Manager of 'sick' hotels plans for new role as industry recuperates.

Revenue at Outrigger Lodging Services, the Encino-based company that specializes in management of distressed hotels, has increased 600 percent in the last five years while the hotel industry has been in one of its worst declines ever.

In 1989, its first full year of operation, Outrigger had $12 million in sales and this year it expects gross receipts of $84 million. Next year company President John Fitts said he projects revenue of at least $110 million.

But the expected improvement in the hotel industry could, at least on paper, prove to be bad news for the company, which currently manages 10 Los Angeles properties.

Still, just as he did in the late 1980s when the hotel industry began its decline, Fitts also sees opportunity ahead.

"As the industry improves, more people are going to become interested in buying hotels. I can see it starting to happen already, and that is good for us," he said.

Since it was formed as a partnership between Fitts and Outrigger Hotels Hawaii, a hotel development company, Outrigger's net income has more than matched the growth of its revenue, according to Fitts.

In its first year of operation, the private company lost more than $112,000 and the following year it broke even.

Last year, 1992, the company had a $462,000 profit; this year Fitts said he expects Outrigger to make almost $1 million, and next year he projects net income of $1.4 million.

What Outrigger does is manage hotels; it has no equity position in any of its 20 properties.

About half of its hotels, including Outrigger's first property in Texas, came its way via management agreements with lenders that took over distressed -- meaning bankrupt or foreclosed -- hotels.

The remaining properties are operating under long-term agreements with owners that wanted to make a change.

Outrigger currently has 8,600 hotel rooms in the U.S. under management, at properties that range from mid-range to deluxe operations.

Fitts, who leads a headquarters staff of 24, acknowledged the hotel industry's recent misfortunes have helped his company grow.

"Yes, we're a distressed-hotel company but we also do many long-term management agreements. I fully expect we will enjoy another two years of reasonably steady work in our asset management group (distressed properties). Beyond that it probably will be a diminishing market, which means we will have to counterbalance that with growth in long-term contracts.

"We're doing that now by getting out on the streets and looking for potential buyers," Fitts said.

Though it is a relatively young company, Outrigger is apparently well regarded in a business that includes more than 900 hotel management companies in the U.S.

"They have a pretty good reputation in an industry in which all you have to do is print up a business card and say your in the hotel management business," said Ed Watkins, editor of Lodging Hospitality magazine, a monthly trade journal based in Cleveland.

"I know they have been doing a lot of turnaround work and that is going to have to change as the hotel industry improves. But I think that Outrigger is probably one of fewer than 100 management companies that have the credentials to make it," said Watkins.

Among the Los Angeles County properties managed by Outrigger are two hotels that used to be members of the L'Ermitage chain and three facilities in Marina del Rey that are owned by Saudi Arabian Sheik Abdul Aziz al Ibrahim.

The former L'Ermitage hotels are the Le Montrose and Le Parc Suite, both in West Hollywood, and the Marina del Rey properties are the Doubletree, the Marina International and the Marina Del Rey Hotel.

This week Outrigger will announce the start of a renovation project for the three Marina hotels.

Fitts, 44, pointed to what happened at the Le Montrose -- which as part of the L'Ermitage chain of small, luxury hotels, was known as the Le Valadona -- as typical of what Outrigger does.

The Resolution Trust Corp. had taken over the hotel in 1991 and hired Outrigger to manage it. At the time, said Fitts, room occupancy was averaging 17 percent for the year.

Outrigger sent in what the company calls its "task force" of hotel management experts and discovered an operating account of $24,000 and just 150 room nights booked at the 110-room hotel, an abnormally low number of advanced reservations.

Fitts said that as of the end of this year the hotel will have a gross operating profit of $1.1 million and an annual average room occupancy rate of 74 percent.

The national average is just under 63 percent and the Los Angeles County average so far this year is about 62 percent. The industry accepted break-even point for most hotels is an occupancy rate of between 65 percent and 67 percent.

"The first thing we did was cut out $600,000 in expenses," he explained.

"We cut 10 jobs and improved productivity. For instance, the room maids were cleaning eight rooms a day and now they're doing 13," said Fitts.

"We then looked at our markets and we sent people on the street knocking on doors looking for business, which is what you have to do," he noted.