KT, known as a 'hotel mogul,' is pushing for the sale of its five-star hotels to secure funds for investment in artificial intelligence (AI) business. However, voices of opposition are emerging both inside and outside KT, as the hotels are high-revenue assets that have generated significant profits, seeing sales increase more than sixfold over the past five years and serving as a major cash cow.
◇ Concerns arise among retired KT executives over hotel sale
On the 5th, according to the telecommunications industry, recent statements from retired KT executives noted that the proposed sale of hotels and other real estate under consideration by KT could negatively impact the company's future competitiveness.
In their statement, they pointed out, "The hotel business has the potential for sustainable growth and could serve as a stable cash cow for KT's future asset," adding that "focusing on uncertain AI investments by selling currently high-revenue and likely to appreciate future assets poses a significant financial risk."
According to Korea Credit Rating, the revenue of KT Estate's hotel sector, which operates KT's hotel business, increased more than sixfold from 29.7 billion won in 2020 to an estimated 202.0 billion won in 2024. A KT official stated, "It is hard to find a reliable source of revenue in non-telecommunications businesses like the hotel sector" and likened it to "a goose that lays golden eggs," considering the rising land values.
Currently, KT owns five hotels in downtown Seoul: Sofitel Ambassador (Songpa District), Andaz Seoul Gangnam (Gangnam District), Novotel Ambassador Seoul Dongdaemun (Jung District), Le Meridien & Moxy Myeongdong (Jung District), and Shilla Stay Yeoksam (Gangnam District). All four hotels, excluding Shilla Stay Yeoksam (a three-star hotel), are five-star hotels. KT ventured into the hotel business starting in 2014 to utilize idle land from merged telephone exchanges due to the expansion of wireless communications.
◇ Need for funds for AI investment and shareholder returns
As of December last year, looking at the cash assets of the three major telecommunications companies (including short-term financial products), KT had the largest at 3.7295 trillion won, which is 59% larger than its competitor, SK Telecom (2.3476 trillion won). While all three companies in the telecommunications sector have announced plans for investments in AI, only KT has moved to sell assets. What is the reason behind KT, which has the largest cash reserves, being active in asset sales?
In October of last year, KT announced a partnership with Microsoft (MS) to jointly invest 2.4 trillion won over the next five years in AI and cloud businesses. Additionally, it plans to buy back 1 trillion won worth of its own shares by 2028 to be retired. Such shareholder-friendly policies require substantial funding. Last year, KT's operating profit was 809.5 billion won, down 50.9% from the previous year, but dividends (491.5 billion won) remained at a similar level compared to the previous year. An industry source noted, "Asset sales, including hotels and other real estate assets, may be necessary to secure funds for KT's announced AI investments and shareholder return plans."
◇ Considerations to secure growth momentum in the AI upheaval
There have been past criticisms that KT aims to improve its financial condition through the sale of real estate assets. Over a decade ago, former Chairman Lee Seok-chae was proactive in selling KT's idle land. At that time, there were criticisms suggesting that the company was attempting to address its poor performance through asset sales.
When former Chairman Lee took office in 2009, KT's land assets spanned 2.42 million pyeong, which had decreased by about 23% to 1.87 million pyeong by 2014. During the same period, KT's building assets shrank from 2.72 million pyeong to 1.1 million pyeong, a 59% reduction. The argument is that if KT had not conducted significant real estate sales in Seoul during that period, its assets would have grown. KT used the proceeds from these asset sales to increase dividends and focused on growing new businesses like KT Rental. However, after Lee Seok-chae stepped down and was succeeded by Hwang Chang-kyu, who was also recruited from outside KT, he sold KT Rental, generating a profit of 500 billion won.
Ryu Jong-ki, a corporate risk expert at Han-young EY, noted, "Professional managers are employed executives rather than owners, and they tend to feel pressured to deliver results during their tenure. This tendency to improve financial conditions through asset sales can pose risks to corporate management."
However, there is a perspective that KT's situation is different from the past. Kim Kyung-won, a chair professor of management at Sejong University, stated, "In a situation where competition accelerates in the AI upheaval, the consideration of selling non-telecommunications business hotels to secure funding for AI investments that drive growth is necessary from a long-term perspective." He added, "This is different from the past, where the company experienced poor performance during Lee Seok-chae's tenure. In a context where KT's revenue is growing, carrying out large-scale workforce restructuring and considering asset sales should be seen as efforts to lay the groundwork for long-term planning rather than focusing on short-term results."