Hemaraj Follows Charoen in Property Fund Plans: Southeast Asia

Hemaraj Land & Development Pcl, which built industrial buildings for Ford Motor Co. and General Motors Co. in Thailand, may finance a 40 billion baht ($1.3 billion) expansion by setting up its first property fund.

The new funds by Thailand’s biggest industrial developer would be backed by rental revenue from its factories and warehouses, Chief Executive Officer David Nardone said. Hemaraj will also sell bonds this year to finance new projects, he said.

Hemaraj joins Thai billionaire Charoen Sirivadhanabhakdi and Land & Houses Pcl in raising money through property funds. The capital will help the Bangkok-based company boost investment in industrial land, utilities, power plants and new developments over the next five years as foreign investment rises.

“The rental businesses are growing,” Nardone said in an interview. “We can increase our assets of new factories and warehouses with this new financing.”

Hemaraj’s shares jumped 1.8 percent to 4.48 baht as of 10:05 a.m. in Bangkok, poised for their highest close since July 1996. The stock has gained 47 percent this year, compared with an 11 percent increase in Thailand’s benchmark SET Index.

Demand for its land, factories and warehouses will come mostly from producers of automobile parts as car production in Thailand increases, Nardone said. About two-fifths of Hemaraj’s customers are in the auto industry, he said.

“Hemaraj should go for the property fund,” said Maria Lapiz, an analyst at Maybank Kim Eng Securities (Thailand) Pcl, the nation’s largest stock brokerage. “Aside from new capital for expansion, Hemaraj can profit from the sale of assets, which allows it to return some cash to shareholders.”

Growing Industry

Auto production in Thailand will climb 15 percent to a record 2.8 million vehicles in 2013, the industry ministry said on Feb. 28. Applications for investment incentives on new factories, plants and operations in Thailand more than doubled to a record 1.46 trillion baht last year, the government said on Jan. 10.

Hemaraj’s net income in 2012 quadrupled to a record 2.29 billion baht from a year earlier as revenue from land sales, power sales and factory rentals surged.

Charoen, Thailand’s richest person, plans to raise as much as 50 billion baht injecting assets into two existing property funds, according to Krung Thai Asset Management Co., the manager of the funds. Land & Houses, the nation’s largest residential property developer by market value, will sell a property fund in the second half as it adds new investments, it said in January.

Property Weighting

Hemaraj plans to raise the proportion of revenue from property rentals to about a fifth of total recurring income by the end of 2018, Nardone said. Revenue from rentals climbed 26 percent to 723 million baht in 2012, which he said made up 13 percent of total revenue. About 45 percent came from land sales, it said.

The company had 182 completed factories with a total area of about 300,000 square meters (3.2 million square feet) for rent at the end of 2012. About 80 percent of those plants were occupied. The company said it plans to expand the area of factory for rentals by 50 percent this year, Nardone said.

Hemaraj’s profitability will be more predictable with earnings from rentals and power businesses instead of cyclical areas such industrial land sales, he said.