GDS Holdings Ltd

HKEX:9698

Earnings Call Transcript 2021-Q4

[Operator]

Hello, ladies and gentlemen, thank you for standing by for GDS Holdings Limited's Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded.

I'll now turn the call over to your host, Ms. Laura Chen, Head of Investor Relations for the company. Please go ahead, Laura.

[Laura Chen, executive]

Thank you. Hello, everyone. Welcome to the Fourth Quarter and Full Year 2021 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 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 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 earnings press release and this conference call can 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, William. Please go ahead, William.

[William Huang, executive]

Hello, everyone. This is William. Thank you for joining us on today's call. I'm delighted to report another year of strong financial results. In 2022, we grew revenue by 36% and adjusted EBITDA by 38% year-over-year, in line with our guidance.

At the same time, we made significant progress in key business areas which underpin our long-term success. We sustained our sales momentum, adding around 120,000 square meter or 280 megawatts of new commitments from an increasingly diversified customer base. We secured over 300,000 square meters of new capacity supply in Tier 1 markets in China by a combination of land purchases and project acquisitions. This increasingly scarce resource will give us a competitive advantage for years to come.

We've put in place the foundations for our Singapore Plus strategy with 2 complementary campuses in Malaysia and Indonesia. We increased our use of renewable to over 30%, and we completed over USD 2.6 billion of debt financing to ensure that our projects are fully financed on a sound basis. In addition, we've raised over $600 million from a private CD issue with strategic value add.

Our strategic market position is stronger than ever. Despite a challenging operating environment, we remain focused on executing our business plan, improving our efficiency and seizing key opportunities when they arise. In 4Q '21, we booked a 23,000 square meter of new commitments. For the full year of 2021, we hit our sales target with 96,000 square meter of organic bookings and 23,000 square meters from acquisitions. For 2022, we expect to achieve around 90,000 square meters of new organic commitments. While there is some change in the demand profile, overall demand is at a similar level to last year.

As shown on Slide 6, we won 5 hyperscale orders during 4Q '21. Hyperscale typically means cloud and large Internet. But in each of the past 2 quarters, one of our hyperscale orders was from a financial institution. Turning to Slide 7. During 2021 as a whole, we saw a change in our new business mix, with cloud accounting for 50%, large Internet for 30% and FSI and enterprise for 20%. Our sustained sales momentum demonstrates the strength of our customer franchise across the demand spectrum.

Turning to Slides 8 and 9. One of the key to our success is having the right capacity in the right place at the right time. This enables us to provide a more complete solution to our customers and differentiates GDS from competitors. In Tier 1 markets, it has become increasingly difficult, if not possible, to obtain suitable land for data center development, together with the necessary power quota and access to renewables. Customers must be able to scale up their presence in Tier 1 markets in order to satisfy the requirements for low latency and high availability. This is recognized in the government's East Data, West Computation concept for the data center industry.

During 2021, we accelerate our capacity sourcing in order to build up a sustainable supply. We acquired or entered into definitive agreements for 16 data center projects, mostly located in the urban areas of Beijing and Shenzhen, where new supply is limited. And we acquired and purchased the land with energy quota in all the Tier 1 markets. In total, we added around 300,000 square meter of -- to our development pipeline, equivalent to over 3 years' new bookings at our current sales run rate. It is a valuable asset which underpins our ability to serve customers and create value for our shareholders going forward.

While assuring our position in Mainland China, we also took significant steps to build up our presence in Hong Kong and Southeast Asia. In Hong Kong, we now have a pipeline of 4 purpose-built data centers that will enter service between 2022 and 2025, ensuring continuous supply. We have an anchor commitment for Hong Kong 1 and expect to have commitment for Hong Kong 2 in the second half of this year.

I have been in Singapore for the past few weeks, I'm very excited by the potential of our regional strategy. We will initiate construction of our Southeast Asia projects in the next few months and to obtain our first anchor orders shortly thereafter.

Turning to the Slide 14. A few months ago, we published our first ESG report and set out a target to achieve carbon neutrality by 2030. In 2021, we achieved a 34% renewable energy usage compared with 22% in the prior years [ of ] 2021. Recently, 4 of our data centers were recognized by the government as a national green data centers, based on their renewable energy usage and advanced green technologies in design and operations.

To conclude my part, all the things that we have done are for long-term business plan. All the temporary uncertainties in the macro environments are not going to impact our execution of business. We are positioning ourselves to be a long-term winner in the data center market.

Now I will hand over to Dan for the financial and operating review.

[Daniel Newman, executive]

Thank you, William. Starting on Slide 17, where we strip out the contribution from equipment sales and the effect of FX changes. In 4Q '21, our service revenue grew by 6.1%. Underlying adjusted gross profit grew by 6%, and underlying adjusted EBITDA grew by 6.7% quarter-on-quarter. Our underlying adjusted EBITDA margin was 47.2%.

Turning to Slide 18 and 19. Service revenue growth is driven mainly by the delivery of the committed backlog and closing of acquisitions. Net additional area utilized during 4Q '21 was 19,147 square meters. Excluding acquisitions, move-in has been at a similar level for the past 5 quarters.

The first quarter of each year is usually the seasonal low. In the current month of March, move-in has also been affected by COVID-related lockdowns in a number of our markets. Accordingly, we expect move-in in 1Q '22 to be slightly below the trend line. However, we still believe the move-in pace will pick up again once we see more certainty in the macro environment.

MSR per square meter was almost flat in 4Q '21 as compared with the prior quarter. For the full year 2021, MSR declined by 2.6%. In 2022, we expect MSR to decline further by mid-single digits in percentage terms. The MSR dilution from [ edge of town ] and B-O-T projects will continue in 2022, but we expect the decline to be more mild in 2023 and onwards.

Turning to Slide 21 and 22. Our underlying adjusted gross profit margin was 52.5% for 4Q '21, the same as in the prior quarter. As a result of higher coal prices, we are seeing thermal power tariffs increased by around 10% to 20% across Tier 1 markets. We are passing on around half of the increased cost to our customers. However, we estimate that temporarily elevated power tariffs are a drag of around 1 to 1.5 percentage points on our profit margin this year.

Turning to Slide 22. During 2021, we bought 120,000 square meters of new capacity into service, comprising organic developments and acquisitions that are excluding B-O-T projects. Over the past few quarters, we've adjusted the pace of our construction to reflect the current environment. Accordingly, in 2022, we expect to bring around 85,000 square meters into service. Our pre-commitment rate remains at over 60%, assuming that on average, 90% capacity is salable. We currently have around 46,000 square meters under construction but not yet pre-committed, equivalent to around 2 quarters' new bookings at the current sales run rate.

Turning to Slide 23. Our CapEx for FY '21 was RMB 13.7 billion, consisting of RMB 9.7 billion organic CapEx and RMB 4 billion via acquisition consideration. The organic CapEx includes around RMB 1 billion for land banking, which is not categorized as acquisition for accounting purposes. As of the end of 4Q '21, we had a liability of around RMB 2.1 billion on our balance sheet in respect of deferred and contingent consideration payable for acquisitions which have closed before the year-end.

Looking at our financing position on Slide 24. At the end of 4Q '21, we had RMB 10 billion or USD 1.6 billion of cash on our balance sheet. And our net debt to last quarter annualized adjusted EBITDA ratio was 6.3x. Our effective interest rate for the whole of 2021 was 5.5% compared with 6.6% in 2020.

During 1Q '22, we successfully raised USD 620 million through the issue of convertible senior notes with a 0.5% coupon and 7-year tenor. With all the refinancing, we have successfully extended the tenor of our project debt. Over the next 10 years, project debt repayments average around RMB 2 billion per annum.

Turning to Slide 25 and 26. As at the end of 2021, we had around 320,000 square meters of area utilized and around 235,000 square meters of total backlog. Assuming that we complete all the existing projects, deliver the backlog and sell out the small amount of remaining inventory, our revenue-generating area would almost double from today's level to over 600,000 square meters. This is without initiating any new projects. The cost to complete all the existing projects is around RMB 13 billion, which we could finance with our existing resources.

Turning to Slide 27. For the full year 2022, we expect our total revenue to be in the range of RMB 9,320 million to RMB 9,680 million, and adjusted EBITDA in the range of RMB 4,285 million to RMB 4,450 million, which implies a margin of around 46% at the midpoint of revenue and EBITDA ranges. We expect our CapEx to be around RMB 12 billion, out of which RMB 6 billion is Mainland China organic CapEx; RMB 2 billion relates to regional expansion and RMB 4 billion relates to acquisition consideration plus land banking.

We would now like to open the call to questions. Please, operator?

[Operator]

[Operator Instructions] Your first question today is from the line of Yang Liu from Morgan Stanley.

[Yang Liu, analyst]

I have 2 questions here. The first one is, could you please share your latest observation on demand? We see several new changes, more public cloud and Internet companies reported their recent earnings and we also see a new round of COVID in China, et cetera. What is the incremental change on the demand side for both move-in and also new order or new sales?

The second question is, we see Chinese government released Eastern Data, West Computation initiative. Would you -- what is the implication to GDS, especially given GDS has a long-term Tier 1 market strategy.

[William Huang, executive]

Okay. Let me answer your question, Yang Liu, thank you. Number one, about the demand side. I think the -- as I just mentioned, the demand still maintained a similar level of last year. This is based on our market observation. So -- but the demand profile is changing. As I just mentioned in the last 2 quarters, we mentioned the demand will be shift, the profile will shift from the large cloud to a lot of the Internet and enterprise and financial institution.

This is happening. If you remember a couple of quarters ago, we mentioned the demand. We already told the market, the demand is shift, but the demand level is still maintained. That's our conclusion. So that's why I think if you -- I just mentioned our new order booking profile is start -- maintain the changing, right? So this is the fact which I tried to mention.

The second question is move-in, right? The move-in, I think it's early to talk about -- too aggressive to talk about it because we see this -- because there's too much macro and micro impact to the customer move-in condition, like COVID lockdown and all those supply chain issues still there. So I think the -- now it's a little bit too early to give this a positive way. But we still will see, once some condition improved, I think, I believe the customer will catch up. Because the demand is real and they are just waiting for some outside conditions improved, like supply chain and lockdowns condition.

[Laura Chen, executive]

Another question.

[William Huang, executive]

Another question?

[Laura Chen, executive]

Yes. [Foreign Language].

[William Huang, executive]

Okay. The second question, yes, [Foreign Language], right? The government

[Laura Chen, executive]

East Data, West...

[William Huang, executive]

East Data and West Computation. I think it's good news for us. Number one, the government is still encouraged the new infrastructure, right? So this is good news.

And another good news for GDS is we -- about -- we talk about -- this is -- we read the government policy as 2 parts. One is the data, right? So this means government finally recognized low-latency product is very, very necessary, right? So this is -- that means government know that demand will continue increase in the, let's say, Tier 1 market, low-latency product.

On the other hand, we understand the government want to encourage the people to put more, let's say, core data in a renewable energy source location, right? Has a lot of renewable energy source.

So -- but we believe the GDS is very -- working very closely with the government and our client. So I think that GDS have the -- already demonstrate we have the capability to capture all kind of the opportunity in the future.

So I think the -- another impact is I try to experience, this new policy is already introduced 1 year ago, right? But now it's more pretty firmed. But it's the guidance and -- need time. And also, I would say GDS, it will not impact any of our resource which we are already on hand. So this is my understanding of the government policy.

[Operator]

The next question is from the line of Tina Hou from Goldman Sachs.

[Tina Hou, analyst]

I have 2 questions. The first one is in terms of, let's say, the next 3 years, from 2023 to 2025. Where do we see kind of our growth rate? Is it more stabilizing at around like 20-something percent? Or do we see, when all of these near-term uncertainties or headwinds have dissolved, we can see an acceleration of our revenue growth?

As well as the EBITDA margin situation. Do we see maybe going forward, again, continued EBITDA margin improvement after the short-term electricity or coal price inflation? That's number one.

And the second question is regarding our M&A strategy this year. I noticed that management guided for 90,000 square meter of organic sales this year. So just wondering, what's our M&A strategy this year?

[William Huang, executive]

Okay, I'll answer the question. Number one is the [Foreign Language]?

[Laura Chen, executive]

[Foreign Language]

[William Huang, executive]

Yes. I think we set up the base of the, let's say, every year, we increase the new booking. It's around 90,000 square meter. This is organic, right? We're still consistent to give the guidance on that, and we are confident for that. But this is -- in the last 12 or 18 months, the macro environment, which is very -- not very good, but we're still confident to maintain this level of the growth, right? This is our base.

So of course, we don't estimate any -- we give any upside on that. But we believe, if the government policy or macro environment improved, I think the market will accelerate. But now we are slightly, let's say, confident for the future, next 5 years, next 3 years, because we see the central government encourage the economy again, right? Recently, Prime -- Vice Prime Minister Mr. Liu He, released very good policy to the market. And we think, we believe, this will encourage all the Internet company or cloud company or enterprise company will restart their business plan, right?

This is number one, right? So 20% -- above 20% growth definitely is our base.

The second question?

[Laura Chen, executive]

M&A strategy.

[William Huang, executive]

Yes. M&A, I mean, as a tools, it's very important for us. Last 2021, as we just mentioned, we are more focused on to use the M&A as a tool to acquire more valuable assets, land at a carbon quota -- with a carbon quota. So because in the Tier 1 market, we think, we believe, because of the carbon-neutral policy is a main policy. So in the Tier 1 market, in the next few years, the resource will getting more tight than before. So this -- but our customer demand in Tier 1 market still very strong.

So in order to maintain the growth profile, the resource, qualified resource, enough resource, is much important than before to support our growth. So that's why M&A in the last year, we more focus on the acquired valuable asset and resource. But now this year, we will more focus on some projects which have a more -- even more mature asset, we will focus on.

So M&A, as we mentioned in the last couple of quarters, GDS in the next 18 months, even 20 months, is good opportunity for us to acquire more small platform, even we are open to see all kind of the opportunity to acquire them, acquire the project, even platform. So this is what I can -- what we can give the message to the market right now.

But I think we follow-up, we're watching all the kind of opportunity right now. Our pipeline maintained very strong.

[Operator]

The next question is from the line of Jonathan Atkin from RBC Capital Markets.

[Bora Lee, analyst]

It's Bora Lee on for Jon. First of all, I was wondering, have you been seeing any changes in the customer decision process for leasing uptake? And what impact are government actions having on their IT decisions?

And then secondly, on Malaysia, Indonesia, I'd be curious as to the puts and takes of customer interest, given perhaps customer-specific challenges and the power challenges that Singapore is experiencing.

[Laura Chen, executive]

[ To expounded ] the leasing uptake in the government [ decision ].

[William Huang, executive]

Hey Daniel, you answer the question?

[Daniel Newman, executive]

I couldn't hear the first question clearly. But I believe you asked about customer interest in Southeast Asia and perhaps about Malaysia and Indonesia, your dialogue about that. I just want to, that was the question.

[William Huang, executive]

Yes. As I -- Bora. As I just mentioned, I have been in Singapore almost 1 month because of the -- [ keep the better ] this region's business. Frankly speaking, I'm very excited about the whole momentum in this region. It's very active. The -- I met a lot of the private equity guys and a lot of our customer here.

The reason because I met a lot of private equity guy, because they are very encouraging me because they think there's more unicorn in this region is happening right now. On the other hand, our customer, our installed base customer, I met a lot of their business people in this region. They all increase their business in this region significantly in the next few years. So that means the future demand in this region definitely will encourage us to be more aggressive in this region.

So our customer demand in terms of the real demand rate in short term, I have to say we definitely will get some results in the short term and second quarter -- second half of this year. Verbally, we already get a couple of customer commitment in this region.

[Laura Chen, executive]

Bora, can you please repeat your first question?

[Bora Lee, analyst]

Sure. So I was wondering if you've been seeing any changes in the customer decision process for taking up leasing? And then what impact are government actions having on your customers' IT decisions?

[William Huang, executive]

Think definitely, our customer, they have their own IT logic, right? This is -- even if you look at the last couple of years, our customers, they have their own philosophy and deploying logic. This cannot be changed in short term, right? So I think the -- so that's why GDS always follow up our customer criteria first and our customer logic in terms of their business logic and their IT logic. So I think the -- of course, we also believe carbon-neutral will be the future, but our customer very smart. They know how to separate their very cold data to remote places, which they already do, right?

So I think this will not change our customer behavior a lot. But it's naturally, when the IT grows, more data coming. We still believe the Tier 1 market, low-latency market demand is still very strong. On the other hand, the cold data will significantly increase as well. So this is a different product, different demand, so it needed a different product to response. So that means that -- that's my understanding.

[Operator]

The next question is from the line of Joel Ying from Nomura.

[Joel Ying, analyst]

So I have 2 questions. The first one is, as we're talking about a lot about M&A a lot. So I would like to understand, that what is the funding position at this moment? And do you actually need more capital? And how to raise the money in the future?

And second one is about the margin guidance. I think the major reason for the slightly weaker margin growth -- sorry, the EBITDA growth compared to revenue is about utility cost. Anything else rather than the utility can we see potential risk for the margin side this year?

And also, like if any extra cost for the green energy side that could happen?

[William Huang, executive]

Dan? Dan, will you...

[Daniel Newman, executive]

Yes, Joel. I'll answer your questions. First of all, on [ we do have ]. I'll just make a general comment, which is that if there's an opportunity, which is good enough, we will most definitely find a way of obtaining the financial resources.

And if you look what we've done historically, we raised capital in a variety of different ways. We worked with sovereign wealth fund and programmatic joint ventures. We've worked with Chinese private equity funds, CPE in undertaking certain project developments. I mean, recently, we raised capital privately from Sequoia China infrastructure and from a sovereign wealth fund and also from our -- with the support from our long-standing largest shareholder, STT GDC.

But I think that the interest from private capital providers in working with GDS is very high. And those dialogues are going on all the time. So I really don't think the access to capital in any way is going to be a constraint in stopping us doing what we want to do and what we think makes strategic sense. So with...

[William Huang, executive]

Yes, I'll add some color on that. I think we are -- in midterm, we don't worry about our capital. We have enough capital to grow our business plan.

On the other hand, if some good things happen, let's say we needed capital. we are never worried about that. We have a different way to access it. We have the capability to access the different type of the capital. We already demonstrate we have this kind of capability in the last 6 or 7 years. We keep going to the market and raise money when we believe can create value for our customers -- create value for our shareholder.

So we just issued a private notes, CD a few weeks ago. This is already [ demonstrate ], even in this market, we still can access easily, right? So I think this is not the issue for us to access. If we do have some big deals, try to do it. A lot of the capital want help us to create the value for our shareholder, right? It's not an issue.

[Daniel Newman, executive]

Yes. So on your question about -- it really [ comes to ] the biggest factor behind revenue growth is move-in. And that's one driver which is not within our control, right? Because customers have flexibility on their move in, that's part of the way that we work with customers and part of the value proposition.

All of our backlog is absolutely rock-solid. The data center capacity is there, it's prime capacity in Tier 1 markets. And it's really just a matter of some quarterly fluctuation in terms of the move-in. But for us to make a forecast about customers' likely move-in behavior over the next few quarters is difficult. We're always very conservative on that one assumption because it is outside of our control. So we've taken a view, which I hope is a conservative view on move-in, and that's what reflected in the revenue.

On the margin side, yes, we see an interruption to our trend for many quarters, of years, of margin improvement. I mean, the biggest factor is the power tariffs. It's -- I believe it's a temporary factor. Last October, the government liberalized power tariffs in China in the kind of wider range and float to liberalize the wholesale power market. But at that time, and until now, the coal price is [ a little bit elevated], that reflects [ a bit in ] [indiscernible]. But I think this transition to a more liberalized market is still ongoing and probably will be for at least this year, maybe next year, in different places.

So eventually, I think these liberalizations are going to [ result ] lower power tariffs because it will enable us to exercise our purchasing power as a large power user in all the locations. And power price will also, I think, revert to the mean. But once again, we took the view that, for this year, that the power tariff remain elevated. And that really is the major factor behind the lower margin.

[William Huang, executive]

Yes, I can add a little bit color on that. Number one, about move-in, if you look at the last 6 years, in the normal time, our customer move-in is quite normal and on track. And as I just mentioned, last 18 months, this is all the macro and micro environment impacts our customer, definitely. So there's too much uncertainty condition impacted our customers' business. So in general, I think the -- if you look at a long-term point of view, they still -- the IT still grows, the digitalization, nothing changed. So I think that this is, in our view, is short term.

So we believe if the macro condition getting improved, our customer still will execute their original business plan even better. So in our view, move-in is a short-term issue, right? But we will see. We hope everything will be improved in the next 12 months. And we believe things getting better.

[Operator]

[Operator Instructions] So the next is from the line of Michael Elias from Cowen and Company.

[Michael Elias, analyst]

Great. So just really quickly. We've seen some volatility in the Chinese market. Just wondering in terms of the private market valuations you're seeing for data center assets. Have you seen any changes there?

And then also, I know you've mentioned that you have different ways to finance M&A to the extent you wanted to move forward with that. But just as we think about your leverage. Can you give us a sense of what the upper bound or what the maximum leverage you'd be able to put on the -- are willing to put on these businesses?

[Daniel Newman, executive]

William, would you like to answer?

[Laura Chen, executive]

Daniel.

[Daniel Newman, executive]

Mike, we did a lot of acquisitions in the past 12 to 18 months, and I would say there were good ones. Yes, I would say the private market valuations have come down, though sellers would argue that the public market multiples should be ignored because they're going to go back up, right? We hope and expect that they will. But the private market is always going to be priced relative to the public market multiples.

There is still -- there are other buyers. There's still competition for these opportunities. But we've been very selective. It's very clear what we were looking for, primarily data center projects in Beijing and Shenzhen and land with energy quota in surrounding areas of all the Tier 1 markets. And we were able to close the deals or enter into definitive agreements for those deals on mid- to high single-digit multiples. We're talking about the acquisition price, plus the cost to complete, divided by estimated stabilized EBITDA.

Your question about leverage. We've always financed our data centers with project finance. So our first objective is to allocate capital or cash to capitalize data center projects and then to put in place a project finance as early as possible so that each project is fully financed in terms of capital allocated to it, and debt.

And as I mentioned before, if we debt-finance an organic project, say, at 60% debt to total project cost when that project is stabilized, it will translate into something like 3 to 4x debt to EBITDA, which I think is quite an acceptable level. But of course, before then, the debt is incurred and the EBITDA is generated later.

The consolidated net debt to EBITDA is not what we target, it's the outcome. It's the sum of all the projects. Some of them have stabilized and have net debt to EBITDA of around 3x. Others are ramping up. They're fully committed. They are on a journey to the same end result. But right now, they might be at very high leverage because the debt has been incurred, but we haven't yet reached the stabilized EBITDA. And then, of course, we've got debt incurred for projects under construction, where there's also a very high precommitment rate of over 60%.

The important thing is that all of these projects in Tier 1 markets have been derisked with pre-commitments and are at various stages of development, which will end up in the same place, which is highly cash generative, highly profitable.

Our consolidated net debt to EBITDA does fluctuate up and down. It was down after the Hong Kong IPO, it's up now because we made a decision strategically to allocate capital to securing a lot of development pipeline. And if you were to add back the value of our development pipeline, if you were to adjust our enterprise value, you'll say, look, there's a hidden asset here, then our net debt-to-EBITDA would be somewhat less than it appears. I guess, hopefully, investors would keep an eye on that.

We are somewhat sensitive to this because we appreciate that equity investors look at this. But whatever the level is, 6 or even if it goes higher to 7x, it is very comfortable because of what I said. It's just the outcome of the whole series of projects, which are soundly financed, with all the capital allocated in reserve and the project finance secured and in place.

[Operator]

The next question is from the line of Edison Lee from Jefferies.

[Yu Lee, analyst]

So my key question is about the organic growth going forward. I think you guys have guided 85,000 square meters for 2022. And I remember previously, I think some of you were talking about 100,000 per year. So I just want to get a better clarity as to whether you feel, going forward, it will still be around 100,000? Or you think 85,000 is the more reasonable number. And why would 2022 be 85,000 versus the previous expectation of a slightly higher number?

[William Huang, executive]

Yes. I think we still -- I think the -- this level is always -- we forecast, always use a very, very solid way and a conservative way to focus in the market guidance. This is number one. I think the -- just to say, 90,000 square meters still is our guidance, around 90,000 square meter. But because this year, we will more focus on the [ high-cost ] diversify our customer, this is number one.

Number two, we also will focus on to get selectively customer to get a more high-priced customer. This is -- which we talk to our sales. So let them -- give them the reasonable target, but we try to get -- diversify our -- more diversify our customer profile. This is always our target to pursue, to diversify our customers. Always our consistent strategy, customer strategy, typically in current environment, right?

[Yu Lee, analyst]

May I follow up to ask a question, that what will be your retail versus wholesale mix of the incremental capacity in 2022? Will that be very different from before?

[William Huang, executive]

Yes. I think the -- as we just assumed last 2 quarters, we already get a profile mix a little bit changed. And we think it's healthy. And we also will -- we still will focus on this strategy, right? Retail, enterprise-type customers, now they are growing more faster than our expectation, which we think is good. So retail customer still will increase.

[Yu Lee, analyst]

Okay. Is there a mix that you can share or any target on the mix between the 2 for this year?

[William Huang, executive]

20%. Yes. I think the last quarter is 20%, right? It's mix at retail, it represents 20%. Yes, I think it will accelerate, and we target 30%.

[Yu Lee, analyst]

Sorry, is that target just for 2022?

[William Huang, executive]

Yes.

[Operator]

The next question is from the line of Frank Louthan from Raymond James.

[Frank Louthan, analyst]

Great. Dan, you mentioned that power was impacting your margins. Can you discuss any other inflationary items pressuring margins?

And how easily are you able to pass on inflationary cost to customers from newbuilds and so forth? And what sort of pushback are you seeing from customers on that?

[Daniel Newman, executive]

No, it really it's only power. It's power and growth track. And power, I think, is a temporary one. I think we mentioned before that if you look at our contract portfolio, around 65% of the capacity is with contracts where there is a separate power billing, leasing and billing, which, of course, would fluctuate exactly with the tariffs.

But if you look at the area, which is actually revenue-generating today, billable, it's more like 50% is what we call unbundled and 50% bundled. The situation is very dynamic. And we are in the process of agreeing power purchase agreements and fixing tariffs with the grid companies and with the power generators in different locations. And power tariffs are changing quite a lot. It's a really complicated exercise to pass this on to customers. It requires -- operationally, it's complex, and it requires a lot of reconciliation and confirmation with customers.

We're not passing it all on. To some extent, we make a decision to absorb it. In the medium term, which maybe is after 1 year, where we start to see the benefit of our purchasing power, this whole dynamic might reverse with lower coal prices as well. In which case, we benefit.

So we don't want to disrupt too much the arrangement with the customers because you win some and you lose some, right? Right now, we lose a bit. In the longer term, it may work the other way.

[Operator]

The next question is from the line of Hongjie Li from CICC.

[Hongjie Li, analyst]

Just a quick follow-up on the M&A question because about 30% of the CapEx in 2021 was used for M&A. So just curious, in 2022, how much of the RMB 12 billion CapEx will be used to seek M&A opportunities?

[Daniel Newman, executive]

Yes. I think I said around RMB 4 billion. And if you -- as at the end of 2021, we had some consideration relating to prior year's acquisitions which have not yet been paid because we always try to structure the acquisition consideration with as much deferral as possible, and some of it's contingent linked to milestones and so on.

So I think we had about RMB 2 billion on our balance sheet that was deferred and/or contingent from prior acquisitions. And then there are some acquisitions, which we did. There was one in particular we did in the first quarter of this year. So I think we're looking at about RMB 4 billion to RMB 6 billion. I think sort of I got it right -- yes, RMB 4 billion in 2022 for acquisition consideration.

[William Huang, executive]

Yes. I add some color on that. I think that our revenue guidance not assume any acquisition, right? It can bring more revenue on that. So we -- of course, we reserve the capital to do some acquisitions, but not assume the revenue be from the acquisition deal, right? So there's still a lot of the opportunity, right? So if the big opportunity coming, definitely, we just mentioned, we have the different way, we have a lot of options to access the capital to get a deal done.

[Operator]

The next question is from the line of Albert Hung from JPMorgan.

[Albert Hung, analyst]

I'm asking questions on behalf of Gokul. The Guangzhou 100,000 square meter project acquisition, may I know hows the time line for conversion from minority to majority stake? How much of the 100,000 square meter is developed already? What's the consideration price?

[Daniel Newman, executive]

I'll answer that. Okay. Albert, it's a complex transaction because it involves a portfolio with a number of different locations, each of which is a separate approval, separate energy quota, in a separate situation in terms of the land or the real estate. And there are performance conditions which attach to each of them. I think that it may take a good part of this year, probably either this year or may even roll over into next year, before all the performance conditions are satisfied for us to move from minority to majority.

I mean, it could be sooner. I mean, we're working in a very collaborative way with the seller to support them, where appropriate, to try to get the things done. I think as part of the -- yes, there's a couple of billion of deferred consideration related to the remainder of that acquisition because it is very, very large. The portfolio is tremendously valuable.

[Operator]

Thank you. As there are no further questions, I'd like to hand the call back over to the company for closing remarks.

[Laura Chen, executive]

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. Bye.

[Operator]

This concludes this conference call. You may now disconnect your line. Thank you.