GDS Holdings Limited

Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited second quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. I will now turn the call over to your host, Ms. Laura Chen, head of investor relations for the company. Please go ahead, Laura.

Thank you. Hello, everyone. Welcome to 2Q21 earnings conference call of GDS Holdings Limited. The results were issued via new file services earlier today and are posted online. A summary presentation, which we'll refer to during this conference call, can be viewed and downloaded from our 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. Jenny Kuhl, 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 Regulation Reform Act of 1995. Forward-looking statements involve inherent risks and certainties. As such, the company's results may be maturely different from the views expressed today. Further information regarding these and other risks and circumstances is included in the company's prospectus as filed with U.S. SEC. The company does not assume any obligation to update any thoughts of the company except as required under applicable law. Please also note that GDS earnings press release and this conference call include discussions of unaudited gap financial information as well as unaudited non-gap financial measures. GDS press release contains a reconciliation of the unaudited non-gap measures to the unaudited most directly comparable gap measures. I will now turn over the call to GDS founder, chairman, and CEO. William, please go ahead, William.

Thank you, Laura. Hello, everyone. This is William. Thank you for joining me on today's call. I'm pleased to report another solid set of results. With year to date, performance is fully in line with expectations. Our sales in 2Q21 was over 44,000 square meters, including over 25,000 square meters of organic bookings and 19,000 square meters from acquisitions. We have maintained our quarterly run rate since the beginning of last year. We are confident of achieving our full year sales target. In 2Q21, we won three hyperscale orders, each of which tells a different story about our competitive edge. LF13 is a 14 megawatt expansion order from an existing customer. It's an edge of town site in Longfeng where the customer already has a big presence with us. This is an example of land and expense. A lot of our new business fits into this category. The cycle starts with joint planning and then we enter into a sales MOU covering multiple phases of deployment. This gives both GDS and our customers a high degree of certainty. Once the customer has landed, there is little or no competition for the expansion orders. We currently have over 50,000 square meters of planned commitments in MOUs, which is not yet reflected in our bookings. BG16 is a 15 megawatt first-time deployment by a new cloud customer. They specifically require the capacity in downtown area of Beijing, where resource is scarce. Because customer is a relatively new cloud service provider, focused on government and SOEs. We have a great track record with cloud customers, which is important for winning new business. We have diversified our cloud customer bases and serve all the leading players. The cloud market is growing as strong as ever, and we are well positioned across the spectrum. CS2 is the 34th megawatt first-time deployment by a new large internet customer. It's at our Changshu campus in Changshu province. Over the past few years, we have seen an increasing number of opportunities like this, where large internet customers started to build their own IT platforms and also to data center operators. For orders of this size, they require edge-of-town locations with large-scale, low-cost, and low-latency connectivity to downtown. We are well positioned with this edge-of-town product and had a lot of success with customers. Despite the recent regulatory developments affecting internet companies, our sales pipeline has been very stable. Our backlog is safe and the trend is immaterial. Looking at the big picture, we saw the whole digital transformation in China, not just a few customers. The government is strongly committed to sustained economic growth enabled by technological innovation. We do not see any change in our long-term growth trajectory. The government has designated data centers as a new infrastructure. The industry receives strong government support. The National Development and Reform Commission, together with other central government agencies, recently published an important policy document setting out an overall vision for accelerated data center development in China. This was followed by a three-year action plan published by the Ministry of Industry and Information Technology. In these documents, the government recognizes the need for data centers to be physically located in tier one markets for low latency applications and in designated remote areas for non-real-time computing. They want to see high efficiency data centers. using more renewable energy. They want to promote data centers which are more technologically advanced, reliable, and secure. And they want to encourage Chinese data center companies to expand overseas. From our perspective, these policies are a natural continuation of the policy direction of the past few years. We feel that the GDS is already very well aligned with the government's objectives. At the same time, we think that the bar has been raised for the industry as a whole. It's created a much bigger challenge for small players with less expertise and resources. We very much welcome these policies, which we believe are good for the industry and good for us. We realized several years ago that as hyperscale demand took off, it could not be satisfied just in downtown locations. Supported by our customers, We were the first mover in edge of town locations. We have built good relationships with local governments and established a strong track record. These are critical success factors when it comes to securing more pipelines. As at mid-2021, we had successfully secured over 500,000 square meters of capacity held for future development, roughly 90% of which comes with power quota commitments. It's far more than any of our peers. As shown on the slide nine, in the Shanghai market, We have 28,000 square meters held for future development at the downtown sites, and close to 120,000 square meters held for future development at three edge of town sites in Jiangsu province, all of which have power code commitments. As shown on slide 10, the situation in Beijing market is quite similar. We have 14,000 square meters held for future development downtown and 133,000 square meters of secured pipeline in Longfang and other edge of town locations. While edge of town is driving our volume growth, our customers still look to us for help in securing downtown capacity. We approach this in a number of different ways, including by acquisitions. During the second quarter, we closed our previously announced Beijing 15, Tianjin 1, and Shenzhen 8 acquisitions. We also recently completed a new deal for over 10,000 square meters of capacity at an urban site in Beijing, which we call BJ 17, 18, and 19. This came with nearly 4,000 square meters of commitments from a new high-scale customer. The acquisition was done on a high single-digit multiple. The data science industry has attracted a number of new entrants. They are mostly local project companies. They compete at an entirely different level from us. They do not have any competitive advantages. Sometimes you see announcements, but then they do not move forward with their projects. You would be surprised how often we are approached about partnerships or acquisitions, while investors may see these project companies as increased competition. From our perspective, they are market consolidation opportunities. Our hyperscale customers use Hong Kong as a launchpad for their overseas business. We therefore view Hong Kong as an integral part of our regionalization strategy. We are currently developing two purpose-built data centers in the Kwai Chung area of Hong Kong, HK1 and HK2. Most of the capacity in these data centers has already been allocated to strategic customers, pending contracts. In order to build on this success, we have entered into a definitive agreement to purchase another nearby building, which we plan to redevelop as HK4. Given the real estate challenge in Hong Kong, It's a great achievement to put together three major projects in such close proximity. It creates a big operational benefit for our customers. We also signed a head of agreement for the lease of a building share, which will cost HK3. Altogether, this gives us a secure pipeline with nearly 80 megawatts of purpose-built capacity through to 2027 and beyond. Complementing our presence in Hong Kong, we recently entered into a definitive agreement to form a joint venture to acquire a brownfield site in Macau for redevelopment as a data center with nearly 20 megawatts of capacity. Real estate is a big challenge in Macau. and there is very little data center capacity. Our project is a groundbreaking move. We will be the only player who cover Hong Kong, Macau, Shenzhen, and Guangzhou. We recently announced The first concrete step in our Southeast Asia expansion with the acquisition of greenfield land in Nusa Jaya Tech Park in Johor, Malaysia. With the measurable capacity of 22,500 square meters or 54 megawatts. The site is ideally located to meet regional demand, as it's only a few kilometers from the Singapore border. Furthermore, it's right next door to Telecom Malaysia's main regional data center, which gives us an opportunity for collaboration as well as for leveraging their low latency network into Singapore and the rest of Malaysia. We received very positive feedback from our leading customers about this project. We aim to secure commitments for the first phase within the next couple of quarters. Beyond the whole, we are actively pursuing a number of other opportunities in and around Singapore, in Kuala Lumpur and in Jakarta. In all cases, the logic is to follow our whole market customer by extending our interconnected platform. echoing the government policy of supporting Chinese companies to go overseas. We have already identified over 200 megawatts of demand from Chinese customers in Southeast Asia within the next five years. In conclusion, the market opportunity for GDS in China is intact and our bookings are consistent. we are fully aligned with the government's policy objectives. New markets, regionalization, and consolidations are creating exciting new opportunities for us. We are not distracted from our mission and continue to execute our long-term business plan with great discipline. Thank you. Now we'll hand over to Dan for the financial and operating review.