Lotte Tour Development: A Major Asset Revaluation Resulting in More Than 8X Increase in Equity

• Lotte Tour Development announced that it will conduct a major asset revaluation which could positively impact its share price.

• The company's assets will increase to 2.39 trillion won and equity will increase to 569.3 billion won (up more than 8x) at end of 1Q 2024 due to asset revaluation.

• As a result of the asset revaluation, the company's balance sheet will improve significantly and this likely result in many investors taking another look at the company for potential investments.

On 27 March, Lotte Tour Development Co, Ltd. (032350 KS) announced that it will conduct a major asset revaluation. This will likely be an exemplary case study of how accounting could impact share price of a company in Korea.

Lotte Tour Development held a board meeting on 27 March and decided to reflect the asset revaluation amount of 1.84 trillion won for the Jeju Dream Tower complex resort building and land shares owned by the company in the financial statements at the end of 1Q 2024. The company plans to improve its financial structure by improving its assets and equity. The company has commissioned an appraisal team to conduct asset revaluation of buildings and land.

Lotte Tour Development had total assets of 1.76 trillion won, total liabilities of 1.7 trillion won, and equity of 65.6 billion won at the end of 2023. As a result of this asset revaluation, the company's assets will increase to 2.39 trillion won, equity will increase to 569.3 billion won (up more than 8x), and liabilities will be 1.8 trillion won at the end of 1Q 2024. The asset revaluation reflected higher asset value of 503.7 billion won (627.5 billion won minus deferred corporate tax of 123.8 billion won).

Significant decline in debt ratio - As a result of this asset revaluation, the company's debt ratio will improve materially from 2,591% at the end of 2023 to 320% at the end of 1Q 2024. The asset revaluation will result in higher deferred corporate tax which will increase from the existing 112 billion won to 236 billion won. Corporate tax is levied on the higher asset value due to asset revaluation and does not need to be paid separately unless the asset is sold.

One of the major reasons why some investors have not invested in Lotte Tour Development in the past was because of its high debt levels and debt ratios. As a result of the asset revaluation, the company's balance sheet will improve significantly and this likely result in many investors taking another look at the company for potential investments.