Billionaire Lim Unmasked as Pavilion REIT Outpaces Malaysia IPOs

Pavilion REIT Chairman Desmond Lim Siew Choon
Desmond Lim Siew Choon, chairman of Pavilion Real Estate Investment Trust and Malton Bhd., right, seen here in a 2002 file photo at Malton's relisting ceremony in Kuala Lumpur, Malaysia. Source: The Star Malaysia

Desmond Lim Siew Choon became a billionaire developing a high-end retail mall and an office tower in Kuala Lumpur, wooing Middle Eastern investors and listing the properties as a real estate investment trust.

The 52-year-old chairman of Pavilion Real Estate Investment Trust, Malaysia’s second-biggest property trust by market value, is worth at least $1 billion, according to the Bloomberg Billionaires Index. Lim and his wife, Tan Kewi Yong, own 38 percent of the Kuala Lumpur-based trust, whose shares have outpaced other companies that raised at least $50 million in an initial public offering in Malaysia in the past 12 months.

Rising consumption and increased tourism in Malaysia have bolstered Pavilion REIT, which has surged almost 60 percent since trading on Dec. 7. Malaysia’s gross domestic product exceeded 5 percent for at least a fifth quarter as the government raised spending and unveiled infrastructure projects before a general election that must be held by early 2013.

“While the general masses have benefited from this wealth effect, I would say that the upper crust would have seen the largest gains from the recent run up,” said William Chan, chief executive officer of Singapore-based family office Stamford Privee. “Connections matter, both locally and globally.”

Lim, who has never appeared on an international wealth ranking, declined to be interviewed as he’s traveling for business, said Philip Ho, CEO of Pavilion REIT Management Sdn, which manages the property trust.

Oklahoma Education

Lim majored in finance at the University of Central Oklahoma, and started building houses, condominiums and office towers with developer Khuan Choo Group in the 1980s. As Malaysia prodded banks to merge, Lim took over the listing status of Gadek Capital Bhd. after the latter sold its finance business to Hong Leong Bank Bhd. in 2000. Lim injected Khuan Choo into Gadek, renamed it Malton Bhd. and relisted it in 2002.

The billionaire made the bulk of his fortune from developing the mixed-use Pavilion project -- a mall, two luxury apartment towers and an office building -- on the former site of a girls’ school in Kuala Lumpur, one of the last pieces of prime real estate in the capital.

Malton was the contractor of the Pavilion, located in the main shopping street of Jalan Bukit Bintang, Kuala Lumpur’s version of Fifth Avenue in New York and Orchard Road in Singapore. In the heart of the city’s Golden Triangle entertainment and commercial district, the mall, which drives the property trust’s earnings, is surrounded by hotels including the Westin Kuala Lumpur and JW Marriott Hotel. Tourists account for more than 30 percent of Pavilion’s shoppers. Malaysia attracted 24.7 million tourists last year, almost double the 12.7 million in 2001.

Showing Luxury

The mall, which has total net lettable retail area of more than 1.3 million square feet, houses boutiques including Prada and Hermes alongside luxury-car showrooms offering the latest Jaguar and Bentley models. Other tenants include The Loaf, a Japanese-style gourmet bakery and bistro part-owned by former Malaysian prime minister Mahathir Mohamad, as well as an art gallery promoting the works of American pop artist Robert Indiana and contemporary painters.

When Lim embarked on the project around 2002, his entry cost was low with commercial and residential properties in downtown Kuala Lumpur transacting at less than 500 ringgit ($164) per square foot, the Edge newspaper reported on Sept. 27, 2010. Prices had risen more than three times to about 1,800 ringgit per square foot by the time it was completed in 2008, according to the newspaper.

Golden Triangle

There is an “increasing scarcity of prime land” in the capital’s city center, particularly in the Golden Triangle area, the research unit of Kuala Lumpur-based Alliance Investment Bank Bhd. said in a report dated July 25.

Kuwait Finance House, the Persian Gulf state’s biggest Islamic lender, helped to finance the development cost when it took a 49 percent stake in the Pavilion project in 2006 and bought both the residential towers. Qatar Investment Authority has since bought the stake from Kuwait Finance House and owns about 36 percent of Pavilion REIT.

Lim and his wife received about 703 million ringgit in cash from selling their stakes in the Pavilion Kuala Lumpur Mall and the office tower to the trust before its initial share sale, according to Bloomberg calculations. They were also paid in equity and are the biggest shareholders in Pavilion REIT, along with Qatar’s sovereign wealth fund.

“The turning point for him is through this development project,” said Ang Kok Heng, chief investment officer at Phillip Capital Management Sdn. in Kuala Lumpur. “He’s been keeping a very low profile; not many people know much about him.”

Meeting Adjourned

In December 2006, Lim and his wife angered minority shareholders of Malton when they were absent from the company’s annual general meeting for the second consecutive time, Bernama reported then. The gathering was adjourned to a later date after the investors demanded that Lim, the company’s executive chairman, and his wife, its executive director, attend the next meeting, according to the Malaysian state news service.

Six out of nine analysts who cover Pavilion REIT have a “buy” or “outperform” recommendation on the trust, according to data compiled by Bloomberg.

Pavilion REIT closed at a record high of 1.46 ringgit on Nov. 14. The property trust’s total return of 62 percent since it started trading to yesterday outpaced the 13 percent return by the benchmark FTSE Bursa Malaysia KLCI Index in the same time period.

“Pavilion has been a success story among Malaysian REITs,” said Philippe Espinasse, former co-head of Asian equity capital markets at Nomura Holdings Ltd. The “scale of the properties” and its high-end positioning contributed to its gains, said the author of “IPO: A Global Guide.”

Retail Advantages

Pavilion REIT will probably climb to 1.60 ringgit per share as consumer spending remains resilient and the mall, the “crown jewel” of the trust, attracts more visitors once a subway is completed in as early as 2016, said Loong Kok Wen, an analyst at RHB Research Institute in Kuala Lumpur.

The property trust plans to acquire other malls including Fahrenheit88, located opposite the Pavilion.

Lim’s closely-held Urusharta Cemerlang, which developed the Pavilion project, bought a piece of land in Jalan Bukit Bintang for a record 7,209.80 ringgit per square foot in 2010 from Millennium & Copthorne Hotels Plc. Lim’s Urusharta Cemerlang Development owns 51 percent of Urusharta Cemerlang and Qatar Investment Authority holds the remaining equity.

Stake Valuation

Lim’s stake in the property venture with the sovereign wealth fund is valued at $60 million based on the average price-to-book of four publicly traded peers: IGB Corp., KLCC Property Holdings Bhd., Eastern & Oriental Bhd. and Overseas Union Enterprise Ltd.

The billionaire and his wife once owned about 24 percent Paracorp Bhd., a Kuala Lumpur-based maker of electronic components, before it was delisted from Bursa Malaysia in 2007, according to company filings. Lim also owns almost 13 percent of Hong Kong-listed Nan Hai Corp., which focuses on property development in China. He sold a 4.8 percent stake in Nan Hai in 2007 for HK$957 million ($123 million).

Lim’s wife is the sister of businessman Robert Tan Hua Choon, according to the Edge. The billionaire’s brother-in-law controls at least half a dozen Malaysian listed companies including ceramic ware maker Goh Ban Huat Bhd. and investment holding firm FCW Holdings Bhd., data compiled by Bloomberg show.

“In Malaysia, connections are necessary especially if you are in property development,” Ang said. “Connections help to speed up things and you get more favorable terms when you submit your proposals to the right authorities.”

Less Vulnerable

Pavilion REIT posted better-than-expected net property income of 61 million ringgit in the third quarter because of higher rental and advertising earnings. Southeast Asia’s third-largest economy is projected by the central bank to expand at least 5 percent or better in 2012.

“Being less vulnerable to potential external shocks, economies like Malaysia have been able to dig down and create its own momentum,” said Chan of Stamford Privee. “It won’t be surprising that Malaysia will be able to mint out its own fair share of Asian billionaires.”

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