GDS (GDS) Q2 2025: CREIT IPO Drives Asset Monetization at 16.9x EBITDA, Unlocking Capital Flexibility
GDS’s CREIT IPO at a 16.9x EBITDA multiple marks a decisive shift in capital recycling, giving the company rare access to China’s equity markets and establishing a new valuation benchmark for stabilized data center assets. The company’s disciplined asset monetization and robust pipeline position it to capitalize on AI demand, despite near-term uncertainty around chip supply and pricing resets. Investors should focus on GDS’s unique balance of growth capacity, financial flexibility, and readiness for the coming wave of AI infrastructure buildout.
Summary
- CREIT Platform Establishes New Valuation Benchmark: GDS’s Shanghai-listed CREIT IPO unlocks capital at a premium valuation, supporting capital recycling strategy.
- AI Demand Preparation Outpaces Immediate Uptake: GDS prioritizes capacity and capital readiness as customers delay AI deployments pending chip supply clarity.
- Day One Expansion Accelerates International Growth: Subsidiary Day One’s megawatt commitments and geographic diversification drive outsized growth and future IPO optionality.
Performance Analysis
GDS posted solid double-digit growth in both revenue and adjusted EBITDA, driven by a 14.1% increase in utilized area, even as average monthly service revenue per square meter (MSR) edged down 1.7% year on year. The company’s adjusted EBITDA margin remained stable at 47.3%, reflecting operational discipline amid ongoing mix shifts and contract repricing. However, the headline growth figures are complicated by recent asset monetization transactions, including the deconsolidation of projects following the ABS and CREIT deals.
Asset monetization is now a primary lever in GDS’s capital strategy. The CREIT IPO, completed in July, achieved a 16.9x EV/EBITDA multiple, with units now trading 35% above the IPO price and at a 22.8x forward multiple. This far exceeds the current public market valuation of GDS’s core China business, underscoring the value unlocked through onshore capital markets. The company’s net debt to annualized EBITDA improved to 6.1x, and is expected to fall further as proceeds are deployed and additional assets are monetized.
- Capital Recycling Lowers CapEx Burden: Proceeds from ABS and CREIT transactions reduced 2025 CapEx guidance from RMB 4.3B to RMB 2.7B, supporting near break-even cash flow before financing.
- Day One Delivers Exponential Growth: The international arm, Day One, contributed 244% revenue and 265% EBITDA growth YoY, with power commitments exceeding 780MW and rapid expansion in Finland and Thailand.
- MSR Decline Reflects Mix and Price Reset: Management expects low single-digit MSR declines to persist for several years as older, higher-priced contracts reset at current market rates, before stabilizing.
The company’s backlog and new bookings remain healthy, with 23,000 square meters of new orders in the quarter, mainly from traditional internet and cloud customers. AI demand remains muted due to chip supply uncertainty, with management signaling a “wait and see” approach but strong confidence in medium- and long-term growth.
Executive Commentary
"With the successful completion of our CREITs IPO, the units of our CREITs are now trading on the Shanghai Stock Exchange at an implied cap rate of below 5%. This is a major breakthrough, giving us access to China equity capital market on highly advantageous terms."
William Huang, Founder, Chairman, and CEO
"For the CREIT IPO, we achieved an even higher multiple of 16.9 times at the IPO price of 3 RMB per unit. The units started trading on the Shanghai Stock Exchange... at this level, the CREIT is trading on 22.8 times the projected 26 EBITDA disclosed in the offering memorandum. This is close to double the current year trading multiple for GDS China business."
Dan Newman, Chief Financial Officer
Strategic Positioning
1. Capital Recycling via Onshore Monetization Vehicles
GDS’s CREIT and ABS (Asset-Backed Securities) vehicles unlock capital at premium valuations, enabling the company to recycle proceeds into new data center investments. This approach not only improves balance sheet leverage but also sets a new pricing benchmark for stabilized assets in China, positioning GDS for future monetizations on favorable terms.
2. AI Infrastructure Readiness Amid Demand Uncertainty
Management is prioritizing “readiness” for AI-driven demand, focusing on developable land and power reserves in tier one markets. With 900MW of power land banked and site preparations underway, GDS is positioned to respond quickly as AI inferencing demand materializes, though current orders remain subdued due to chip supply constraints.
3. International Expansion through Day One
Day One, GDS’s international subsidiary, is scaling rapidly, with over 780MW in customer commitments and a presence in both Asia Pacific and Europe. Its success has triggered a Series C equity round and laid the groundwork for a potential IPO within 18 months, with management targeting annual bookings of at least 300–500MW and ongoing geographic diversification.
4. Customer and Workload Diversification
GDS’s customer mix remains balanced between traditional internet, cloud, and emerging AI workloads. New orders are a hybrid of CPU and GPU deployments, with the latter’s growth gated by domestic and imported chip availability. The company’s flexibility in site location and technology mix is a strategic defense against cyclical demand shifts.
5. Leverage and Investment Cycle Management
Management is signaling a pragmatic approach to leverage, targeting a net debt to EBITDA ratio near 5x but willing to maintain higher leverage if attractive growth opportunities arise. Asset monetizations are highly accretive, and the ability to reinvest at favorable cap rates supports a sustainable investment cycle.
Key Considerations
This quarter’s results highlight GDS’s unique ability to monetize assets at premium valuations, while maintaining operational momentum and preparing for the next wave of AI-driven demand. Investors should weigh the following:
Key Considerations:
- CREIT Valuation Sets Precedent: The 16.9x IPO multiple and 22.8x trading level for CREIT units far exceed public comps, signaling latent value in GDS’s stabilized portfolio.
- AI Demand Is a Deferred Catalyst: Chip supply constraints are delaying AI bookings, but GDS’s land and power bank position it to capture demand as soon as the market inflects.
- Day One’s Global Growth Outpaces Domestic Peers: The international business is a material growth engine, de-risking geographic concentration and opening new monetization avenues.
- Ongoing MSR Pressure Requires Vigilance: Contract resets will continue to dilute MSR for several years, requiring volume growth to offset pricing headwinds.
Risks
Persistent MSR declines, driven by contract resets and shifting site mix, will weigh on revenue growth until legacy contracts cycle out. AI demand remains highly sensitive to chip supply and policy changes, introducing timing risk to the anticipated growth inflection. Leverage remains elevated, though asset monetization provides a clear path to improvement. Regulatory changes in China’s capital markets or data center sector could also impact monetization options and asset values.
Forward Outlook
For Q3 2025, GDS will:
- Deconsolidate CREIT assets from late July, impacting reported revenue and EBITDA growth rates
- Continue ramping delivery of a 152MW backlog, with 35% scheduled for the second half of 2025
For full-year 2025, management maintained guidance:
- Revenue and adjusted EBITDA unchanged, despite CREIT deconsolidation
- CapEx guidance reduced to RMB 2.7B, reflecting monetization proceeds
Management highlighted several factors that will shape H2 and 2026:
- Back-end loaded capacity delivery, especially for AI inferencing sites
- Potential reacceleration of bookings if chip supply improves and AI demand materializes
Takeaways
GDS’s CREIT IPO fundamentally changes its capital flexibility, unlocking value from stabilized assets and enabling reinvestment at scale. The company’s operational and capital readiness for AI demand is a strategic differentiator, but near-term growth is gated by external supply factors and ongoing MSR pressure.
- Asset Monetization Is Highly Accretive: CREIT and ABS platforms allow GDS to recycle capital at premium valuations, supporting future growth and deleveraging.
- AI and International Growth Engines Are Primed: Day One’s rapid expansion and GDS’s land bank position the company to capture the next cycle of infrastructure buildout.
- Investors Should Monitor Booking Trends and MSR Trajectory: Sustained volume growth and stabilization of pricing will be critical to offsetting contract resets and maximizing monetization value.
Conclusion
GDS’s Q2 2025 results showcase the company’s ability to crystallize asset value through onshore monetization, while maintaining growth momentum and strategic flexibility. The next phase will hinge on AI demand realization and continued execution in both domestic and international markets.
Industry Read-Through
GDS’s CREIT IPO at a 16.9x EBITDA multiple signals that China’s data center assets can command premium valuations in local capital markets, a dynamic not reflected in offshore trading multiples. Asset monetization is emerging as a core strategy for data center operators seeking to balance growth and leverage in a capital-intensive sector. AI infrastructure buildout remains a universal theme, but timing is increasingly tied to chip supply and regulatory dynamics. Operators with deep land banks and capital recycling vehicles are best positioned to capitalize as demand cycles turn, while those exposed to legacy contract resets must manage through ongoing MSR dilution.