Landmark UK asset

In its real-estate development business, Gamuda is doubling down on its Quick Turnaround Projects (QTP) strategy in order to deliver higher returns and diversify geographical risks. The group’s property division, Gamuda Land, aims to double its annual property sales in five years using a two-pronged strategy, under which it will invest in higher QTP developments alongside its township developments.

QTP involves investing in opportunistic real estate developments with a five-year turnaround and an internal rate of return of at least 18%, in order to boost its overall real-estate return on capital employed. QTP’s sector-agnostic approach complements Gamuda’s core expertise in building signature premium residential and mixed-development townships like Gamuda Cove and Gamuda Gardens.

Gamuda’s recent acquisition of Winchester House in Central London is a fundamental part of its QTP strategy. Within the last 18 months, the group has also deployed capital through four other properties: one each in London and Melbourne (West Hampstead Central and The Canopy respectively) and two in Ho Chi Minh, Vietnam (Artisan Park and HN2.8).

“Gamuda seeks to invest in off-market deals with value-add potential across our existing presence in Malaysia, Vietnam, Australia and the UK. Apart from the five assets, we have earmarked another two opportunities in Vietnam, which are in the advanced acquisition stage,” says Low Chee Yen, head of Gamuda Capital.

As part of its QTP strategy, Gamuda, in a 75:25 partnership with Castleforge Partners Ltd (a UK-based real estate private equity investor), has entered into an agreement to acquire Winchester House, a commercial building, for £257 million (RM1.4 billion).

The acquisition features an attractive funding structure that involves an initial capital outlay of only £15 million for Gamuda.

A third-party debt fund will fund £149 million of the £257 million upon the completion of the acquisition deal in approximately three months.

“Winchester House presents a strategic opportunity for Gamuda to expand its property development footprint in the UK. Located in the heart of the City of London, a global financial centre and increasingly a mega tech hub of the world, the location could not have been better as it is next to the Elizabeth Line (Crossrail) which leads directly to Heathrow Airport. It is also close to Liverpool Street Station (the third-busiest station in the UK), Moorgate Station and Bank Station,” Low tells The Edge.

“Many global corporations are seeking to move out from Canary Wharf to a more desirable address in the City as their current leases end. Some of these plans have been widely reported in the media. Our plan is to refurbish Winchester House into a top-rated ESG office building, with future-proof, best-in-class facilities and high-quality finish, to attract these types of global multinational corporation (MNC) tenants, as it is exactly what they are looking for,” Low adds.

Winchester House has been Deutsche Bank’s London headquarters since 1998.

With rising interest rates impacting housing affordability, precipitating a downcycle for residential assets, large MNCs are predicted to weather the inflationary environment in the UK better than private individuals — which means more solid growth in commercial investments.

“Gamuda sees this as an opportunistic timing into the resilient commercial space in the City of London. Top-tier MNCs are only seeking top-rated ESG office spaces, with over 80% of the 5.5 million annual average commercial take-ups in the City of London being for Grade A space, as reported by Savills. MNCs are willing to pay healthy premiums for a good location, modern, green and ESG-friendly space as these criteria are crucial in their hunt for and retention of top talent, on top of meeting their internal carbon emission and ESG objectives,” Low tells The Edge.

Winchester House will be upgraded to the highest ESG credential: Building Research Establishment Environmental Assessment Method (BREEAM) “Outstanding” rating. Upon refurbishment and full lease-up, Gamuda

will explore monetisation to potential pension funds/REITs (real estate investment trusts) whose appetite is strong in the core real estate market segment.

“The City of London is seeing an ever escalating demand for top-quality, ESG-rated office buildings, and yet supply of such prime assets is constrained, primarily due to the lack of supply during the many years of uncertainty of Brexit since 2016, and then the Covid years. This is exacerbated by the difficulty of refurbishing older, non-ESG-rated buildings, given that these are currently tenanted. In addition, many buildings in the City are also listed as heritage buildings, which further complicates the plan for refurbishment,” says Low.

According to analysts, the refurbishment of the building into a BREEAM-rated Grade A office should see the rental rates of the building double to £90 to £100 (RM492 to RM547) psf, from the current £47 to £50 (RM257 to RM273) psf, a rate that has more or less stagnated since 2012.

The shortage of top-in-class BREEAM buildings has resulted in a historically active and strong pre-leasing market with “Outstanding”-rated buildings attaining 100% lease-up by practical completion.

A JLL report noted that the majority of BREEAM “Outstanding”-rated buildings were historically pre-leased a few years prior to completion, providing added confidence that the building will attract early tenancy from mega corporations that are looking for BREEAM-rated offices with the best amenities, design and proximity to transport links.

Renovation works on Winchester House are to be completed by 2027.

Going forward, Gamuda is looking to embark on and diversify its QTP strategy geographically, by looking at opportunities in Malaysia, London, Australia and Vietnam. Gamuda’s QTP strategy is intended to generate a “conveyor belt” of projects; as one project ends and divests, another starts with the capital/proceeds of one project being reinvested into the next one – with that conveyor belt providing consistent earnings growth to Gamuda.

“The QTP strategy is consciously crafted to complement our township development model, in order to boost our overall real estate return-on-capital employed. We will be very selective, as any potential contender for our QTP strategy should have similar IRRs (internal rate of return) or better on a risk-adjusted basis. And when combined with our leading engineering and construction business, strategically as a group, we will have two strong core business engines (Gamuda Land and Gamuda Engineering) to drive growth in profitability and shareholder value in the coming years,” Low shares.