, chairman, and CEO, William. Please go ahead, William.

Okay. Hello, everyone. This is William. Thank you for joining me on today's call. I'm pleased to report another solid set of results. Our performance year to date is in line with our expectation and we will remain on track to deliver our full-year sales target and financial guidance. Our sales in 1Q21 was over 23,000 square meters, all organic, all tier one markets. We have maintained the same sales run rate since the beginning of last year, and we are confident of maintaining it throughout 2021. Despite the noise about the growth of the cloud market in China, new regulations, and increasing competition, we are not slowing down. The reason why we can maintain sales commitment and momentum is because of our positioning. In particular, our increasingly diversified customer relationships and our market presence, which mirrors the footprint of the cloud. The strength of our positioning is clearly illustrated by our sales achievements in the past few months. In 1Q21, we won six high-scale orders Two of these orders were in new markets. In Hong Kong, we closed an anchor order for 45% of our Hong Kong One data center. The customer is a leading cloud service provider from China. In addition to commitment for Hong Kong One, which will enter service in 2022, this customer has indicated strong interest in anchoring our Hong Kong 2 data center, which will enter service one year later in 2023. In Chongqing, we closed an anchor order for 50% of our Chongqing 1 data center. This came from a large cloud customer in the financial service industry. In the current quarter, we went our first time in Beijing from a new cloud service provider, which is focused on serving government and SOE customers. These three notable orders highlight our ability to keep on winning as demand shifts between markets and customers. A couple of quarters ago, we made an important breakthrough with two new hyperscale internet customers. I'm pleased to report that we have now won a follow-on order from one of them, a leading e-commerce platform player for capacity in one of our Shanghai data centers. We also won the bid for a follow-on order from the other one, a leading content platform for capacity in their secondary tier ones market. Our sales and resource strategy is driven by architecture of the cloud. As shown on slide six, cloud platforms deploy multiple availability zones in each region. Each AZ is independent, but all of the AZs in the same region are interconnected with minimal latency. This architecture supports real-time and high-redundant operations. Hyperscale customers look to land and expand, which means they set up new AZs and then, over time, increase the capacity. We target the initial land And as a result, we are well positioned for the expand. Around 50% of our current sales pipeline is expansion order from customers who have already landed at one of our locations. These expansion orders will not go out to open tender. For the remaining 50% of our pipeline, the situation varies from the highly competitive to limited competition, depending on the location and customer requirements. This means that we can be selective about what business we pursue. We are not under pressure to chase highly competitive deals just to meet sales targets. A key to our success has been our ability to continuously scale up our supply. As shown on slide seven, we now have our highest ever area under construction at over 160,000 square meters, or 397 megawatts of IT power capacity. Meanwhile, we have sustained our pre-commitment rate at 68%. As shown on slide nine, in each tier one market, we have established a cluster of data centers in separate locations which mirrors the footprint of the cloud. This is what give our platform a unique value proposition. No other data center company is anywhere close to having this market present. In fact, most of our competitors only have supply in a few places. During 1Q21, we started construction of five new data centers on land and buildings which were previously held for future development. And at the same time, we topped up our resource pipeline with Greenfield Land purchase at great locations on the edge of Shanghai and Beijing. This shows how our capacity sourcing and the construction cycle is working. We currently have over 500,000 square meters of capacity held for future development. Over 90% is greenfield land, which we own and which comes This resource pipeline risks our growth and visibly damages our sustainable competitive advantage in resource supply. We currently have about RMB 3.3 billion, which means U.S. dollar 498 million of investment tied up in held for future projects. There have been a number of recent developments in government policy, including specific policies related to resource allocation in Beijing, Shanghai, and Guangdong. Some of the details are new. But in our view, the underlying policy direction is consistent. On the one hand, data centers are new infrastructure, which is important for China's digital transformation. On the other hand, the government is guided by carbon neutral objectives and maintaining tight control over the allocation of land and power for data centers. for data center use. We hear people talk about oversupply. Let's put this in the context. Across all of our tier 1 markets, supply is constrained and the bar is being raised by government policy. The only exception is the area in Jiangsu province to the immediate northwest of Shanghai. where there are a number of players who have large developmental capacity. Competition in this one area is more intense, and the pricing is more aggressive. It will take some time to work through, but in the long term, we believe the supply will be constrained there, just like everywhere else. We are taking a long-term view and are seeking to consolidate some of the supply. During the current quarter, we closed the two previous announced acquisitions. BJ15 brings over 19,000 square meters of capacity. It is 100% committed and 80% utilized. BJ15 was a highly competitive M&A deal. Since closing, we have started the conversion of an existing building on the same site, which we call the BJ16. It is already almost 100% pre-committed. With this expansion, the implied acquisition multiple comes down by about one to two times. TJ1 is our first data center in the Tianjin area, with the added advantage that it is only 30 kilometers from the edge of Beijing. It brings over 14,000 square meters of highly marketable capacity. We paid a relatively small premium to organic build cost. We are currently at an advanced stage for another data center acquisition, which would bring expansion capacity with some customer commitments. Once again, we expect to pay a single digital acquisition multiple. We saw this quarter how Chongqing and Hong Kong to new market for us in terms of self-developed data centers. Draw significant new business from established strategic customers. By the end of this year, we expect to enter one of two further new market in China. The same logic of the follow the customer is driving our Southeast Asia expansion plans. Our initial focus is on Singapore. However, as the Singapore government is not approving new projects, we are looking for alternative ways of establishing a presence in the Singapore market. Given the constrained supply in Singapore and the rising co-location prices, we are also considering complementary options in neighboring countries. We have identified some very promising investment opportunities, and we aim to make at least one or two commitments within the next couple of quarters. Now I will hand over to Dan for the financial and operating review. Thank you.