Mar 11, 2021
Operator
Hello, ladies and gentlemen, thank you for standing by for GDS Holdings Limited’s Fourth Quarter and Full Year 2020 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.
Laura Chen
Thank you. Hello everyone and welcome to 4Q and full year '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’s Founder, Chairman and CEO, who will provide an overview of our business strategy and performance.
Mr. Dan Newman, GDS’s 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 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 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.
GDS has been on an extraordinary journey for the past five years. The data center market in China has grown beyond imagination.
As digitalization took off, our growth trajectory has been unprecedented in the data center world. We have become the clear market leader reaching a scale which is a multiple times bigger than our closer competitors.
We have the best customer relationships, the most compete market presence, by far the largest development pipeline, the strongest the balance sheet, the lowest cost of capital and most important of all, an unmatched reputation, which reflects many years of consistent delivery and a high operating standards. As we look forward from today, we see wave after wave incremental demand driven by new technologies such as 5G, AI, cloud and IoT supported by a highly favorable government's policies.
The market opportunity in front of us is inconceivable. While others are just waking up, we are moving rapidly ahead to reinforce our market position by innovating with products and business models, deepening our strategic customer relationships, adding substantially to our pipeline of scarce resources in killer markets, enhancing our platform by entering new markets in China and overseas, seizing opportunities to further consolidate the market and ground breaking green initiatives.
We have only just the beginning to reap the rewards of our past efforts. 2021 will mark our 20th anniversary.
For me for me personally, GDS is still at an early stage of development. And over the next few years, we will take the business to another level.
Despite the difficult operating environment last year, we made a tremendous progress over the past year across every aspect of our business and have met or exceeded our expectations. First of all, we beat our sales target adding over 136,000 square meters or 271 megawatts of new customer commitments.
We expanded our data center capacity in line with sales adding nearly 140,000 square meters in service and under construction. We added significantly to our development pipeline, ending the year with 480,000 square meters secured for future development.
We started our M&A activities closing four deals with over 50,000 square meters of capacity. We grew revenue by 39.2% and adjusted EBITDA by 47.0% year-over-year.
Our adjusted EBITDA margin came off nearly 2.5 percentage points high as 46.7%. We raised $2.4 billion of equity and successfully completed our Hong Kong IPO.
Turning to our sales achievement on Slide 6, at the beginning of the year, we targeted 80,000 square meters of organic net add plus 20,000 square meters from acquisitions pending closing. We over delivered by a big margin, achieving 108,000 square meters of organic net added, including 14,000 square meter from B-O-T projects, and nearly 28,000 square meters from M&A.
Looking forward to 2021 we believe that the current level of organic booking is sustainable, at around 90,000 square meters to 100,000 square meters of net add. Excluding B-O-T data centers for the M&A part, we already have over 19,000 square meters net added in progress from the Beijing 15 acquisition, which is pending closing and we aim to close more deals this year.
Turning to Slide 7, every quarter a handful of hyperscale orders account for a large part of our sales. These must win deals are typically major deployments at our edge-of-town campus.
Hyperscale customers look to land and expand in key locations. For cloud the service providers, these locations are often configured as increased availability soon, which are critical to their IT architecture.
We are very strategic in targeting the first piece of business when customers deployed to new area. We have succeeded many times in attracting hyperscale customers to establish an initial presence on our sites.
It requires close collaboration with customers, the right resource wherever they are going and undoubted reputations for delivery and operations. As a result of winning the first deployment, we have high visibility for a substantial amount of new business in 2021 and beyond as customers deploy additional phase on our sights.
Turning to Slide 8, while we maintain great relationships with our top customers, our customer base now extended to almost all of the high growth hyperscale names in China. We had an exciting breakthrough last year, and we are working on more.
The growth potential of some of our newer customers is extraordinary. We are highly focused on deepening these relationships.
And there are significantly new business opportunities in the pipeline. We have established a high level of trust with our customers, provided we have the right resource, we have an edge in winning new business.
In the eyes of our customers, GDS is not just an asset player, but a total solution provider. We have built our platform to mirror our customers' requirements and a market presence.
This fundamentally differentiates us from other players. Turning to the Slide 12, it is clear that customers must continue to locate their mission critical latency sensitive data center in Tier 1 markets.
Customers' target less than 5 milliseconds latency to core network nodes and between AZs, which impose a distance limited of up to 100 kilometers around that urban center. It is also clear from years of government policy that the supply of a suitable land and power in Tier 1 markets will remain limited not just in the urban areas, but also in the surrounding edge-of-town locations.
We recognized this years ago and made a huge efforts to secure sufficient resource to underpin our growth in all Tier 1 markets. As at the end of the 2020, we had secured 480,000 square meters of developable net floor area distributed across the key markets.
Most of it is land which we have purchased from the local government, together with an allocation of power. It is a very valuable asset and another fast which set GDS apart.
We are not stopping at the current level. We have some big land deals in the pipeline and will further strengthen our position.
Sustainability is an integral part of our resource strategy. The whole of China is grappling with this and it is not an easy problem to solve.
We are working on a range of innovative solutions to solve as much green power as we can. We are doing green power trading wherever possible and purchasing green certificates.
We are also working with partners to evaluate co-investing in green power projects directly in the future. In 2020, over 20% of our total power consumption was green.
In 2021 this ratio will go materially higher. We aim to publish our first ESG report later this year.
We will set up targets and a roadmap, which are realistic and achievable based on deep analysis. In addition to the existing cable markets, we believe that some new Tier 1 markets will emerge in the next few years, particularly as a result of 5G and the need to push computing closer to the edge.
Chongqing is an example. It has been on our radar for a while.
We bought land there early last year. We are now building our first data center on the site, backed up with an anchor order in 1Q '21.
We're looking at other emerging Tier 1 markets driven by customer demand. Over the next five years, we could enter 10 new markets in China.
Turning to the Slide 14, over the past few years, an increasing number of data center projects have been started by independent developers whose objective is to sell. As a result, we see a window of opportunity to consolidate the market.
We have an M&A track record like no other, having done 10 deals in the past five years. In 2020, we stepped up our efforts.
We previously announced the SH19 and BJ15 acquisitions. Today, we are announcing two new deals.
Both of them are data centers under construction, but not yet committed by customers. They will give us highly marketable resource in their respective markets.
We are paying a relatively small premium to organic build cost. We have a variety of M&A opportunities on our radar screen, some of which are sizeable.
Turning to Slide 15, a foundation of our strategy is to be a total solution provider to the leading Chinese customers wherever they have critical mass of demand. Our customers see a lot of value in working with a partner who understands their ecosystem.
The same logic which takes us to new markets in China, leads us to look at expanding overseas. Hong Kong is a start point outside mainland China.
We currently have two major projects, the first of which is expected to come into service in 2022. We have recently secured anchor orders for HK1 which we will announce in the next few months.
The China cloud and internet giants have big ambitions in South East Asia, both directly through their core platforms and indirectly through their strategic investments. Take AliCloud as an example, they already have three AZs in Singapore, two in Malaysia, and two in Indonesia.
Singapore is a well-established hub for South East Asia and a Global Tier 1 data center market. In recent years, we believe that a large part of incremental demand in Singapore has come from our home market customers.
For the time being, the Singapore government has suspended data center project approvals, while new policies are developed around land and power allocation. It is uncertain whether Singapore, given its resource constraints, will choose to open the door wide for extensive hyperscale development.
The adjacent markets in Malaysia and Indonesia are less developed than Singapore but have high growth potential. We believe that Chinese customer demand will be a critical success factor in these countries as well.
We have established a picture of demand from our home market customers. They have repeatedly requested us to establish a presence.
We are actively pursuing opportunities with existing assets in Singapore, as well as getting positioned for when approvals restart. We have also entered into discussions with a number of potential local partners who have projects at various stages of development in Malaysia and Indonesia.
We believe that expansion into South East Asia is strategically important and that we can capture several hundred megawatts of new business over the next five years. We are moving ahead in a very careful and deliberate way.
We aim to announce several new commitments in South East Asia over the course of this year. To conclude my section, GDS is head and shoulders above everyone else in the China market.
This is a matter of fact. With what I told you today about the market opportunity in front of us, our strategic positioning and our competitive advantages, we believe that the gap is only going to get bigger.
Now I will hand over to Dan for the financial and operating review.
Dan Newman
Thank you, William. Starting on Slide 18 where we strip out the contribution from equipment sales and the effect of FX changes.
In 4Q '20, our service revenue grew by 6.9%. Underlying adjusted gross profit grew by 7.5%.
And underlying adjusted EBITDA grew by 6.2% quarter-on-quarter. Our underlying adjusted EBITDA margin was 46.8%.
Turning to Slide 19, service revenue growth is driven mainly by delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 4Q '20 was 16,461 square meters, consistent with the previous two quarters.
The first quarter of each year is usually slower due to Chinese New Year. Nonetheless, we expect move-in in 1Q '21 to be only a couple of thousand square meters down on the prior quarters level.
Given the timing of capacity increases, as shown on Slide 23, we are forecasting move-in over the course of 2021 will be heavily weighted to the second half. Monthly service revenue, MSR declined 1.2% quarter on quarter in 4Q20 to RMB 2,489 per square meters per month.
As shown on the next slide, MSR for the whole of FY '20 was down 3.4% compared with FY '19. In FY '21, we expect a further low single digit decline.
To some extent MSR is a reflection of average selling prices. However, there are many other factors which affect MSR, including the customer mix, data center location, redundancy level, development cost and contract structure.
For example the move-in flexibility and who pays for the power. Rather than talk about MSR on a standalone basis, I would prefer to focus on margins and returns.
Turning to Slide 21, our underlying adjusted gross profit margin was 53.7% for 4Q '20 and the same number for the full year, a near 1 percentage point improvement versus FY '19. We calculate adjusted gross profit yield to enable investors to keep track of our returns in a simple way.
It is a proxy for cash-on-cash returns. We divide adjusted gross profit for the year by the average gross amount invested, excluding assets or land under construction or held for future development.
Gross amount invested includes the goodwill for all of our acquisitions. For FY '20, the adjusted gross profit yield was 13.3%, which compares with 13.6% for the previous year.
This was achieved with an average utilization rate of 70.1%, not materially different from FY '19. Our commitment rate for area in service is 94.3%.
When the utilization rates catch up to the commitment level yields can climb to the high teens. As you can see, we have sustained returns across our portfolio.
Turning to Slide 22, our adjusted EBITDA margin had a slight dip in 4Q '20, mainly due to one-off expenses related to Hong Kong IPO events. For the full year, adjusted EBITDA margin was up 2.5 percentage points.
Very approximately, we estimate that a 0.5 percentage point improvement was due to net positive impact on costs of COVID. For FY '21, we aim for about 1 percentage point of further margin expansion.
Turning to Slide 24, our CapEx for FY '20 was RMB9.4 billion, a little bit less than what we guided due to timing of CapEx payments. RMB9.4 billion includes 6 billion of organic CapEx, 1.5 billion of land and property purchases, and 1.4billion of acquisition consideration.
In 4Q '20, we paid RMB413 million of acquisition consideration, mainly related to the Beijing 9 and Shanghai 19 deals. We expect our CapEx for FY '21 to be around RMB12 billion, including an estimated 3.7 billion of consideration for the Beijing 15 acquisition and the two acquisitions announced today, assuming that they all close this year.
With respect to CapEx guidance, we can only include acquisitions to the extent that we have bottom up knowledge. However, it is quite possible that there could be more M&A this year which is not reflected in our guidance.
Part of our CapEx in FY '20 and FY '21 relates to organic projects which we build to suit for customers under Build-Operate-Transfer or B-O-T contracts. There are different financial approaches to undertaking these projects.
Previously, we sought to minimize our equity investment and maximize management fees. Now our preference is to invest more of own capital, but to leverage it with lower cost debt.
This approach gives us a reasonable risk-adjusted return on equity. We therefore decided to keep on our balance sheet two B-O-T projects which we began constructing in 3Q '20.
Accordingly, we made some minor revisions to include these projects in our core KPIs starting from 3Q '20 KPIs. We still have a further nine B-O-T projects which we may partner with GIC, but retaining a higher percentage of equity ownership.
We will update you about these 9 in the next one or two quarters. Looking at our financing position on Slide 25, we have RMB16.3 billion of cash on our balance sheet and our net debt to EBITDA ratio is 2.2 times.
Given our on-going levels or organic CapEx and assuming the Beijing 15 acquisition closes shortly, this ratio will go back up to 4 to 5 times over the next few quarters. Turning to Slide 26, during FY '20, we completed debt financings with a total facility amount of RMB16 billion equivalent to $2.4billion, including both new project financing and refinancing of existing facilities.
We made significant progress increasing the tenor of our facilities and lowering the interest rate margin. This is best illustrated by comparing the terms for four facilities refinanced in FY '20 versus the original terms.
The new facilities have tenors of eight to 15 years, compared with five to seven years for the previous facilities. Similarly, the new facilities have interest margins of minus 15 to plus 50 basis points, compared with plus 120 to plus 270 basis points for the previous facilities.
These improvements reflect the strength and track record of GDS, as well as increased appetite for data center exposure from the banking sector. In FY '21, we anticipate doing about RMB15 billion equivalent to $2.3 billion of debt financing, including an aggressive refinance plan.
Refi involve some one-time costs which will impact our effective interest rate in the first two or three quarters of this year. We should then see a drop.
Most of our renminbi denominated debt is floating rate, priced relative to the over five year loan prime rate or LPR. This reference rate currently stands at 4.65%.
It is very stable. In fact, it has hardly changed in the past five years.
What tends to happen when there is a tightening in the credit markets is that banks prioritize lending to favored areas, of which new infrastructure, such as data centers, is definitely one. We are confident of achieving all of our debt financing goals.
Finishing on Slide 28with our guidance, for the full year of 2021, we expect total revenues to be between RMB7.7 billion and RMB8 billion, implying a year-on-year increase of between approximately 34.2% to 39.4% and adjusted EBITDA to be between RMB3.66 billion to RMB3.8 billion, implying a year-on-year increase of between approximately 36.5% to 41.8%. In addition, we expect FY '21 CapEx to be around RMB 12billion.
We would now like to open the call to questions. Operator?
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
[Operator Instructions] Our first question comes from Yang Liu at Morgan Stanley. Please go ahead.
Yang Liu
Thanks for the opportunity to ask questions. I have one question on the competition.
Could management update in terms of the competitive dynamic in China market? Do you feel that the competition is getting more intensified compared with three or four months ago with the pricing return pressure or what does GDS do to defend what is our key customers, when the peers are chasing them aggressively?
Thank you.
William Huang
Okay, good morning Yang Liu. First of all, I think the answer is, in general, I think that nothing changed in terms of – compared with the last couple of years, we didn't see GDS position in the market will be changed.
So our position is very solid. In terms of our platform, we are the only platform player in the market still.
There's no platform player in the market, as we mentioned in the last couple of their earnings call does not change. And the competitor in a – or the regional player are project player, so platform is very valuable for our key customers is number one.
Number two, I think our position in our customer is very different then other follower. Our position is very solid, and in our customers eyes GDS very, very reliable platform.
So this will empower their business in the past, even in the future. We are the only reliable platform in our key customer eyes.
So what I can see here is, of course, a lot of the – because the market is booming a lot of the new player in the market, even a lot of the data center – established data center player. The competition between them looks like more stronger than before, but not reflected to us.
So in terms of the price and return, I would like to say the price is – it's very difficult to talk about the price as we mentioned last a couple of times. We have pursued the project return.
I would like to say in our future project return where we maintain what we talked about before. So in general would not impact our project return.
Yang Liu
Thank you. If I may have another question, so that we have a new financial metric underlying adjusted GP.
Should I assume that it is almost the same with – or why we have been using for past three years?
Dan Newman
Yeah, the short answer is, it is exactly the same. It is a different name.
And maybe it's a little bit simpler because gross profit is a standard accounting line item and adjusted gross profit just needs to be reconciled to gross profit. So presentationally I think it's a little simpler.
But the number itself is exactly the same. Yes.
Operator
Thank you. Our next question comes from Jonathan Atkin at RBC Capital Markets.
Please go ahead.
Jonathan Atkin
Thanks very much. So I was interested in the slide that talks about your largest orders in Q4.
And two of those contracts commenced already, essentially. So that was a very fast turnaround between contract signing and contract commencement.
And then the other two are fairly far out. They appear to be built to suits.
But can you talk a little bit about the nature of the customer demand that you're seeing that similarly balanced between what appear to be immediate needs and then needs that are kind of cloud? My second question relates to CapEx and I wondered if there's any trend that you're seeing in your business around the build cost – construction cost per megawatts of IT capacity?
Is that trended differently recently? Or is there any chance that that could decline over time?
Thank you.
Dan Newman
Yeah, Jon I answered first question, we highlighted four hyperscale deals. The first one we acquired a data center in Shanghai as one of those projects that was undertaken by independent developer.
And after we acquired it, we were able to move forward with the customer contracts. So that's why there appears to be a short time lag.
The second one, which also appears short is Beijing 7, but in this case, is an existing data center, it was already roughly speaking half committed to customers, and this was a – not the first order for the data center. This was the – an order that took up most of the remaining capacity.
Once again, that's why there seems to be a relatively short time period, because it was an order for an existing data center. The other two hyperscale orders in Langfang and Huizhou, yes, they both involve, in one case, greenfield assets, in other cases, so conversion, but it's an early pre-commitment, right at the very beginning of the project.
Sorry Jon, can you repeat the second question?
Jonathan Atkin
Planning in China, I wondered if you're seeing that what the reasons might be or if you're not seeing that at all.
Dan Newman
I'm sorry, I couldn't hear it clearly.
Jonathan Atkin
Construction cost per megawatt.
Dan Newman
Construct?
Jonathan Atkin
Yeah. So construction cost per megawatts of IP capacity.
Has that trended differently?
Dan Newman
Yeah. Sorry, I couldn't hear it clear.
The trend construction cost has been that we are we able to keep achieving cost reductions through a variety of ways. Some of it is simply scale and procurement.
Some of it is through supply chain management. Some of it is through the way in which we approach the construction in terms of the phasing and modularity and off site prefab and so on.
And some of the practice is by setting up projects which had the most optimal cost due to location, due to the proximity of power infrastructure, due to the ability to leverage existing substations and so on. The gains year-on-year are small percentage gains, but they are continuous.
And looking forward, we continue to see opportunities to continue that. So we expect actually for quite a few years to come to be able to lower our unit development costs by small increments year-on-year.
Jonathan Atkin
Thank you.
Operator
Thank you. [Operator Instructions] Thank you.
Our next question comes from Colby Synesael at Cowen and Company. Please go ahead.
Unidentified Analyst
Hi, this is Michael on for Colby. Two questions, if I may.
First, it appears you restated your area under construction and a few other KPIs in the third quarter to include the B-O-T data centers. Just to be clear, this is because you intend to retain 100% ownership of those assets?
And if so, what drove the change versus your prior view? And then my second question is, based on the conversations you're having in the markets outside of China, which you intend to expand which market would you expect to have a footprint in first?
And what would you consider to be a reasonable timeline for having a data center up and running there? Thank you.
Dan Newman
Mike on the first part of your question, we did previously disclose the existence of these projects. We had a category we called manage BTS data centers in that category, we grouped them for projects relating to customer one, projects related to customer two, projects relating to customer three.
There was one project relating to customer two and one project relating to customer three, so they were just single data centers on this site. And we decided because of the situation, that it would be more optimal for us to undertake those ourselves in the usual way.
And therefore, we moved them from the category of what we call managed BTS data centers, and then included them in our KPIs, just as we would with any other self developed data center, but we do identify in the detail breakdown in the appendix to our presentation, which are the B-O-T projects so that it's clear for all to see. More generally, with regard to B-O-T projects, it is becoming quite popular or quite – we've seen more of the large cloud and internet companies in China experimenting with this approach for development on their campuses in remote areas.
There is a situation where they clearly have the option to self build, right, because typically, it's their campus and there's no barrier in terms of land and power, but they still see advantage in outsourcing. But the terms of outsourcing are quite different.
From our perspective it's not the core strategic focus, but it is adjacent part of our business. And I think we will be flexible about how we approach it.
In the past, we have done some on balance sheet, and we put about 80% leverage on the projects and the return on equity to us was quite acceptable. And I think going forward we will do some that way.
We'll do some where we have majority and maybe we'll do some where we have a minority or even just purely a management fee. I think the market will call for a wider variety of business models and certainly as regards these projects outside of the core markets we will be – adopt a variety of different approaches.
William do you want answer the second part of the question.
William Huang
Yeah, I think the overseas strategy, as I just mentioned, the first appointment is a start point in the Hong Kong, right. We are really developed Hong Kong, the two projects in the development.
So the next step obviously is the Southeast Asia. In Southeast Asia, the top three countries in our radar screen is Singapore, Malaysia and Indonesia.
This three markets is in our view, in the next five years, the demand from China will be a few 100 megawatts. So we have tried to catch up this wave, but potentially, I think in Southeast Asia is a high potential market where we go to – our current strategies that we had to set up our presence there, but it's for the simplistic reason.
But if you look at the current Southeast Asia market is very – looks like, very similar like eight years and 10 years ago, the market in China. So we are willing to step in and build our data center position – our position there and to catch up in the future high growth.
This is our current goal. So we will – maybe we'll open up with – maybe the first project will be in simple, maybe in Malaysia or Indonesia.
So we will give you the clear answer in the near future.
Operator
Thank you. Our next question comes from Tina Hou at Goldman Sachs.
Please go ahead.
Tina Hou
Hi, thank you very much for your time management. So yeah, my question is also related to the Southeast Asia expansion strategy.
Wondering what kind of differences in terms of revenue as well as return in these potential Southeast Asia projects? And how that may impact our P&L in the future?
And when do you see the first project to start contributing our revenue to our P&L as well? Thank you.
William Huang
I think it's too early – it's too early to talk about the revenue because what we – in the next five years, I don't think it will impact a lot in our revenue because our presence or the guidance or the development is still – we are still in China because China is still big market. So as I just mentioned, Southeast Asia in our view is a strategic, but have we not calculated any number in our P&L right now.
I think maybe when the project's coming. We will talk about that.
Operator
Our next question comes from Gokul Hariharan at JP Morgan. Please go ahead.
Gokul Hariharan
Thank you. So could you talk a little bit about what are we seeing from a national government policy in China regarding energy efficiency, pollution control, et cetera, given some of the bigger commitments on climate change?
Could you – I know that GDS would be publishing the ESG report this year. But could we start talking a little bit about what are we seeing from a PUE perspective, especially for some of the newer edge-of-town projects and what GDS has been able to do along with customers on this front?
Second question is on M&A. Seems like M&A is now becoming a much bigger part of pipeline as evidenced by last year.
If we think about the next two to three years, should we assume that M&A becomes probably much bigger part than even last year? Last year I think it was about 20% of the total pipeline build.
Should we think that M&A would be a much bigger part of the pipeline if we think over the next two to three years?
Dan Newman
William do you want to address the question about government policy?
William Huang
I think the ESG is a – it's a very hot topic right now in Greater China, including Hong Kong or Mainland China. I think this is definitely the trend that the government encourages the green power right and also we call it having carbon neutral, right.
So GDS already start to prepare for this for about a couple of years. So as I just mentioned 20% of our data center already green, right, green energy.
So we will – government policy – from the policy point of view I think in general still under development right now, we didn't see any official enforcement policy right now. But of course, the immediate impact is as I mentioned, in the carbon corridor in the civil market, especially also in some cable market will be getting.
It's easy to see it will control more tight in the future. This is what we can see what's the impact.
Yeah.
Dan Newman
I'll answer the question about M&A. The main driver of our business for the foreseeable future is going to be organic development in Tier 1 markets.
But having said that, I mean, we clearly see an opportunity right now and the next few years to consolidate the market. There's been a lot of new entrance, a lot of development by independent developers.
And that's what creates the pipeline and the opportunity to consolidate. We believe that we have significant competitive advantage in terms of M&A and in terms of the capability and experience of our team, the methodology that we developed, the deals we've done since 2016, financing capacity, the ability to conduct technical due diligence and we find that sellers, when you engage with sellers, always top of their mind is if they engage with a potential buyer, they want to know, is that buyer going to get to the finishing line, right?
I think buyers – sorry, sellers have a lot of confidence when they engage with GDS, because of our track record. People ask about data center M&A in China, but I think most of it is being done by us.
I'm not aware of many M&A deals are being done by others. So we are the major force in data center M&A in China.
Question about how much of this could there be? And frankly, we don't have a quota.
We don't look at it like that. There's really two different types of deals.
One type which I call kind of flow deal is the kind of 5,000 to 10,000 square meter data center typically that kind of perhaps single data center on its site. It could be purely capacity, like the two deals we announced today Shenzhen 8 and Shenzhen 1 or it could be capacity with some customer commitment either there or coming with our acquisition, like in the case of Shanghai 19.
So there's a steady pipeline of those kind of deals. And the acquisition loss was not increased.
We can still do these deals paying relatively small premium organic cost. So if we – we look at – we count in terms of our metrics based on when deals close.
So we do two of those comes to maybe 15,000 square meters, we do three it comes to something over 20,000 square meters. The other kind of deal, which is harder to predict is a more sizable one, say 20,000 square meters and upwards.
We've done two or three depending on how you categorize those. The Beijing 10, 11, 12 deal was 20,000 square meters.
The Beijing 15 deal is 20,000 square meters. If you call it M&A, there's the deal where we're partnering with CyrusOne [ph], which, by the way is now upgraded to 28,000 square meters.
These opportunities are scarce and hard to predict when they're going to come onto the market. If they are at a more advanced stage, have customer commitments, then there's likely to be more competition for those kinds of opportunities.
And that's where that's where multiples are probably gone up. But still, I think, reasonable and justifiable.
We have some opportunities like that in our pipeline, and it can be quite a big swing factor. It's a crystallize but I can't – I've want say an expectation on that.
But that's where that could – that could make quite a big difference. That's where we could go from having 20,000 or 30,000 square meters of acquisition that add a year to having something quite a bit more.
Operator
Our next question comes from Rob Palmisano at Raymond James. Please go ahead.
Rob Palmisano
Hey, guys, it's Rob on for Frank. I just wanted to follow up, sort of spoke to this earlier.
Can you talk about likely sources of capital for next year? And also, can you speak to your strict strategic relationship with CyrusOne going forward after they just recently monetized their investment in you guys?
Dan Newman
Yeah, Rob, we always tried to be – we have been fully financed, fully capitalized for a business plan, I think we're quite open about sharing what our business plan is. So I think, based on the comments William made about the expected level of organic net add of 90,000 to 100,000 square meters.
The fact we've got 120,000 square meter data center – acquisition already in the pipeline and potentially closing shortly, and hopefully other acquisitions that will close this year. IK mean that's the business plan, which I think everyone can see.
And we're well capitalized for that release for the next couple of years. We haven't factored in regionalization.
We haven't factored in M&A beyond the flow deals, as I've just described them. We haven't factored in a higher level of organic growth.
And to some degree, we haven't factored in, potentially bringing forwarded CapEx if we see opportunities to acquire land or buildings, which are kind of going to be opportunities that are kind of one time opportunities that you have to you have to grab when they're there otherwise they've gone forever. So if any of that materializes it's upside to our business base case and I believe it will be positive for our for our shareholders.
So the need for capital arises it will – it should be seen something – it'll be because of greater success. William, do you want to comment about the relationship with CyrusOne?
William Huang
Okay. I think in terms of the sales cooperation, we two maintain the sales cooperation relationship.
Because historically, they refer some deal and we are follow the deal. And they help us cover a couple of deal.
But since now, Chinese customer go to US, it's a slowdown. So they get a little limited benefit from us.
But I think the way I was relating still there, but today's current – our international team worked very closely with a different department. And to get – for example, last year, we got a larger deal from US – US based customer, let's say in China, so independently.
So we are not relying on them. Of course, I think they – but in some way work together with some deals still right.
Operator
Our next question comes from James Wang at UBS. Please go ahead.
James Wang
Good morning management. This is James Wang from UBS.
I've just got a few questions. First one is the follow up on the ESG report, so I'm just wondering, since Chinese government announced the carbon neutrality goal, whether your conversations with your largest cloud customers have changed and related to that, how does your current land held for development, future development, how much of that is renewable energy and whether you'll be able to increase the percentage of renewable energy usage for your pipeline of projects?
That's the first question. And the second question is on you expanding into really mentioned 10 different regions in China.
If I remember – for example, I also saw that you've recently got into Shenzhen and Chongqing. And if I remember correctly, in the past, for example, in the West, the utilization rate increase has been rubbed slow.
So I'm just wondering what you're seeing in terms of demand in these new regions, whether it's just – whether the situation's changed versus the past? Thank you.
William Huang
Dan, for the first question?
Dan Newman
Yeah, sorry, I'm in a different place. And William, I can't hear everything clearly.
But James, what I heard was you are asking about the development, what proportion of the power that includes that?
James Wang
Yeah. So for the – on the ESG front.
So conversations with a lot of our customers, whether it's changed, whether they're taking a more focused on renewable energy usage, and also on your land held for feature development, how much of these renewable energy and whether that percentage will increase? Thank you.
Dan Newman
Yeah. Sure.
Well, I mean, I think the first part of the questions everyone in China take more notice and start from the central government downwards, right. And our largest customers look to us and expect us to help them solve the problem, the challenge of how to reduce their carbon footprint.
Probably the biggest component of it is where does the power come from meaning what is the – what fuel is used in the power generation? It doesn't necessarily go with individual projects.
So for example, in a region, right, within Shanghai, for example, we can purchase green power through the power trading market. That's one of the ways in which we reach the level of green power that we mentioned over 20% of our total consumption, so that's not location specific.
On the other hand, there are some locations where specifically there is green power, because for example, the location may be on the same grid, as there is a large amount of wind power generation even though there could be quite a few 100 kilometers apart, it could just be that they are on the same power grid. So, we will come out with targets I think, rather than talk specifically about which project has worked.
I think the way to look at it is in the aggregate. We will have to be innovative and take a number of different approaches which we're working on all now, at the same time.
And whatever targets we set will be very serious ones not – it's not – we take this very seriously. It's absolutely critical trial business.
William, do you want to answer the second part of James' question?
William Huang
Yeah. Yeah, the second question.
Yeah. Sure.
I think first of all, I think we are – in China the Tier 1 market, is very obviously Shanghai, Beijing, Shenzhen, Guangzhou, right and the western side – if you look at the last three years, actually the growth – the data center may invest in the Guangzhou and Chongqing in last three years growth very fast. So this is a trend.
So given the current utilization, what we can tell is that the growth trend is very obvious. So we are very confident to increase the utilization in our current data center in western part of China.
But another – in our radar screen, there's another city like the Chongqing right. We pay more attention on that.
This is a new trend. In the last couple of years, what we can tell is a lot of our customer – current customer, cloud prayer and a lot a lot of the internet giants, they start to deploy their server in this city.
We are very confident these 10 new markets will drive another growth in the future. So I think as I mentioned that China is – 5G in China is very advanced than the other country.
So 5G, what's the impact is when the 5G have completed deployment, it will produce more data from the city because those cities all economic center in all the province and the population is – most of them is around more than eight million or even the 10 million right. So I think this is a potential market in – nowadays just a start.
So we are – we treat them like new emerging market right. But in order to make investment more efficiently we will – we always will follow up our customer demand to get into this market.
Yeah, this is our view.
Operator
Thank you. Ladies and gentlemen, due to time constraints, we have no further time for questions.
I will hand over to GDS for closing remarks.
Laura Chen
Thanks everyone, for joining us today. If you have further questions, please feel free to contact GDS Investor Relations through the contact information on the website or The Piacente Group Investor Relations.
Thanks all, see you next time.
Operator
Thank you. This concludes our conference call.
You may now disconnect your line. Thank you