GDS Holdings Limited

this new site as Campus Tech Park or KTP. In the first phase of development, KTP will have 108 megawatt of power capacity. We are seeing stronger demand for our capacity in Johor from global and China customers. We are the only player to have two complimentary locations. both of which are only a few kilometers from Singapore. Across these sites, we have secured 268 megawatt of power supply over the next three years. This gives us time to market advantage and important considerations as customers accelerating procurement to meet AI demand. Furthermore, we have already proven our execution capability in Johor by deploying our prefab technology, including liquid cooling modules, to successfully deliver high-scale capacity in just over one year. In Singapore, following the award of Power Quota, we are finalizing the site selection for our first data center. We are on track to deliver capacity in 2026. In Indonesia, we are very pleased to finalize a JV agreement with INA, the Indonesia Solar Wealth Fund. We believe that INA will be a great partner for us because of their complementary strengths, unique relationships, and the value add. The JV is for all of our developments in Indonesia. We continue to make progress with our first project in Batang. We are working with INA to put in place the essential infrastructure. Finally, we are moving forward with the first round private equity capital raising for our international holocaust. It is going well. I will now pass on to Dan for the financial and operating review.

Thank you, William. Turning to slide 19. In 3Q23, revenue increased by 6.4% and adjusted EBITDA increased by 5.6% year on year. For the quarter-on-quarter analysis, We've excluded the one-time items which arose in 2Q23 as previously disclosed. On this basis, revenue grew by 4.9% and adjusted EBITDA decreased by 1.4% quarter on quarter. The decrease was mainly due to higher utility costs, which I will come to in a minute. Turning to slide 20, during 3Q23, we achieved net additional area utilized of 16,000 square meters. During the past few quarters, our net ad has been affected by higher than usual churn, which is mainly due to one customer's redeployment. This will continue into the fourth quarter. However, we are now seeing the impact partly offset by greater contribution from international. Monthly service revenue per square meter was RMB 2149 in 3Q23. Compared with the third quarter of 2022, MSR decreased by 4% in line with our expectations. Turning to slide 21, due to the seasonal fluctuations in PUE, we think it makes most sense to look at our margin trends by comparing with the same quarter in the prior year. At 3Q23, our adjusted gross profit margin was 49.5%, compared with 50.7% in 3Q22, a decrease of 1.2 percentage points. During 3Q23, utility cost as a percentage of revenue was 35.1%, compared with 31.6% in 3Q22, an increase of 3.5 percentage points. This reflects increase in power generation and more recently in power distribution tariffs. However, as you can see, we were able to mitigate some of the impact of higher utility cost with other cost savings. Adjusted EBITDA margin was 44.7% in 3Q23, which is only slightly down versus the same quarter of last year. Turning to slide 22, over the first nine months of 2023, our China capex totaled 3.1 billion RMB. Our full year guidance was for 3.5 billion RMB, and we still expect to be within that figure. However, next year, we expect China CapEx to be materially lower at around 2.5 billion RMB. Over the first nine months of 2023, our international CapEx was around 2 billion RMB. Given the rapid pace of development in Johor to meet delivery schedules, we expect full year CapEx for international to be around 4 billion RMB in line with our guidance. Our preliminary view is that international capex will be 4 billion RMB or higher next year. On slide 23, we plan to finance the international business independently. On the equity side, we are undertaking an equity private placement, the proceeds of which will be ring-fenced. On the debt side, we're aiming to finance international projects on a non-recourse basis. We should therefore look at our financial position in two distinct parts, GDS Holdings excluding international, which is in effect LISCO plus the China business, and international standalone. Over the first nine months of 2023, GDS Holdings excluding international had negative cash flow before financing of 1.8 billion RMB. As William mentioned, Our objective is to maintain positive cash flow before financing on an organic basis without assuming any asset monetization. Cash flow before financing for this segment was in fact positive in 3Q23, but it will take another year or so before it is consistently positive quarter after quarter. International standalone We'll have negative cash flow before financing of around 4 billion RMB this year and potentially a similar amount next year. We can finance this deficit with around 50% equity and 50% debt. For the equity requirement, we aim to raise at least 400 million U.S. dollars or 2.8 billion RMB in the current funding round. we've received very strong interest from regional and global investors and expect to close the capital raise in 1Q24. Looking at our financing position on slide 24, at the end of 3Q23, our consolidated net debt to last quarter annualized adjusted EBITDA was 8.6 times. Excluding the net debt and negative adjusted EBITDA of international, The multiple was 7.45 times. If we continue along the same path, the leverage of GDS holdings, excluding international, falls to below six times within three years. However, we continue to work on various asset monetization initiatives, including two data center funds, the potential CREIT, and property sale and lease back. This could enable us to delever a bit faster. Turning to slide 25, we are showing the loan maturity schedule for the first time with the debt of international separately identified. Over the next couple of years, we have on average 2.7 billion RMB per annum of principal repayments, all of which is onshore RMB project loans. A large part of this can be refinanced, as we have been doing successfully for many years, although we do intend to use part of our cash balance to pay down some debt where it is prudent and efficient. Turning to slide 26, we are not changing our formal guidance for FY23 revenue adjusted EBITDA and capex. However, we note that FY23 revenue is tracking to the bottom end of our original guidance range, FY23 adjusted EBITDA is tracking to the top end of the original guidance range. We'd now like to open the call to questions. Operator?

Thank you. Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 1 1 on your telephone keypad and wait for your name to be announced. To withdraw a question, please press star 1 1 again. 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. Thank you so much. Please stand by while we compile the queue in Eurostar. This will take a few moments. And now we're going to take our first question today. And it comes from the line of Jonathan Atkin from RBC. Your line is open. Please ask your question.