Positive on Gamuda's London office refurbishment project

KUALA LUMPUR: Gamuda Bhd has in store a quick turnaround plan for the Winchester House London building, which it plans to acquire and refurbish into an office building.

The group announced yesterday it is partnering CastleForge to acquire the London building for GBP257mil and turn it into an ESG-centric office building to be leased to multinational corporations (MNC) before divesting it by end-2027.

Kenanga Research in a note said it views the five-year plan for Winchester House positively as it maximises Gamuda's return of capital post its toll highways disposal and further enhances its sustainable agenda within the international space.

Following an analyst briefing on the acquisition, the research firm said Gamuda intends to achieve the highest ever ESG credentials attainable for Winchester House, the “BREEAM Outstanding Rating”, which has been obtained by only a handful of buildings in London.

It added that Gamuda targets at least 30% of pre-leases from MNCs and see strong demand potential from HSBC, Macquarie and the London Stock Exchange which have leases expiring by between 2027 and 2028.

The total cost estimated for the entire development is GBP733mil (include building acquisition, refurbishment, operating, leasing and financing costs) for which 35% will be equity funded while the remaining 65% will be debt funded.

According to Kenanga, Winchester House could fetch an exit value of GBP1.1bil under conservative assumptions of GBP92 psf rental on the newly refurbished net lettable area of 492,500 sq ft, and an exit cap rate of 4.5%.

Meanwhile, Kenanga noted that the group plans to reduce its equity interest in the partnership from 75% to below 50%, ideally 38%, to ensure the debts for the development will not be consolidated into its balance sheet.

"Should Gamuda fail to pare down its stake below 50% 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," said Kenanga.

The research firm maintained its "outperform" call on Gamuda with an unchanged target price of RM5.15 that values its construction business at 18 times forward price-earnings ratio.

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Kenanga , Gamuda , property , CastleForge , London , refurbishment


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