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GDS Holdings Limited (GDS -0.83%)
Q3Â 2020 Earnings Call
Nov 17, 2020, 7:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited's Third Quarter 2020 Earnings Conference Call. [Operator Instructions] 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.
Laura Chen -- Head of Investor Relations
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.gds-services.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 US 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 US Securities and Exchange Commission. 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.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
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 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 $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 help 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 24,000 square meters or 46 megawatts of new customer commitments. During the first nine 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 meters of annual net add, consisting of 80,000 square meter organic, plus 20,000 square meters from the Beijing 10, 11, 12 acquisition which was pending closing.
Today, we are clearly on track to achieve around 98,000 square meters of organic sales, plus 27,000 square meters from M&A, including nearly 80,000 square meters from a new acquisition in Shanghai during the current quarter. This give us -- this gives us over 120,000 square meters 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 meters of M&A next year.
As you can see from our disclosures, there is a consistent pattern of three to four -- five hyperscale orders 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 strong 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 are actively pursuing multiple hyperscale opportunities with these two names.
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 develop, they also start to deploy their own private clouds and require outsourced data center services. This is where we see incremental opportunity. Given the extensive presence of cloud service providers in our data centers and 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 mainframe to server, we anticipate significant incremental opportunity.
Over the past five 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 rates have remained solidly over 60%. We have talked repeatedly about why a secured development pipeline is a critical success factor. During 3Q '20, we added over 30,000 square meters to our data -- our area held for future development 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 Greater 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 developed, 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, in 2Q '18 -- '19 -- in 2Q '19. In less than 18 months, we have initiated nine 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 a 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 two locations: Kunshan and Changshu. During 3Q '20, we leased three adjacent buildings in Kunshan, with a total developable net floor area of 16,000 square meters. The first of these buildings, which we call Kunshan 4, is undergoing conversion.
Turning to Slide 14. We announced two 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 Shanghai 19. It has a total developable net floor area of 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 RMB778 million. It's 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.
Daniel Newman -- Chief Financial Officer
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 adjusted 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 move-in in the fourth quarter.
MSR was RMB2,519 per square meter per month. Without Beijing 10, 11, 12, it would have been slightly higher at RMB2,533.
Turning to Slide 20. Our adjusted EBITDA margin remained around 47% and we are 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 RMB6.6 billion. In 4Q '20, we expect another RMB3.4 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 RMB10 billion capex guidance. Up to the end September, we had paid cumulatively RMB640 million of capex for managed BTS, built-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 have RMB18.7 billion of cash on our balance sheet and our net debt-to-EBITDA ratio is 1.2 times. 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 4 times within a couple of quarters. As in the 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 loan 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 RMB5.7 billion to RMB5.75 billion and adjusted EBITDA to be in the range of RMB2.66 billion to RMB2.67 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 RMB10 billion for the full-year remains unchanged.
We'd now like to open the call to questions. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question on queue comes from the line of Jon Atkin from RBC. Please ask your question, Jon. Your line is now open.
Jonathan Atkin -- RBC Capital Markets -- Analyst
Thank you very much. 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 ship their IT onto their own equipment, and perhaps signing deals with data -- more frequent deals with data center companies such as yours? Thank you.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
So, Jon, this is William. I mean, first question, the customer building by self. So far, we didn't see any change right now. I think the -- especially, I mean, in a Tier 1 market, which we focus, we didn't see any changes.
The second question is...
Daniel Newman -- Chief Financial Officer
Internet companies using data center companies host their own private clouds.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Yeah. There is very, very significant changes I have seen in lot of the large Internet company, they became -- their IT became more complicated. So, they used to use the cloud, when they grew up -- during their grow-up period, now it looks like 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.
Jonathan Atkin -- RBC Capital Markets -- Analyst
Thank you. 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?
Daniel Newman -- Chief Financial Officer
Thank you, Jon. We 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 set previously. If you're talking about revenue and EBITDA next year, of course, that lags the sales by at least one year to two 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% pre-leased, pre-committed. So, if new capacity comes into service, that means that 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.
Typically, after new data centers come into service, not much happens for 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 and service. And then that will flow through to further step up in the quarterly net addition to area utilized, which drives revenue.
If we talk about EBITDA, then it becomes a matter of the MSR trend, and the margin, which I'm sure some of your colleagues are going to ask me about 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% per quarter and we discussed the factors behind that, it's not indicative of what's happening to returns. And 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 we received from government concessions. I think next year the target 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 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.
Jonathan Atkin -- RBC Capital Markets -- Analyst
Thank you very much.
Operator
Your next question in queue comes from the line of Colby Synesael from Cowen. Colby, please ask your question. Your line is now open.
Colby Synesael -- Cowen and Company -- Analyst
Okay, great. Thank you. A few, if I may. $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 go? And then, also, as part of that, your 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? Thank you.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Colby, I answer the first question. I think definitely we are -- we would raise $1.8 billion net proceeds. I think this is sure our next five -- our view -- our ambition in next five 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 there is more new markets were coming -- become more important, accepted our previous four key markets. So, I think we still have the plan to expand our business -- to still strengthen our business, getting more market share in the current Tier 1 market. Also, we do have the very, very solid plan to -- move to some new important market 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 a -- we are actively developing those business plan. So, that's why I think we are quite exciting at this moment to look forward to the next couple of years.
Colby Synesael -- Cowen and Company -- Analyst
William, do you think that we could see you going outside of China in 2021?
William Wei Huang -- Founder, Chairman and Chief Executive Officer
It's too early to say. We will see -- we actually develop the plan and evaluate all the demand and all the -- evaluating [Phonetic] 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 -- tell you guys what's the -- exactly the plan is. So, I don't want to say too early. It's too early to say. But I can tell you, we actively -- to develop the plan right now.
Daniel Newman -- Chief Financial Officer
Yeah. Hi, Colby. If we just isolate out the refinancing part of what we're doing, I'll say that the cash interest saving is 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 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. This is 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%. And as soon as we've got in execution right now or work out around 5% or even less.
Colby Synesael -- Cowen and Company -- Analyst
Got it. Thank you very much.
Operator
Your next question comes from the line of Gokul Hariharan from J.P. Morgan. Gokul, please ask your question.
Gokul Hariharan -- J.P. Morgan -- Analyst
Yeah, hi. Thanks for taking my questions. First of all, now that we are developing a bigger and bigger edge-of-town portfolio in at least the three main locations, could we talk a little bit about how is the demand looking at city center, the more older data centers versus what you're developing at edge-of-town? Are we seeing any differences in terms of demand, be it power density or other requirements?
The 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 years and some of the opportunities that you've talked about?
Daniel Newman -- Chief Financial Officer
First one is demand for the downtown data centers.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Yeah. I think the direct answer is demand from the -- for the downtown, let's say, edge-of-town, right?
Daniel Newman -- Chief Financial Officer
More central.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
More central, still maintain very strongly. Yeah. So, I think the -- we have -- that's why we keep acquire the edge-of-town data center, when we also -- when we developed the edge-of-town campus. So, this is -- this strategy will continue. We will build our large scale -- hyperscale campus in edge of the town. Meanwhile, we will still continue to build data center and apply the data center resource in an urban town. So, we -- the demand were clearly -- very strong.
Daniel Newman -- Chief Financial Officer
Yeah. I will just...
Gokul Hariharan -- J.P. Morgan -- Analyst
Is there any --. Yeah. Go ahead.
Daniel Newman -- Chief Financial Officer
Sorry, go ahead. [Speech Overlap]
Gokul Hariharan -- J.P. Morgan -- Analyst
I was asking whether there's a difference in demand, that's all.
Daniel Newman -- Chief Financial Officer
Same customers.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Yeah.
Daniel Newman -- Chief Financial Officer
Yeah. Maybe a typical architecture, 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 hub. Downtown, as you know, is a -- 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 that currently the run rate for organic is going to lead us to around like 95,000 square meters. I know William said 98,000 square meters, but it wasn't [Indecipherable], it's 95,000 is what the -- is where the math comes out. And William said that next year we can say already that that kind of level is sustainable and we have visibility to that because we have a certain quantum of multi-phase orders, which already give us highly surge in 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 launch them. 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, they 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. But that's why I think -- that's we have a pipeline. That's why I believe that we can sustain M&A at the current levels as well. Beijing 14 is not a done deal yet. We haven't entered into definitive sale and purchase agreement. If that goes ahead as we plan, then it will gives us 20,000 square meters of M&A for next year already, and more than 12 months to do some more deals.
Gokul Hariharan -- J.P. Morgan -- Analyst
Got it. Understood. Thank you.
Operator
[Operator Instructions] Your next question on queue comes from the line of Tina Hou from Goldman Sachs. Tina, please go ahead and ask your question.
Tina Hou -- Goldman Sachs -- Analyst
Hi, management. Thank you for your time. If I may just ask one 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'm just thinking if you could provide more colors on that. What -- like what location these projects may be? Is it edge-of-town, downtown or built-to-suit? And then the sort of expected timeline that these can be decided and come online? And also, maybe in like three to five years what kind of revenue contribution do you see from these two customers? Thank you.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
I think number one, I think we start to build our business relationship with these two new logo is -- like start from last quarter. I think the -- given the time, we do expect build more strong relationship with them. And I think according to their current position, China, our resource platform -- our data center platform in China, which is quite unique and will contribute a lot of value -- create a lot of value for those kind of customer in the future. I think those customers and their demands urban town, plus edge-of-town, hyperscale boasts right. So, I think the -- we will prepare for echo their future demand already. So, I think we are confident to -- we will have more business with them. So, currently, it's too early to talk to some detail because it's a -- we are communicated with those kind of account very, very closely. So I think I'm so -- I'm very confident to get some new deal from them in the near future.
Tina Hou -- Goldman Sachs -- Analyst
Thank you.
Operator
Your next question comes from the line of Frank Louthan from Raymond James. Frank, please go ahead and ask your question.
Frank Louthan -- Raymond James -- Analyst
Great. Thank you. I wanted to just ask a more general question, talking about demand and how things might 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's 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?
Daniel Newman -- Chief Financial Officer
Yeah. Frank, William asked me to respond. It's hard to isolate the difference that going through the COVID period since May. So -- and 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, do everything from home, do IPOs from home. And that's accelerated the structural shift.
Our dialogue with our customers and new business is based on -- at least say that three-year forward plans. And 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...
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Yeah. I think -- Frank, I think the trend is not only triggered by the COVID, right? I think it is -- the logic is that -- the whole logic is in China, the visualization is overwhelming to a vault [Phonetic]. 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 five years, cloud still -- cloud payer still will be the 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 still be produced in China, like [Indecipherable], like PDD, right? If you look at the last five years, they are lapping, right? Now, they became a $10 billion company, more than $10 billion company. And I think this is -- so that means the Internet still get back and penetrated to different segments -- it penetrated different vertical industry. So, I think there's still a big space for the Internet company to grow.
So, I think this is due -- and nowadays, a lot of Internet companies start to use -- not just using a public cloud, they're using the -- adopted to hybrid cloud architecture, this will trigger a lot of cloud demand, plus a lot of data center co-lo, or hyperscale data center demand. So, I think we are very confident. In the meanwhile, I just mentioned the -- like the traditional financial institution, plus enterprise, they also start to transfer their architecture from the traditional architecture to their cloud base -- hyperscale base. So, this will create another wave of demand for data center.
So, in my view, there is the three driver: cloud, Internet, enterprise, in next five or even 10 years will be the key demand -- a key driver to drive the demand. So, that's why we bring such a big money and we try to catch up -- echo this wave, right?
Frank Louthan -- Raymond James -- Analyst
Okay. Great.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
But I will add a little more. As Dan mentioned, 5G is just implemented right now. But we believe after two years, 5G will trigger more IoT stuff, will trigger more a new application and also, will be another potential key driver to drive the data center demand.
Frank Louthan -- Raymond James -- Analyst
I mean, what are some of the key applications you think that come out of 5G? What are you seeing right now?
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Yeah. I think there's a lot of the -- so far, I think it's too early to talk about it. But you will see a lot of the IoT stuff. We talk to a lot of the traditional industry, they all talk about the IoT stuff. And I think the very clear 5G will drive there -- the new application to implement to the all the supply -- all the value chain [Phonetic] -- business value chain, including the manufacturing -- traditional manufacturing and the traditional retail -- traditional industry. So, I think the -- this is not very clear now, but the market is talking about a lot of the development right now.
Frank Louthan -- Raymond James -- Analyst
All right. Great. Thank you very much.
Operator
Your next question comes from the line of James Wang from UBS. James, your line is now open.
James Wang -- UBS -- Analyst
Good morning, management. 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 and construction grows, is it getting more difficult to execute with the same level 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 sort of customers you have in mind for that location? And also, we hearing, for example, there's potential other building parts of Guangdong, so perhaps a bit more color on the demand and supply situation in that particular region as well? Thank you.
Daniel Newman -- Chief Financial Officer
Okay. Thanks, James. Yeah. 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 has 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 to 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 on under construction. And operationally execution is difficult, there are lots of challenges, lots of complicating factors. I'd like to stress this as you brought it up, because I mean, 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 three 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 efficiently and keep execution issues down to a minimum.
The last question about Huidong, yeah, we bought the land from the government. That means that the deal was to acquire the lands and together with the government's commitment of the, I will call it, carbon quota, anyhow, the right to use of power capacity, having to coordinate with the state grid to provision -- well, actually 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. Over build, over supply, you've always heard that, right, meanwhile, our commitment rate is 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 to the edge of Shenzhen, right? It will be first in queue, and very attracted to hyperscale cloud. So, we'll announce an anchor customer in one or two quarters.
James Wang -- UBS -- Analyst
Great. Thank you. Thanks, Dan.
Operator
Your next question on queue comes from the line of Edison Lee from Jefferies. Edison, please go ahead and ask your question.
Edison Lee -- Jefferies -- Analyst
Hi. Good morning, management. Thank you very much for taking my question. 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?
William Wei Huang -- Founder, Chairman and Chief Executive Officer
So, I think the demand profile -- as I just mentioned, the key demand still will be the cloud service providers in the short-term. But we do see the Internet company, they -- since they adopted their architecture to the hybrid cloud, I think the demand will be more fast -- they grow with more fast.
In terms of the enterprise customers, as you -- everybody knows, the enterprise customer, they are much -- their selling [Phonetic] 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 customers -- very solid demand from the -- some of our large financial institution. 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 number one cloud, number two, Internet company, and number three, is enterprise customer.
So, in terms of the new customer -- new enterprise customers demand development, I can tell you, the key -- four years ago, we are -- we have this 350 customer name, right? But now we have almost 700 yesterday, 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 develop a new customer in enterprise area. So, we will still continue to develop. And the good thing is that, they are not traditional enterprise, they start to use the hybrid cloud. We think that we will get to the benefit from next few years.
Edison Lee -- Jefferies -- Analyst
Yeah, right.
Daniel Newman -- Chief Financial Officer
Yes, I think you're right. We use hybrid clouds 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 here, the range, 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 servers, in which case they put that on their -- on a private cloud and then there's traffic migrating between the two. So, I think it is right to talk about hybrid cloud with reference to the opportunity with large Internet customers. We haven't provided any targets. I hesitate to do so, but on a three- to five-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.
Edison Lee -- Jefferies -- Analyst
Okay. Thanks, Dan, and William. Can I ask two follow-up questions? 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 a retail model.
Daniel Newman -- Chief Financial Officer
Yeah, you're right on that last point. 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're increasing our sales resources to cover that segment. But we also have a lot of follow-on sales potential with our established customer base, and now we have, as William said, 700-odd customers is 250 -- almost 250 financial institutions in that mix. And that's been built up over more than 15 years. And if you're the sort of first mover in providing business continuity and disaster recovery, 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.
Edison Lee -- Jefferies -- Analyst
Okay. Yeah. That's great. Thanks for the comments.
Operator
Your next question comes from the line of Wong Gee Lee [Phonetic] from CICC. Wong Gee, please ask your question.
Wong Gee Lee -- CICC -- Analyst
Thanks, management. I have one question. Congratulation [Phonetic] on the power supply. I saw we have multiple pipelines for next year in our construction program, especially in Langfang. So, how do you see the power supply over there? Will the power delay impact power delivery? And also, in other urban areas and edge town except for the government quota, they have other ways to guarantee our power supply over there? Thanks.
Daniel Newman -- Chief Financial Officer
Sorry, your line was really unclear. I'm just checking with Laura. If you could ask you question once more?
Laura Chen -- Head of Investor Relations
She said on the power supply in Langfang.
Daniel Newman -- Chief Financial Officer
Power supply in Langfang.
Laura Chen -- Head of Investor Relations
Will that affect our delivery next year?
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Okay. Yeah. I think Langfang is a city has some unlimited power capacity. Number one. But number two is, we are first mover in Hong Kong. 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 Langfang area in the next or couple of years. Is that your question?
Wong Gee Lee -- CICC -- Analyst
Thanks.
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Okay.
Operator
[Operator Instructions] Your next question comes from the line of John Choi from Daiwa. John, please ask your question.
John Choi -- Daiwa Capital Markets -- Analyst
Management, thanks for taking my question. I have a quick question related to your -- I think initially, management, you guys mentioned about your ESG efforts, like next year you will spend a bit more on -- but you are still able to expand on 1% EBITDA margin. I think with the recent carbon-neutral initiative by the government, what is our plan on the renewable side and how would that impact our cost in terms of developing and would that have any impact on our MSR?
And just quickly on -- Dan, I think you mentioned about the acquisition was inorganic. It seems to me that inorganic has been stepping up since the past 12 months. Is it because the projects are being more mature in towns and cities, or the prices have been coming off? Is there any trend that you could share with us? Thank you.
Daniel Newman -- Chief Financial Officer
Hi, John. Thanks for initiation. I think John you're the most recent one to initiate on GDS, very good report, if I may say. 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 timeline or any metrics, and it just looks to me like marketing. We've established a team -- we haven't -- 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. So, take it very seriously.
You said the inorganic proportion 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, I think, second quarter of 2016, was the first M&A deal. There has been around two deals per annum, some of those deals have been larger, for example, one of the deals in 2019 was Beijing 10, 11, 12. So, it's like three data centers. And the deals that we've done in 2020, like Beijing 13 was 20,000 square meters. In fact, we hope soon to announce that we've been able to upscale that quite significantly. And Beijing 14, which hopefully will move forward in five definitive agreements and close next year, that's also 20,000 square meters. So, I think we're still doing around two deals per annum. And hope to maintain that, or if not, more.
You made a comment about acquisition multiples, I think, we've seen two 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 sale 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 mining projects at single-digit multiples of estimated -- stabilized EBITDA, factoring in what we pay and the cost to complete. Shanghai 19, you can do the math from what we've disclosed, definitely fits into that category. But then there have 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 at double digits now. But I'm interested to see when the REIT market in China develops, which will be long now. And in respect to data centers, I'm interested to see what kind of cap rates data center REITs will command. And my expectation it's going to be way below the level at which we've done our deals, even the more advanced or mature deals.
John Choi -- Daiwa Capital Markets -- Analyst
Great. Thank you.
Operator
As there are no further questions, I'd like now to turn the call back over to the Company for closing remarks.
Laura Chen -- Head of Investor Relations
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 The Piacente Group Investor Relations. See you next quarter.
Operator
[Operator Closing Remarks]
Duration: 66 minutes
Call participants:
Laura Chen -- Head of Investor Relations
William Wei Huang -- Founder, Chairman and Chief Executive Officer
Daniel Newman -- Chief Financial Officer
Jonathan Atkin -- RBC Capital Markets -- Analyst
Colby Synesael -- Cowen and Company -- Analyst
Gokul Hariharan -- J.P. Morgan -- Analyst
Tina Hou -- Goldman Sachs -- Analyst
Frank Louthan -- Raymond James -- Analyst
James Wang -- UBS -- Analyst
Edison Lee -- Jefferies -- Analyst
Wong Gee Lee -- CICC -- Analyst
John Choi -- Daiwa Capital Markets -- Analyst
