May 10, 2018
Executives
Laura Chen - Head of Investor Relations William Huang - Founder, Chairman and CEO Daniel Newman - Chief Financial Officer
Analysts
Colin McCallum - Credit Suisse Gokul Hariharan - JPMorgan Jonathan Atkin - RBC Capital Markets Robert Gutman - Guggenheim Partners Colby Synesael - Cowen and Company Frank Louthan - Raymond James
Operator
Hello, ladies and gentlemen. Thank you for standing by for GDS Holdings Limited First Quarter 2018 Earnings Conference Call.
At this time, all participants are in 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.
Laura Chen
Thank you. Hello, everyone.
Welcome to the 1Q ‘18 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 IR website at investors.gds-services.com. Leading today’s call is Mr.
William Huang, GDS’s Founder, Chairman and CEO, who will provide an overview of our business strategy and performances. Mr.
Dan Newman, GDS’ CFO, will then review the financial and operating results. 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 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 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 GDS’s earnings press release and this conference call include discussions of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. GDS’s 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’s Founder, Chairman and CEO, William Huang. Please go ahead, William.
William Huang
Thank you, Laura. Hello, everyone.
This is William. Thank you for joining us on today’s call.
2018 has got up to a fine start. In the first quarter, we grew revenue and EBITDA by double digits and again raised our EBITDA margin.
This shows that we are delivering financial results. Growth starts with sales, and in this respect, we had another outstanding quarter.
In 1Q ‘18, we added over 20,000 square meters or 40 megawatts to our total area committed, a record level of new booking in a single quarter. 20,000 square meters is almost a 50% of what we did in the whole of last year.
This is the second consecutive quarter in which our new bookings reached this level. Furthermore, as we look forward, our sales momentum is continuing and we target to achieve a similar level of new bookings in the second quarter.
How are achieving this? To begin with, we are fortunate to operate in the market where the digital economy is booming.
Demand for high-performance data center capacity is accelerating, and it’s challenging to generate a new supply. It’s obvious now that cloud adoption in China is taking off.
AliCloud, the market leader, just reported another quarter of triple-digit growth. The upside is huge.
The cloud market in China is still only 10% of the U.S. China is at the forefront of AI technology.
It’s a major focus area for our largest customers and it’s already being deployed across their platforms. China will be at the forefront of 5G deployment next year.
Our customers are gearing up in anticipation. All of this is driving demand for high-performance data centers located at in Tier 1 market at the edge of the network.
As we always say, we serve the right customers. Today, we have an 80/20 split between cloud and the large internet, and FSI and large enterprises.
We believe that our cloud and the large Internet customers account for a very large part of market demand. That’s why 80%, 90% of our new business is coming from existing customers.
We are getting follow-on orders from them quarter after quarter. In 1Q ‘18, we got new business from three of our top customers, which comprise two Internet giants in China, plus a leading global cloud service providers.
We believe that that that is highly strategic to have these customers. They drive volume, scale economies, fill rates and technology.
And ultimately, they drive where the enterprise will go as well. We target to add more of these strategic accounts during this year, and the new wins are coming soon.
On the enterprise side, we are also getting frequently follow-on business and continue to make progress in adding new logos. In 1Q ‘18, we won expansion order from China’s largest and logistics company and from one of the largest global auto companies.
At the same time, we increased customer count by 37 year-on-year. In the long run, we believe that the Cloud PoPs in our data centers will be the main attraction for enterprise customers.
We are developing our CloudConnect hubs and will announce cloud products launch soon. Our customers remain firmly committed to the data center outsourcing Tier 1 markets.
Historically, the hyper-scale guys have outsourced almost all their requirement in these locations, and we are very confident this trend is going to continue. Our largest customers have highest visibility for their future requirements.
They are asking us to show them how we can fulfill increasing demand. At the same time, it’s becoming more and more difficult to source new projects in Tier 1 markets.
It requires larger sites and it requires the high power capacity, which is the biggest challenge of all. We recognized several years ago that maintaining continuous supply in all Tier 1 markets would be the critical success factors.
I’m, therefore, particularly pleased to report our progress in securing more resource. Let’s go to Slide 5.
We started this year with 24,000 square meters under construction. In Q1 ‘18, we initiated an additional 18,000 square meters across one new project in Shanghai, two new build-to-suit data centers in Hebei, and the upsizing of our project in Shenzhen.
Since the end of Q1 ’18, we have initiated another 20,000 square meters, consisting of two new projects in Beijing, where the market is particularly tight, another project in Shanghai, and the acquisition of a very large data center under construction in Guangzhou. As of today, we have over 60,000 square meters under construction.
Beyond these visible supply, we have over 100,000 square meter of next floor areas secured for future development. This consists of some existing building shelves, development agreements with property partners and a greenfield land which we own.
We also have a number of under high-potential projects which are closing to security. So how are we doing this?
Our resource strategy is very clear. We self-develop and we acquire projects at this construction stage.
We have large local teams in each market dedicated to finding qualified resource. This task cannot be centralized because you needed to know where to look, who to go to and how to navigate the local regulatory environment.
Our local teams are highly knowledge. Supporting this local presence, we have centralized data center’s design, procurement and construction management teams.
Over the years, they have accumulated a lot of experience evaluating multiple projects of many different kinds. They have the ability to quickly determining where a sites or building will make a good data center.
And as we put together the financial evaluation, we gain a valuable edge from the inputs of our sales teams, reflecting back what customers require. Our process and the decision making are robust and efficient.
Finally, we are able leverage our big-name customers to have deal with the challenges of obtaining power capacity. We also leverage industrial property owners to obtain power before we come in.
Our approach is to secure options on attractive sites while the landlord is pursuing the power. This approach paid us with the two new projects in Beijing, which we have just announced.
As our business has scaled up rapidly, we have successfully maintained a balance between customer commitments and the capacity. In fact, our commitment rates are now at the highest ever levels.
If there is no - if there is one thing that I would like you to take away from this discussion, it is that GDS has ability to capture higher and high levels of customer demand and to scale up our resource supply to fulfill it. With that, I will hand over the call to Dan for the financial and operating reviews.
Daniel Newman
Thank you. As William mentioned, in 1Q ’18, we achieved double-digit growth in total revenue and adjusted EBITDA, which was a good start to the year financially.
Let’s look more closely this on Slide 11, where we strip out the contribution from equipment sales and the effect of FX changes. In 1Q ‘18, our service revenue grew by 11.7% and our underlying adjusted EBITDA grew by 14.6% quarter-on-quarter.
Turning to Slide 12. The main driver of revenue growth in 1Q ‘18 was the 5,000 square meter increase in area utilized, which was in line with our expectations.
Monthly service revenue, or MSR per square meter, in 1Q ’18 was within the range, which we have seen over the multiple past quarters. Our per-square meter basis, selling prices is stable and the backlog is delivered.
We expect MSR per square meter to stay within the established range. As shown on Slide 13, profit margins are on an upward trend.
For now it’s mainly due to operating leverage on a corporate cost base. At the data center level, which is illustrated by NOI margins, there are two things going on.
Data centers are filling up and reaching optimal profit levels, which typically means an NOI margin of around 55%. At the same time, as we are in rapid expansion mode, new data centers keep coming into service, causing a temporary growth drag.
Slide 14 illustrates the breakdown of area and service between data centers which are stabilized and data centers which are ramping up. During 1Q ‘18, two data centers move across from the ramping up to the stabilized site.
Shenzhen 5 Phase 1 went from 74% to 100% utilized, and Beijing 3 went from 22% to 82% utilized. On the ramping-up side, three new data centers were added in 4Q ‘17 and one more in 1Q ‘18.
The three data centers which you see is single-digit utilization rates came into service just in the past few months. In 2Q ‘18, there will be three more data centers coming into service.
Which means that the drag on NOI margins will continue for a while. But again, this was fully factored into our guidance at the beginning of the year.
At the corporate level, on Slide 15, we continued to realize operating leverage on our SG&A. In 1Q ’18, this was sufficient to offset the growth track and raise the underlying adjusted EBITDA margin by nearly one percentage point.
If we factored in full delivery of the backlog, the current level of SG&A represents around 6% to 7% of service revenue. Turning to our CapEx on Slide 16.
Our run rate in 1Q ’18 were around RMB 800 million or $130 million to take us to the top end of our CapEx guidance for the full year. At the end of 1Q ‘18, the cost to complete all the projects initiated up until that date was around RMB 1.5 billion or $245 million.
On a square meter basis, unit development costs are stable at around $10,000 per square meter. The [Indiscernible] is gradually increasing the power density of new resource, the unit costs per kilowatt comes down.
This gives us the ability to share some cost efficiencies with our largest customers, whilst protecting our rate to return. We target to continuously lower development costs through design innovation and supply chain management.
We’ve got valuable input from our partner CyrusOne, and we are looking at how we can create more synergies in these areas. Now I’d like to update you briefly on the progress of our project development.
Shanghai 5 Phase 1, may not be appeared in the table on this page because it entered service in 1Q ‘18, it is 100% committed. Shenzhen 5 Phase 2 was upsized by around 2,850 square meters after we were able to secure a higher-power capacity.
There are chance of further upsizing of this data center. The anchored customer to Shenzhen 5 Phase 1 is likely to take the whole of Phase 2.
We are developing three build-to-suite data centers in Hebei Province for one of our largest customers. They are all 100% pre-committed.
We don’t currently have any other commitment outside of our Tier 1 markets. However, we will consider further opportunities like this if we can make economics work.
Shanghai 8 is a new project, which we announced on our last earnings call, is now almost 50% committed. The Guangzhou 3 acquisition has just closed and two new projects in Beijing will add significant capacity in that market.
We have a lot of demand for this new resource. Turning to Slide 17.
After completion of the follow-on equity offering in January, our cash position has risen to nearly RMB 3 billion or $480 million. Around RMB 900 million is allocated for completing all projects initiated up to the end of 1Q ’18.
The balance of RMB 2.1 billion is available for allocation to new projects, including those initiated in the current quarter and for working capital purposes. We continued to rely mainly on project finance to leverage our investments in individual data centers.
Typically, we target leverage at the data center level of 60% of total project cost. Once data centers are stabilized, this translates into around three times debt to data center EBITDA before allocating any corporate costs.
The projects are attracted to banks because of our track record, strong counterparties and long-term contracts. Our affected borrowing costs is now about 7%.
At the consolidated level, our capital structure reflects the combination of all these projects financings and the credit metrics have skewed by debt incurred to data centers, which is still ramping up or under construction. Turning to Slide 18.
At the end of 1Q ’18, our backlog have increased significantly from 40,000 square meters to almost 56,000 square meters, which is equivalent to 84% of our area utilized in the same date. Overall, we are fully on track to achieve our revenue and adjusted EBITDA guidance for this year.
Sales and resource development are running ahead of our business plan. The project timelines are still being finalized.
We can be more specific about our CapEx expectations when we report 2Q ’18 results. With that, I will end the formal part of our presentation.
We’d now like to open the call for questions. Ajay?
Operator
Certainly. Ladies and gentlemen, we will now begin the question-and-answer session.
[Operator Instructions] The first question comes from the line of Colin McCallum from Credit Suisse. Please go ahead.
Colin McCallum
Great. Thanks for the opportunity and well done on the growth figures.
Just two questions from me though. First of all, Can I just confirm, Dan, that you are just maintaining the guidance that you gave at the end of fourth quarter, both on the revenue side and the EBITDA side.
If I just confirm that, that would be helpful. And then the second question on EBITDA margin.
I realized that it’s kind of a flat for the last year a little bit by the termination fees, but just wondering is the margin a little bit light in the first quarter? Is that just a timing issue?
Or is there a real kind of increasing the rate and labor which has affected EBITDA margin on a more kind of structural level? If you can give us a bit of guidance on that, that would be helpful.
Thank you.
Daniel Newman
First of all, yes, I confirm that we are fully on track to achieve the revenue and adjusted EBITDA guidance, which we gave on our last earnings call. And as regard to EBITDA margin, I think our guidance implied an overall adjusted EBITDA margin for this year around 36%.
I’d say we are once again fully on track to achieve that. So, if you say a little bit like, but I can assure you it’s a timing issue fully in line with what we were expecting.
Colin McCallum
I mean, obviously it’s less than 36% in the first quarter, but my question is, is there a timing issue there, Dan? Is it just the time of things coming on stream in terms of the mix between completed data center to move under construction?
Is that what it is?
Daniel Newman
Yes. That’s why my discussion about the NOI margin, significant growth driver in the first quarter because it was the three data centers which we brought into service in the fourth quarter ’17, plus the one which we brought into service in the first quarter of this year.
And that will continue to a degree into the second quarter of this year, because as you can see, there is another three data centers to come into service in the second quarter. After that, we will have a lot of resource in service and it will enable us to deliver backlog.
So I think over the second half of the year, we should see a higher level of move in, higher level of increase in area utilized and the operating leverage should begin become greater.
Operator
The second question comes from the line of Gokul Hariharan from JPMorgan. Please go ahead.
Gokul Hariharan
My first question. You did allude to increasing difficulties in sourcing capacity especially at high power.
Could you talk a little bit about what is it doing to your cost - I think Dan mentioned that it is still at 10k per square meter right now in terms of per new capacity. Could you talk about what that would look like maybe in the next 1 or 2 years as you start to source even bigger projects?
Second is, I see that you guys are finally ramping up a meaningful capacity in Beijing next year. Could you talk a little bit about what is the competitive dynamics in Beijing given that it’s been a market where GDS has not been the early player compare to, say, Shanghai or Southern China?
Daniel Newman
I’ll take the first question and there are new significant inflation pressures in terms of materials or construction costs. We are seeing some increase in industrial property rental levels.
The attaining power is not a cost per se, and all we were discussing was the different approaches we’ve taken to solving that challenge, and net-net it’s probably a good thing because it creates a significant barrier to entry and barrier to increase supply for those who cannot overcome this challenge. On a per square meter basis, we just talk about unit costs in a per square meter basis.
I expect that it will remain around the level it is today, around $10,000. On a per kilowatt basis, it’s been coming down because we build at higher power density and we’ve been making gains in procurement and through purchasing power and through design standardization, and we’re still targeting to make significant further gains, very significant further gains, also through some design innovation.
So, on a per kilowatt basis, definitely our costs which, I guess, stays around $5,000 per kilowatt or $5 million per megawatt, on that basis we expect it to come down significantly over the next couple of years. But as power density increases, you see the same unit development cost in square meter basis.
And William will discuss the question about competitive dynamics in Beijing.
William Huang
I think yes, you are right. We have talked about that topic a couple of times.
We pay attention so that we can catch up with the market share in Beijing. And I think currently with this year, we will deliver on this promise.
I think in Beijing, most of the competitors in China allow them compare their Beijing market - and that’s. Since they are [indiscernible], I think we manage our -- from sourcing point of view, I think we leverage our GDS brand name, and we see that a lot of landlords, when if they have a project to sell or rent to the right customer, GDS is at the top of their list.
And they believe GDS. They trust GDS.
They believe GDS has the credibility and the ability to deliver what they commit. So I think currently in Beijing sales is not our issue.
We can compete with any competitor if we have the resource. So in Beijing, the race is its capacity.
So we are catching up there. In the recent couple of quarters, I think GDS got a lot of deals to overtake all our competitors.
Daniel Newman
The data center what we call Beijing 4, that’s part of essentially located, and our intention is to position that for enterprise and SME customers. Frankly, in the past when we have done that, we’ve been overtaken by demand and allocated it to cloud and Internet, but that’s how we intent to position that.
So if we want to be pursuing pre-commitment, that situation arises again. For the data center we call Beijing 5 Phase 1, as always, it’s almost, I would say, 100% fully allocated to certain customers already.
And we are in a good position, frankly, to source some additional capacity in Beijing.
Gokul Hariharan
Okay. Thank you on that.
Just one question. Now that we're getting closer to the Hebei project entering into service, could you talk a little bit about how quick the ramp-up is likely to be -- even your pre-commitment is already 100% for pretty much all three phases.
How quick is this ramp likely to be? Is it going to be significantly faster than the typical ramps that you’ve seen given customer demand has been much higher in that particular data center?
Daniel Newman
Yeah, these are build-to-suit for a particular customer. The first one, Hebei 1, will come into service very soon in this quarter and the next two Hebei 2 and 3 will come into service in the following quarter.
The customer contract provides flexibility for the customer to move in, so it's the normal arrangement. But that's something which is fully factored into our project evaluation and our return calculations.
I mean, if they’re moving faster, it’s better. If they’re moving slower, it is in line with our base case.
So that - obviously, that’s the flexibility which they value and which we provide. So I can’t commit them to a certain moving rate.
William Huang
Yeah, I’ll try to add more color. We never expected customer moving real fast.
But if they’re moving faster, it’s upside, right? And on the other hand what we can see is the trends are adding call, grows very, very fast.
So we hope it will give us more assign in the future.
Daniel Newman
Some of those are happening. So Beijing 3 is one of the Internet giant that went from 0 to 82% utilized in six months and Shenzhen 5 Phase 1, which is another of the Internet giants, that went from 0 to 100% utilized in nine months.
William Huang
Yeah. I can say because they can’t see the market trend there, they grow very fast.
But I cannot say in particular regarding a target and its moving schedule.
Gokul Hariharan
Okay. Got it.
That's very clear. Thank you.
Operator
The next question comes from the line of Jonathan Atkin from RBC Capital Markets. Please go ahead.
Jonathan Atkin
Thank you. Good evening.
I was interested in a couple of things. One is the Guangzhou 3 acquisition and any way to sort of quantify the contribution to revenues and EBITDA over time.
Is that entirely going to be in 2019? Or what are the impacts on 2018?
And then on a broader topic, just what is the opportunity sets for further acquisitions of that type going forward? Thank you.
Daniel Newman
Hi, Jon. Guangzhou 3 was a fantastic acquisition.
It’s a very large data center, but there is history behind it. When we acquired Guangzhou 1 data center, there was a commitment to a large customer to provide expand capacity, which we had to assign back to the vendor and the vendor then developed his subsequent data center we call Guangzhou 3 and ended up being scaled in a much larger size than have been anticipated by the contracts 2 to 3 years ago.
The first phase is complete and customers will start to move in before we end this quarter. So it will make some revenue and EBITDA contribution.
Of course it has to reach certain level of utilization before the data center EBITDA is positive. But that was factored into our guidance, because I didn’t say when I gave the guidance, there was one M&A deal and this was is.
And the size of Guangzhou 3 significantly increases our presence in Guangzhou market. So I think it’s very positive in terms of our ability to win more new business over this year for the remaining phases.
In terms of other acquisition opportunities, yes, there are quite a number, and I commented on the last earnings call, data center market is attracting investment quite often from local entrepreneurs, people who had some knowledge or association with the data center industry to one degree of separation, construction or IT or equipment vendors. So their objective is to realize the development profit.
And we feel that we can justify paying them a small premium. And the Guangzhou 3 acquisitions once again was on a cap rate implied by the pricing for the first phase customer contract of 13% to 14%.
William Huang
I think the acquisition strategy, the market is hot. So a lot of capital compete.
What we can see there in the last couple of years is a lot of the positive players to invest in one or two projects. A builder never thinks about operation - we will operate it.
So their purpose is to build a project and sell to operators like us. So we can see a lot of top line is coming right now.
But we will carefully manage it, which we want. I think we know what we want.
Not every project we get we like. Our acquisitions is our core strategy to apply nice project in a very, very good location.
So we can have advantage, their design and construction, everything. So I think there again a lot potential acquisition is coming.
Jonathan Atkin
So two quick ones. On the cadence throughout the quarter for margin growth, you talked about some further expansion drag during 2Q and then were operating leverage in the second half of the year.
Should we be thinking about second quarter EBITDA margin been essentially the same as what you just reported or up slightly or down slightly? And then more of an operational question switching topics here.
You talked about high power density for your - demanded by your customers. Do you find that your competitors, including companies like China Telecom, are responding to the high power density requirements?
Or is that something more unique to GDS? Thank you.
Daniel Newman
On the first question, John, I think, yes, the second quarter will be positive progress versus the first quarter, but I think the progress will be greater in the second half of the year. And on the question about power density, I guess maybe, put a different way, are other people building the power densities that we are building, are people building 2, 2.5 kilowatts per square meter.
I think John was asking are other competitor building 2 to 2.5 kilowatt per square meter of power density. New telecom carriers there.
William Huang
Yes, you are right. GDS has a customer profile with most being big customers that use the high power density.
So it’s not that every data center they are targeting those kind of strategic customer. So I think the GDS, a lot of the players in the market, I mean they still build some low density, but high power density is the trend.
Operator
The next question comes from the line of Robert Gutman from Guggenheim Partners. Please go ahead.
Robert Gutman
Hi, thanks for taking my question. So this was the largest quarter in net increase in area committed, but it’s been accelerating consistently for the past since 4Q ‘16.
I was just wondering if you could talk about your expectations looking forward the pace of how this develops through the year.
William Huang
As I just mentioned, in the first quarter we delivered 50% growth from the full year of last year. The original CapEx guidance Dan gave was 45,000 square meter this year…
Daniel Newman
About 40,000
William Huang
About 40,000, yes. So in Q1 we completed almost 50% of the total year target.
That’s what we can see the market, it is accelerating, so we believe there is a high probability that we will accelerate this number compared with the guidance.
Daniel Newman
Yeah, if I can add, prepared remarks said that we target to achieve something similar in second quarter. So that would imply that by the middle of the year we should be close to or around the level we achieved last year.
I don’t want to get ahead of ourselves. We roughly take this quarter-by-quarter.
But certainly the pipeline on the demand side is there, and as we’ve probably explained in great length, we’ve got the resource supply. And I think we set back and think about in terms of what’s happening technology in AI and 5G in China.
These are such great focus area. I think that the chance of this being sustained or even higher is there.
Robert Gutman
Great. Thank you.
Operator
The next question comes from the line of Colby Synesael from Cowen and Company. Please go ahead.
Colby Synesael
Hi, great. Thank you.
Two questions if I may. First off, CyrusOne on their earnings call noted that they're working on approximately 15 deals currently with GDS.
I was wondering if you could just provide an update from your perspective on those deals and what you're seeing and what the opportunity is. And then secondly.
You mentioned in your prepared remarks that you're working on a Cloud Connect hub product, which you’ll announce soon. Just curious if you can just give us a little bit more color on: How you're thinking about that?
How would you go about monetizing that? And how big of an opportunity are focused strategically is that to the company as we go forward?
Thank you.
William Huang
Yeah. We kicked off to work together after CyrusOne became our shareholder, and we kept working on referring customers to each other.
Sales lead time is long, so I will always say, some big deal is cooking. It’s cooking right now on both sides, not just because we push some big customers to CyrusOne, they also push some meaningful customers to us or help us to, let’s say, strengthen our relationship with our existing customers.
So the result will be coming soon. I think maybe in the next earnings call we will see some early result.
So this is from the customer side. We’re also working on some program to try to manage our vendors together and to try to leverage our incremental scale, data center contracting scale, to reduce some of our costs.
But the further step is to understand the architecture and to standardize both sides, some module, some component. This is in progress.
So when the first step moves foward, there we will go to the next step to reduce our procurement costs. So that’s our target, and we have a very aggressive plan to work together right now.
William Huang
About Cloud Connect, actually we already start to the launch the product and the test of the product since last year and we will officially announce the product in the next few months. We are preparing that.
We have almost completed pretest in the market. So I think the good news is coming.
Daniel Newman
Yeah, Colby, I think it’s too early for us to talk about how we monetize in terms of identifiable revenue, but yes I would say that strategically this is very important to us. And in a long term, we expect the enterprise part of our business to be a higher percentage, higher proportion than it is today.
I mean don’t forget. We came from 100% enterprise and we’ve gone to 20%.
We believe the presence of all these cloud thought, we call [indiscernible] in our data centers is unique value proposition, which we can capture through the hubs. And if it enables us to drive a higher proportion of enterprise business even without charging for it, that will raise our returns and raise our margins and so on.
So the benefit could be a significant benefit simply through the customer mix and without being any separately identifiable, separately build in revenue stream.
Operator
The next question comes from the line of Frank Louthan from Raymond James. Please go ahead.
Frank Louthan
I apologize if this already got covered. But give us some color on how many new logos you added in the quarter.
How is growth there? And then talk to us a little bit about costs per building.
Are you seeing any material pressure on pricing for the construction data centers from labor or raw material relative to the last 12 months? Thanks.
Daniel Newman
Yes. Frank, it’s Dan here.
We’re adding something like 25, 30 new customers, first-time customers per quarter. That’s been the rate actually pretty steady for one or two years now for eight quarters.
So the enterprise customer account numbers are going up. And our strategy is to attract some established relationships with customers we think are valuable.
We’re putting a lot more emphasis on customer account number than we are on the revenue or the proportion that comes from that business. I mean it starts with the relationship.
William Huang
I think in general we are still targeting to increase our customers account number at least 25% every year. So I think Q1 is on track.
Daniel Newman
On the development costs, I think what you’re referring to as I listen to our U.S. calls, you we’re not experiencing inflation that they refer to.
Either their material costs or construction or labor, the only thing that that actually refer to earlier is that there is industrial property prices in China. We’re going up.
But I think somebody once said, the real estate is never expensive for data center company because it’s not such a large portion of our cost structure. Same time, any projects a little further out on the whole, then the projects we done before.
So in those areas, industrial land prices may be a little bit lower. So it’s not a significant impact on us so far.
Operator
There are no further questions. I would like to turn the call back to the company for closing remarks.
Laura Chen
Thank you all 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.
Thank you all.
Operator
Ladies and gentlemen, this does conclude your conference for today. You may now disconnect your lines.
Thank you.