The decision by Paradise Co Ltd to acquire the West Wing (pictured) of the Grand Hyatt Incheon hotel, a property near the country’s capital, Seoul, will in likelihood help improve the casino firm’s earnings, said a South Korea-based brokerage.
Paradise Co, an operator of foreigner-only casinos in South Korea, said on Tuesday that its unit, Paradise Segasammy Co Ltd, will pay KRW210.0 billion (US$150.0 million currently) to acquire the new accommodation tower.
Grand Hyatt Incheon is adjacent to the Paradise City casino resort, a joint venture at Incheon between Paradise Co and Japan’s Sega Sammy Holdings Inc. Paradise City is directly run by Paradise Segasammy.
Grand Hyatt Incheon, run by KAL Hotel Network Ltd, is near the Incheon International Airport, the country’s main air hub.
It is expected the deal will close by October 31 this year, according to Paradise Co.
“Given that the average sale price of four-star hotels in Seoul last year was about KRW400 million and the recent boom in the hotel industry, acquiring a five-star hotel in Incheon at a price similar to a four-star in Seoul is very positive,” wrote analyst Lee Gi-hun of Hana Securities Co Ltd, as cited in a Wednesday story by South Korean news outlet Chosun Biz.
According to the investment institution, about half of the KRW210 billion will be financed through borrowing, and an additional KRW20 billion to KRW30 billion “may be needed for room renovations and the future construction of a tunnel or bridge”.
“Even assuming a 7-percent interest rate, the annual interest expense increase would be under KRW10 billion,” said the report, citing the Hana Securities memo.
The brokerage estimated that Paradise Co’s operating profit could grow to about KRW280 billion by 2027, a circa 48-percent increase from what the institution expects the casino firm to achieve this year.
The Hana Securities analyst stated: “Based on July casino sales, Lotte Tour Development exceeded Paradise City, which was because the share of comp utilisation rose to as high as 50 percent on the back of 1,600 rooms.”
“From that perspective, adding 500 new rooms to Paradise City’s 700 rooms is very positive,” added the analyst as quoted in the report.
He added: “Operations could start as early as the first half of next year, but we conservatively assume a 2027 start and will normalise next year’s earnings through future updates.”
In Tuesday’s filing, Paradise Co said the acquisition of the West Wing of Grand Hyatt Incheon aims to “strengthen” the group’s “competitive advantage as an integrated resort operator” in South Korea.
The move also intends to “establish a foundation for sustainable growth by expanding demand from overseas tourist,” it added.
