Disney Increases Shanghai Park Investment to $5.5 Billion

Walt Disney Co., the world’s largest theme-park operator, boosted investment in its Shanghai resort to about $5.44 billion to add attractions that will increase the park’s capacity when it opens next year.

The new spending on the Shanghai Disney Resort by the company and its Chinese partner will amount to 5 billion yuan, or about $800 million, the Burbank, California-based company said yesterday. The total outlay was originally projected at 29 billion yuan, according to the resort’s website.

Disney’s decision to increase spending was based on the outlook for tourism and travel in China, Chief Executive Officer Robert Iger said. Travel demand is rising as the number of upper-middle class and affluent households in the nation is expected to expand 18 percent annually between 2012 and 2022, Disney said in a statement, citing McKinsey & Co.

“Disney is a massive company and they are committed to China,” said Laura Martin, a senior analyst at Needham & Co. in California. “This is a good idea in order to make the park bigger and more attractive in China.”

Chinese consumer spending on entertainment is rising in tandem with the growth of the middle class. The new park is within a three-hour drive of 330 million people, Disney said.

“There aren’t that many markets that are as obvious or exciting in terms of potential,” Iger said yesterday at the Milken Global Conference in Beverly Hills, California.

Disney, the world’s largest theme-park operator, owns 43 percent of the project, with the balance held by state-owned Shanghai Shendi Group Co., a consortium of three Chinese companies.

No Debt

The added investment will be made proportionate to ownership, and no third-party debt will be incurred to finance the expansion, Disney said. The new spending doesn’t reflect budget overruns, the company said.

Iger said China’s decision last year to let some families have two kids instead of one could create more customers for his parks. He said he’s seen estimates of as many 4 million more births annually.

“Thumbs up to that from Disney,” Iger said.

Shanghai Disney Resort, which will include two hotels and an outdoor recreational area, will be almost 1,000 acres in size when it opens, Chief Financial Officer Jay Rasulo said Dec. 10. This puts it third behind Walt Disney World in Orlando, Florida, and Disneyland Paris among the company’s resorts, he said then.

Most of the new attractions in the park will be ready when the resort opens, Disney said, without providing details on them. Construction of the resort began in April 2011 and it is targeted for opening at the end of 2015.

Attendance at the Shanghai resort could ultimately top the company’s second-most popular property, Tokyo Disney Resort, which has 28 million annual visitors, Rasulo said in December.

— With assistance by Christopher Palmeri, and Liza Lin

(Adds analyst comments in fourth paragraph.)
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