Outrigger Enterprises, Inc. Business Information, Profile, and History

Company Perspectives:

Our hospitality and leisure market expertise in island destinations has been built over 50 years of successfully operating a business in some of the most alluring locations in the Pacific. Today, our business has grown tremendously and now spans the Pacific, from Hawaii to Fiji to Australia.

As we look to the future, we continue to aggressively add properties and brands to our portfolio of destinations. Outrigger Hotels & Resorts, a division of Outrigger Enterprises, manages or has under development more than 50 hotels and resort condominiums in prime leisure destinations throughout the Pacific, representing over 12,000 hotel rooms--more than any other hospitality company in our region.

We are committed to providing the highest level of service, from the guest reservation and vacation experience to post-visit correspondence. The success of these efforts is why we are now one of the Pacific region's leading leisure and hospitality companies.

History of Outrigger Enterprises, Inc.

Outrigger Enterprises, Inc. is a leading vacation lodging company in the Pacific. It operates two main hotel brands, Outrigger Hotels & Resorts and OHANA Hotels & Resorts. Outrigger also has a marketing agreement with timeshare leader Fairfield Resorts. The company was built by the Kelley family, pioneers of affordable vacation accommodations in Hawaii.

Based in Honolulu, Outrigger owns or manages more than 12,000 hotel rooms and condominium units throughout Hawaii and the South Pacific. The company's Outrigger Properties division owns one-quarter of all the hotel rooms in Waikiki Beach, including two of seven beachfront hotels. An affiliate, Outrigger Lodging Services, operates nearly two dozen properties in the mainland United States.

Origins

Roy C. Kelley, a trained architect from California, moved to Hawaii in September 1929 with his new bride, Estelle. Ironically, they arrived on Black Friday, the day of the stock market crash that launched the Great Depression.

Kelley designed a number of historic buildings in Honolulu while under the employ of architect C.W. Dickey, including the main building of the Halekulani Hotel. By 1938, he was working exclusively for himself, chiefly designing residences.

The Kelleys began building and acquiring apartments in the 1930s. Their first hotel was The Islander on Seaside Avenue in Waikiki. Opened in 1947, it was Hawaii's first new hotel in 20 years. It had 33 rooms on four stories; a penthouse was added later. Although there were already a few hotels in Hawaii--the Royal Hawaiian, the Moana, and the Halekulani--The Islander catered to a more budget-conscious crowd. Rooms started at $7.50 a night.

According to Kelleys of the Outrigger, a history of the Kelley clan by John McDermott, the 20-unit Willard Inn was acquired for $2 million in 1949. Construction of the 100-room, six-story Edgewater Hotel soon followed. The Edgewater was Waikiki's first hotel with a swimming pool. It was later doubled in size.

Roy and Estelle Kelley were known for being actively involved in the management of the hotels. Roy Kelley kept an office next to the lobby of the Edgewater; it was moved to the new Reef Hotel after it was completed in 1955. Ten stories tall, the Reef was the first high rise in Waikiki. The 18-story Reef Towers was soon erected across the street.

The Kelleys kept the management hierarchy extremely flat, which helped reduce overhead. They also could build hotels cheaper than anyone else, owing in part to Roy Kelley's design skills. By 1962, records Kelleys of the Outrigger, the enterprise had 3,000 rooms in ten hotels.

Outrigger Waikiki Opening in 1967

The Outrigger Waikiki opened in 1967 at the site of the Outrigger Canoe Club, next to the famous Royal Hawaiian Hotel (then the star property of the Matson cruise line). The Outrigger was built with the help of equity partners, including Bob MacGregor, who served as its president for three years. The Outrigger East, Outrigger West, and Coral Reef hotels were soon added on property acquired in the Outrigger Waikiki deal.

In 1969, Roy Kelley sold the Edgewater, the Reef, and the Reef Towers to Cinerama Group. This left the Kelleys with four hotels: the Edgewater Lanais, the Islander, the Coral Seas, and the Outrigger Waikiki, notes McDermott. They were already building five more hotels with a total of 2,000 rooms.

As Dr. Richard Kelley, son of the company founders, told McDermott, Cinerama ended up issuing the Kelleys stock in lieu of payments after the Hawaiian tourism business fell off in the 1970s. The family amassed a 50 percent ownership in Cinerama after buying out other shareholders. They eventually traded this interest for the hotels they had sold.

Gross sales were $20 million in 1982, reported Hawaii Business. In that year, the Kelleys acquired the 626-room Prince Kuhio Hotel for $40 million. It was elegant but had been unable to turn a profit at its location away from the beach. The Malia was acquired in 1984. Another hotel, the Hobron, was bought at a bankruptcy auction in 1986 for $24 million.

Dr. Richard Kelley was named the company's CEO and chairman in 1989 after serving as president for nearly two decades. He had left the practice of medicine in 1970 after working as a pathologist for Queens Hospital. Dr. Kelley then began running the Outrigger hotels (the Outrigger East and Outrigger West were added). His father, he told McDermott, retained oversight of the Waikiki Village, the Coral Seas, and the Reef Lanai. (Roy Kelley and his wife Estelle died in 1997 and 1998, respectively.) Bill Forman, head of the Cinerama Group (then half-owned by the Kelleys), ran the hotels that his movie chain had acquired. These three divisions were merged after the Kelleys took back ownership of the Cinerama hotels in 1984.

Outrigger had 6,400 rooms in 18 hotels in 1986, recorded Pacific Business News. A major renovation project was underway at many of the properties. The reservations system needed to be updated as well. A new $1.5 million computer system was installed in 1989. It was named STELLEX after Estelle Kelley, who had originally managed reservations on slips of paper.

Six hotels were sold off to Japanese investors in 1989: the Outrigger Surf East, the Outrigger Waikiki Surf, the Outrigger Waikiki Surf West, the Outrigger Malia, the Outrigger Hobron, and the Outrigger Maile Court. Outrigger retained a ten-year management contract on each of them.

Beyond Oahu in 1989

By the end of the decade, the company had ventured onto the mainland. It was managing five hotels in Fort Worth, one of which was company-owned. These were operated through Outrigger Lodging Services, a 50-50 joint venture with hospitality executive John Fitts. The mainland was an attractive place for expansion as hotels there could be acquired for half the cost per room as Hawaiian ones.

Outrigger expanded to the Big Island in 1989, obtaining a management contract for the Royal Waikoloan Hotel after buying an interest in the hotel. Outrigger began operating its second neighbor island hotel in 1993 after it acquired the Kauai Hilton, which was renamed the Outrigger Kauai Beach.

According to Hotel & Motel Management, annual revenues were about $165 million a year at the time. The Outrigger's hotel shops accounted for $13 million of sales. Outrigger entered the 1990s with a $3 advertising campaign focused on the affordability of vacationing in Hawaii.

Revenues were $275 million in 1994, reported Hotel & Motel Management. During the year, the reservation offices and the office of Chairman Dr. Richard Kelley were moved to Denver. In 1998, the company built a hotel at Denver International Airport under the Hilton Garden Inn brand.

Restructuring Under a Holding Company in 1995

The business was renamed Outrigger Enterprises, Inc. as it shifted to a holding company structure in 1995. (It had been formally known as Hotel Operating Company of Hawaii, Ltd. for the previous nine years.) Outrigger Enterprises had three main divisions: Outrigger Hotels & Resorts, Outrigger Properties, and an investments division.

The first international hotel, Outrigger Marshall Islands, was opened in July 1996. Properties throughout Polynesia followed. Outrigger gave up the Marshall Islands management contract in 2003, however.

Outrigger continued to develop properties in Waikiki. It reclaimed its lease on the Holiday Isle, upgraded it, and reopened it in 1997 as the 287-room Outrigger Islander Waikiki, reported Travel Agent (it was renamed the Ohana Islander Waikiki in 2003).

Travel from Japan and Korea suffered as a result of the Asian financial crisis of 1997. Outrigger responded by spending millions to market its Big Kahuna vacations program to U.S. travelers.

Launching OHANA in 1999

A new, moderately priced brand, OHANA Hotels & Resorts, was introduced in December 1999 with 15 of Outrigger's Waikiki hotels. (Ohana is the Hawaiian word for family.) In the same year, the company bought what would become (for a few years) its flagship property, the Outrigger Wailea Resort on Maui, and opened a 600-room hotel in Guam. A Fiji hotel followed in 2000. A spokesperson told Hawaii Business the company prided itself on making the vacation experience localized and true to the histories of each of these new islands. Outrigger opened a property in Tahiti around 1999 but withdrew from that market.

Dr. Charles Kelly, grandson of the founders, followed in his father's footsteps when he left medicine to join the family business in 2002. His initial focus was promoting the resorts at Wailea and Waikoloa Beach to the medical meetings community.

According to Hawaii Business, Outrigger Enterprises had gross sales of $400 million in 2002. During the year, the company began a strategic alliance with timeshare resort leader Fairfield Resorts. Outrigger benefited from a partnership with one of the strongest national players in the timeshare business, while Fairfield gained entry into the Hawaiian market.

Developments at Home and on the Horizon

Development of the $460 million, 7.7-acre Waikiki Beach Walk was scheduled to begin in 2005. Six hotels were being torn down to make room for this retail, entertainment, and lodging development. The first of two phases was to be completed by early 2007.

Rather than develop its own new high-rise hotel at the Beach Walk, Outrigger had put the property up for sale to fund expansion in other geographic areas. It also was selling the Waikoloa and Wailea hotels it operated under the Marriott brand. These had been acquired with an eye to gaining ground in the meetings and conventions market, which collapsed after 9/11.

Outrigger then shifted its focus in Hawaii to Oahu. It spent $20 million to upgrade the 530-room Outrigger Waikiki. The Outrigger Reef was also due for a renovation to begin at the end of 2005.

The company was ahead of schedule on its goal of having 20 properties in Australia by 2005, reported Travel Agent magazine in 2004. Outrigger also aimed to add a handful of properties to its first location in New Zealand.

Principal Divisions: Outrigger Hotels & Resorts; Outrigger Properties.

Principal Operating Units: Outrigger Hotels & Resorts; OHANA Hotels & Resorts; Outrigger's Condominium Collection; Outrigger Resort Club by Fairfield.

Principal Competitors: Aston Hotels & Resorts; Castle Hotels & Resorts; Marc Resorts Hawaii; Radisson Hotels & Resorts; Starwood Hotels & Resorts.

Chronology

• Key Dates:
• 1947: The Kelley family opens The Islander hotel in Waikiki.
• 1951: The six-story Edgewater Hotel opens.
• 1955: The Reef Hotel opens.
• 1967: The Outrigger Waikiki opens.
• 1984: The properties are consolidated into Outrigger Hotels Hawaii.
• 1989: The first hotels on a neighbor island and on the mainland are opened.
• 1995: A holding company structure is adopted.
• 1999: The OHANA Hotels & Resorts economy brand is launched.
• 2005: Construction slated to begin on $460 million Waikiki Beach Walk.