The Winchester House London property in the United Kingdom may fetch an exit value of £1.1 billion based on cautious assumptions of £92 per square ft rental on the recently refurbished net lettable area of 492,500 sq ft and an exit cap rate of 4.5 per cent, Kenanga Research said.
The London building, according to the research firm, was another quick turnaround job in the bag for Gamuda Bhd.
Gamuda told the stock exchange yesterday that it is teaming up with Castleforge Partners Ltd to buy the eight-storey property for £257 million (RM1.39 billion) and convert it into an environmental, social and governance (ESG)-centric office complex with 11 floors that will be leased to multinational corporations (MNCs) before selling it by the end of 2027.
The group aspires to achieve the highest possible ESG credentials for Winchester House, the "BREEAM Outstanding Rating," which has only been earned by a few buildings in London.
According to Gamuda's deputy group managing director Mohammed Rashdan Mohd Yusof, Winchester House was a highly sought-after commercial asset in London.
He described the acquisition as a strategic opportunity for Gamuda as the group expanded its property development footprint to the Breeam Outstanding club of properties.
Kenanga said in a note that the total cost of the development is projected to be £733 million (including building acquisition, refurbishment, operating, leasing, and financing costs), of which 35 per cent will be paid by equity and the remaining 65 per cent by debt.
The research firm sees the Winchester House five-year plan favourably since it maximises Gamuda's return on capital following the sale of its toll highways and strengthens the company's sustainable strategy in the international space.
Following an analyst briefing on the acquisition, Kenanga said that Gamuda targets at least 30 per cent of pre-leases from MNCs and sees high demand potential from HSBC, Macquarie, and the London Stock Exchange, all of whom have leases expiring in 2027 or 2028.
Kenanga said that the group intends to reduce its equity stake in the partnership from 75 per cent to less than 50 per cent, ideally 38 per cent, to ensure that the development's debts are not integrated into its balance sheet.
"Should Gamuda fail to pare down its stake below 50 per cent to effectively classify Winchester House as a JV (versus a subsidiary), the debts obtained for the development would be consolidated and its net gearing would increase to 0.32x (from current 0.07x) which is still manageable against Gamuda's self-imposed net gearing ceiling cap of 0.70x," it said.
Meanwhile, RHB Research said Deutsche Bank's departure from Winchester House (the only tenant) in April 2024 should enable smoother refurbishment works with better ESG features versus having multiple tenants with varying lease expirations.
"The baseline strategy is to pre-lease around 30 per cent of Winchester House's office spaces before practical completion, which is expected in the fourth quarter of calender year 2026. The balance will be leased out subsequently after full completion of the refurbishment to capitalise on up-lift in rents (three per cent of CAGR for the rental rate)," the firm said.
It also said the value of Winchester House upon Gamuda's targeted exit from the property at the end of 2027 is projected to be £1.1 billion. This is based on a 4.5 per cent capitalisation rate versus the £257 million acquisition price.