Hello ladies and gentlemen. Thank you for standing by for GDS Holdings Limited’s 2Q18 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.

Hello everyone and welcome to the 2Q18 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. 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. Securities and Exchange Commission. The Company does not assume any obligation to update any forward-looking statements except as required under applicable law. Please also note that 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

[Slide 3: 2Q18 Highlights] Hello everyone. This is William. Thank you for joining us on today’s call. 2Q18 was a record quarter for GDS in terms of customer commitments, move-in, new projects and capital raising. Unfortunately, our outstanding performance has been overshadowed by the misinformed, if not invented, allegations published by a short seller who made no effort to contact us. Let me say again: These allegations are completely false. During our call, in addition to walking you through our 2Q performance, we will respond to these false allegations throughout our commentary and put an end to this once and for all. Let’s now focus on our 2Q highlights: We achieved our highest ever level of new customer commitments, at over 20,000 square meters. We achieved our highest ever level of customer move-in, adding nearly 20,000 square meters to our revenue-generating area. Our total revenue grew by 89% and our Adjusted EBITDA grew by 132% year on year To keep up with demand, we initiated over 24,000 square meters of new projects, the largest ever in a single quarter. We successfully completed our largest ever capital raising, the $300 million convertible bond. In addition to what we achieved in China, it’s great to see our strategic partners, CyrusOne and STT, winning significant new business from China hyperscale customers in the US and Singapore. While it benefits them, it also benefits us in terms of strengthening our customer relationships. Taking all of this together, our strong revenue and EBITDA growth have put us ahead of expectations, leading to today’s upward revision in our annual guidance. [Slide 4: Continued Sales Momentum] Let me start with sales momentum on Slide 4… 2Q18 was the third quarter in a row when our new commitments hit the 20,000 square meter level. In the first half…

[Slide 12: Underlying Trends] Thank you, William. Before I get in to the numbers, I would like to make some comments about our business model and how we add value. GDS develops and operates high performance data centers. We begin by securing long term tenure of entire buildings in shell state. We either build these shells ourselves, work with property partners who build for us, or convert existing buildings. We invest in structural works and all the critical systems needed to turn the building in to a data center. To give some idea of proportion, our investment is typically multiples of what the real estate alone would cost. We provide move-in ready data center capacity configured to suit the needs of individual customers. Essentially, we have two types of customers: Cloud and large internet who order in high volume and high-power density; and, large enterprises with small to medium order size, lower power density, but high redundancy. We operate the whole of every one of our self-developed data centers as a service for our customers. Our customer contracts specify numerous service level parameters which we commit to deliver. Our operating track record is as important to our customers as the quality of our facilities. Our customers install their IT equipment in our data centers, deal directly with the telecom carriers for connectivity, and manage their own IT operations or, if they wish, outsource to us. For the avoidance of doubt, our customers do not operate any part of our data centers; our customers are not tenants; and, our service contracts are not leases. Getting back to our 2Q18 results, starting on Slide 12, where we strip out the contribution from equipment sales and the effect of FX changes… On a quarter on quarter basis, our service revenue grew by 13.6%,…

[Operator Instructions] Our first question comes from the line of Frank Louthan from Raymond James.

I appreciate all the additional disclosure. One quick question on sort of the quarter and the outlook and then a follow-up. Can you talk about the pricing with the new projects, what are we seeing there? Is there anything to do with the mix of hyperscale there? And then one other issue that's come up with some investors is some of the common phone numbers and so forth in some of the filings. I assume that just relates to the related parties, but are the -- the various, you're sharing the directors and so forth and just timing of when you made the acquisitions. Can you walk through why does it show up in the filings and that would be great?

There are a couple I'll address. Thank you for thanking us for the additional disclosures, but I would actually point out that almost my entire explanation was based on what is already publicly available either in our SEC filings, SAIC filings or Hong Kong Companies Registry. It's just a question of looking at it carefully and coming to the correct conclusions. As regards to the common phone numbers, what I was saying is that in effect, we did 2 acquisitions. One was of a cluster of 3 data centers in Guangzhou and the other one was a very large data center in Shenzhen 5. So those 2 acquisitions had the same lead investor, and in fact, each one, the other shareholders were a different group. So, the presence of a lead investor who in effect is the lead developer or promoter of those projects, meant that the directors and other representatives of those companies were the same, because they're all part of the lead investor’s team. What I hope that I made clear in my explanation is that if you look at those filings, you will find that in every single case as soon as we completed the acquisition of these target companies, we replaced all of the lead investor’s appointed directors and other personnel with our own appointees. It's simple. William, do you want to talk about pricing?

Yes. I mean, to talk about the pricing, we didn't see any change compared with the last couple of quarters. As we’ve mentioned several times, where we are in the Tier 1 market, there's still a gap between demand and supply. So, the price dynamic still didn't change a lot. So I think that we can keep this pricing level in the next couple of quarters.

Okay. Great. And if we look out a year, what we'll -- what do you expect the customer concentration to look like based on your current backlog? And can you comment on any successes you've had with the partnership with CyrusOne as far as being able to get to new logos?

Okay, Frank, on the customer concentration, we don't set any limits. We don't have any quota for customers. We have established a group of very strategic customers. We think having the relations we have is absolutely key. I don't know how you can build a successful franchise in this business without those relationships. We started off with the very top 3, 4, 5, 6 names. We identified, at least, another 10 or even 20 names who we considered to be highly strategic, either because of the scale or because of the kind of data which they have and the ecosystems which revolve around that. It takes time to break through to these accounts. But we're doing it gradually. Last year, we added Ctrip. First half of this year, we've added NetEase. I think it's fairly obvious to people who know the China cloud and Internet landscape who are the next set of targets that we target are. I think if we're successful in doing that the customer concentration will diminish, but that's not to say that we have an issue with it.

Yes, agreed.

CyrusOne he asked about.

CyrusOne, I mean, sorry, what’s the question?

What we benefit --

Yes. And first of all, we take the revenue, I mean take the margin from the CyrusOne referred deal from China to U.S. as well as to our Singapore business partner, STT. Secondly, I think with CyrusOne, we are working on couple of deals. It seems like we are very close to close the deal soon, which is based on the U.S. The momentum is happening right now. This is a long-term relationship. We just started. We see this as a great cooperation and teamwork when working with the 2 sides and larger customers.

Our next question comes from the line of Robert Gutman from Guggenheim Partners.

And again, thank you for the thoughtful update and information addressing all those accusations. Could you tell us the sqm and use added of almost 20,000 in the quarter was a big number. Can you just review the composition of that by facility? And secondly, in the context of accelerating pace of CapEx and demand, can you just talk about your forward views on the balance sheet and on net leverage?

Yes. Robert, it's Dan here. First of all, let me say I'm sorry that you got dragged into this short attack. I guess, you know more about Chinese regulations than you probably wanted to now. Well, I think you certainly know more than somebody I know. The 20,000 square meter net add was tremendous, and it's something that started in the first quarter and I commented on before, and it's carried on. And it's actually across multiple facilities. You can look at the individual data centers disclosures and you'll see this everywhere. And we brought a lot of capacity into service in the fourth quarter of last year and in the first quarter of this year. And so the momentum of the move in of that capacity has really started to accelerate. In addition, those 3 data centers which we built in Hebei, built to suit for a particular customer, that customer has started to deploy very rapidly in those data centers. So I think, it's really a combination of those factors. Yes, on the balance sheet, I think you want to me add, right. I gave that illustration. First of all, we have got to look at in terms of what is our capacity, what financial resources do we have to invest. I gave those numbers during the prepared remarks. You're asking specifically about the net debt-to-EBITDA multiple. I think around the current level is more or less, as high as it will go. I said more or less, but with the caveat of what I said on in the prepared remarks, which is the comment that the metric only has limited meaning. We have a lot of data centers which are under construction and ramping up, which are 100% or near 100% contracted to investment grade customers, quite often with 8- to 10-year contracts, quite often with no right of early termination. The cash flow from those contracts, net of the CapEx and OpEx, is still far in excess of the amount of debt.

Our next question comes from the line of Jonathan Atkin from RBC.

So I was interested in the Hong Kong acquisition and the expectation that you would have as to when power might be available to that site?

Jon, I think, we've just entered into a -- what you call a provisional sale and purchase agreement for the site. And we would -- we make a disclosure today because it’s material. But we would prefer to wait until probably, late September early October when the acquisition closes, and then we will make more detailed disclosure about the projects. Do you have another question?

So I was interested also in just the level of -- you mean, you talked about -- William talked about supply and demand that there is still a gap, and as you look at the data center development going on in China, obviously, by yourself you raised the CapEx guidance, but I'm just interested in most of the other development happening from -- independent developers or the public companies. Can you maybe talk a little bit about who else is developing capacity to meet that need?

Yes, Jon, as we’ve always said, first of all, in the different markets we have different competitors, and the data center market is hot right now in China. A lot of the new project players and new capital is jumping into the market. But I think in terms of the competition, GDS is already in a very good position no matter if it is from the reputation point of view from our customers, the stickiness point of view and also our operational excellence point of view. And so we're not afraid of any competition. But on the other hand, we are targeting the Tier 1 market. Now we are sitting on around a 35% to 40% market share. We are not here to say that we want to have the 100% market, so this gives a lot of market space to leave to the other players.

Sorry, Jon, something just occurred to me about the question you asked before. One of the reasons why power is difficult to obtain in Hong Kong is because most of the substations are at capacity -- full capacity or near to full capacity. One solution to that is to build your own substation. The problem is there are very few existing buildings you can find, which are suitable for putting a power substation inside. But the site that we are acquiring is a site where there's an existing 50-year old building, which we will pull down. And so we will build a new building on that site and incorporate into our plan a substation in that building. That will be something which is not available, or is not an option, I think, in 99.9% of existing industrial buildings.

That's a good point. And then lastly, in terms of expansions, are there anything -- are there any thoughts being given to additional remote hub markets besides the one in Hebei province? And then you mentioned in the script that you would be entering one additional Tier 1 market. What will it be types of criteria that you look at when you evaluate opening up a new Tier 1 presence?

Yes. For the remote projects, when you say evaluate, it’s really built to suit, so it's all about the counterparty. It's all about how the contract is structured and the economics. Yes, we are talking to 3 big customers about remote projects. If we can get the project management and the financing right, it is potentially, a large opportunity. It's there for the taking. That's why we are investing quite a lot of time and effort to try to get the approach right.

Yes, but Jon, I would like to add my opinion. We will still stay with our strategy, targeting the Tier 1 market. We are trying to focus on solving the supply issue in the future, because we see that the demand is tremendous in the next couple of years. We are still working on how to solve the hyperscale demand in the Tier 1 market. In the meanwhile, obviously, the remote market is a new market, and we already have experience working on that. I think for us it's nice to have, but not a must have. We will try to find some smart and innovative way to achieve the capital to serve this kind of demand.

Our next question comes from the line of Colby Synesael from Cowen.

Just a follow-up on that last question regarding expansion in new markets. You mentioned on your prepared remarks, you're expecting to add or enter at least one new market, I think, by year-end. How many markets do you think that you could enter over time within China, just to kind of give us a sense? And what is the velocity you would intend to expand into new markets perhaps over the next few years? Second question, there's obviously, a lot of talk in the news about trade wars, particularly between China and the U.S. Does that you think create risk that some of the U.S.-based cloud companies may not deploy in China as quickly as what we've seen maybe in the last year? And then, I guess, vice versa, perhaps more from a CyrusOne perspective. Is there a risk there that some of these domestic Chinese cloud companies don't actually deploy in the U.S. as quickly as perhaps we're all thinking right now?

Okay. To answer a couple of questions. First of all, it's a new market, right? Our strategy is to follow up with our customers. Once customers require us to get into some new markets, we will evaluate whether the market is sizable and strategic for GDS. So what we are seeing now is that there's a couple of the new market is getting more mature, and it's qualified for GDS to get into. That's why I say in our pipeline that we are keep watching a couple of cities, which may include Chongqing, Wuhan, and other cities. We are seriously seeking some opportunity to get into at least one more market in China. This answers your first question.

Yes. Colby asked how many? How fast?

How many and how fast. I think this year we would target at least one.

Next year?

Yes. Maybe for next year, we will add one more. But I would like to emphasize that our strategy is to keep our leading position in our existing markets and get more market share in our existing market. On the other hand, we are very seriously and carefully watching what's the next one in China. So after a couple of years, we will make some decisions soon.

And then I had the other question with the trade wars?

Trade war, yes. First of all, GDS is focused of the domestic customer. In our total area commitment, I think 90% of our backlog is generated by the local domestic customer, only 10% is multinational. And there's another 100% from U.S., and we have the customer from Japan and Europe. So it's quite a diversified. Secondly, the trade war is more effective to the traditional industry, such as manufacturing and other export and import businesses, other than high-tech Internet and cloud business in China. On the other hand, we recently found that the news is saying Facebook and the Google are getting into China is a very active topic. Last week, Chinese twitter, “weibo”, sent tweets welcoming Facebook and Google. This looks like it's quite open for U.S.-based cloud players getting into China. On the other hand, what we see that there resides, China governments already announced to open the market for the financial institutions. Please remember, GDS has almost 300 financial institution. So this is very, very good news for us. If more and more foreign financial player get into China, I think that GDS, obviously, will be the #1 choice for them. So in this view, I think, the trade war doesn't impact all our business. In some way, the trade war is maybe even good for us.

Our next question comes from the line of Gokul Hariharan from JPMorgan.

I think one question. First of all, thanks a lot for putting all those data together and the clarifications. First question, could you talk a little bit about when the Hebei project for one of the largest customers comes online, it looks like it's coming, in fact, quickly. Could you talk a little bit about how it affects the average selling price, and how does it affect your EBITDA conversion, et cetera, given that the -- that seems to be something that will be ramping up in a very quick fashion over the next 12 to 18 months? That's first question. Second, could you talk a little bit about what does mean the kind of -- you did talk about some market share dynamics of 35% to 40% in Tier 1 markets. Could you talk a little bit about for your biggest 2 customers, how has been the decision points in terms of self-built versus outsourced? As well as, I think, traditionally they've also used a fair number of telco carriers’ data centers also. How has that dynamic been changing over the last year or so, now that you are signing even bigger size deals with your top 2 customers?

Okay. Gokul, I'll answer the question of Hebei. William, you answer about decision-making and relationship with the top 2 customers. So yes, Gokul, the first of the 3 data centers in Hebei came into service in April. And then the second and third came into service just the beginning of July. So that's why we say they're all in service now. And then you're asking about how it impacts our financial metrics. It does have an impact, but because it's just 15,000 square meters, it's just over 10% of our total capacity. Unless we do a lot more of these projects, my approach was just to let it be part of the blended average. It does have a slight drag effect on our revenue per square meter. On the other hand, it's quite high margin. So, I don't want to get into disclosing remote projects as a separate data center category. I think that just overcomplicates things for now. William?

Yes, about the customer relationship. First of all, the GDS strategy is to build the home of the cloud. That's our strategy. Because we believe the cloud is the leading driver to drive the next 5 or even 10 years growth. And we have already started to build relationships with our customers for a couple of years. So now I think as everybody knows, and we have already announced, we are the preferred data center vendor to our 2 largest customers. We're working very close with their tech team, network team, procurement team and even business team. We shared our resource plan and they also shared their 3-year rolling forecast demand. So we are working very close with all their demand forecasts. So this is our advantage. On the other hand, our tech team is very close with their design and architecture team as well. So this is another advantage to know their technology trend, which we consider to be a big advantage when compared to other competitors.

Okay. And William could you talk a little bit about, I think, you mentioned that even some of the remote projects are moving from self-built to outsourced. Could you talk about what you are seeing in terms of visibility, especially for the larger customers who used to be a lot more self-built in some of these remote locations as well? Is that something that is consistent across most of the customers that you talk to?

Yes, our strategy is to target the Tier 1 market, right? In Tier 1 markets, I can confidently say that they are 100% outsourcing, no change. Remote sites used to be built by themselves, but what we see in the last 2 years, the trend is changing to 100% outsourcing. But we cannot tell what is the trend after the next couple of years. However, I still believe that their major business is to grow their main business. Data center is not their core competence. In this case, I think, outsourcing still will be their key strategy.

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

Thank you once again for joining us today. If you have further questions, please feel free to contact GDS’s investor relations through the contact information on our website or The Piacente Group Investor Relations.

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