Kato Pleasure Group, which runs a chain of so-called love hotels across Japan, plans to spend ¥24 billion (US$204 million) doubling its number of properties to 100 and may sell shares to the public, its founder said.
Japan's love hotels -- which sell rooms by the hour and often allow guests to book and pay at a machine in their lobbies -- are popular in cities where rents average ¥2,500 (US$21) per square meter, forcing many young people and married couples to live with their parents.
If Kato Pleasure sells shares, it would be the first love hotel company to list in Japan, though the industry's image may make it difficult to lure investors.
"The image of a love hotel is dim and sleazy," said Tomoyasu Kato, who owns more than a 50 percent stake in the company. "For young people, a `love hotel' constitutes a necessity." Kato says he has approached investment banks to help fund his plan.
The three-year expansion would make it one of the top three love hotel chains, according to investment bank Westwood Capital (Asia) Ltd.
Kato also owns a business hotel in Fukuoka with the world's fourth-largest securities company Lehman Brothers Holdings Inc and is managing hot-spring resorts with Japan's local governments.
He hasn't attracted any high profile names to his love hotel business. Lehman spokeswoman Jackie Kestenbaum declined to comment.
"It's a shame business," said Tatsuo Koyama, chairman of Aine, a closely held company that owns 100 love hotels. "People think it's a vice business." It's not that the business isn't profitable.
Kato Pleasure -- which said its customers are usually aged between 20 and 27 -- expects profit before tax to rise two-thirds to ¥1.5 billion in the year ending March 31 as sales rise a fifth to ¥12 billion, Kato said.
"The love hotel business is a good one because of the high occupancy rates and minimal maintenance costs," said Gabriel Scion, managing director at Westwood Capital.
"They serve a market where housing is limited, and there is not much privacy in existing properties." Kato Pleasure is taking advantage of record low interest rates and a property slump that has driven commercial values in the world's second-largest economy down about 62 percent in 11 years.
At the Hotel Lala in Tokyo's Shibuya district, 31 of 38 rooms were occupied at 5pm on a recent Thursday.
Tomoyasu Kato, now 37, took over his ailing father's record- producing company, a clothes shop and three love hotels in 1987 when the family business was ¥2 billion in debt and had ¥300 million in annual sales.
Kato Pleasure now has 40 love hotels with 1,059 rooms, for which it charges an average of ¥6,800 (US$58) for three hours, or ¥7,800 for one night. It has more than 3 million guests at its hotels a year.
Many of the company's love hotels have themes including Christmas all year round and churches.
The company employs about 1,700 people including part time workers and has about 1,100 of them working in the love hotel business. Usually there is about one employee per love hotel room.
It costs about ¥15 million to acquire one hotel room and Kato Pleasure is planning to acquire or co-invest with landowners and investors ¥24 billion for 1,582 rooms.
Kato Pleasure's 4.5 million customers can apply for a "Pleasure One" card that enables the 200,000 members to get discounts on their hotel rooms and at the company's restaurants.
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