RICHFIELD Hotel Management, the US arm of Regal Hotels, is seeking more equity in the properties which it manages in the US. With 170 properties on its books in North America, Richfield has established itself as the largest company in its field in the region. The company currently has controlling interest in 22 properties. According to Richfield Hotel's president Peter Yu, under parent company Regal Hotels' expansion policy, capital for overseas equity investment is within the 25 per cent range of capital available for expansion. ''We are very selective when it comes to acquiring properties,'' he said. ''Allocation of capital for equity is put in places where it can attain the highest growth. ''At present, the growth rate in Asia is very high and to divert all the equity and capital to US is not prudent.'' He added that his company will not buy large numbers of properties. ''We are looking for an approach through which we can best leverage the capital we utilise in US,'' he said. In the past few years, the company has consistently made strong returns for hotel owners. ''We have established a reputation for generating high income for hotel owners over the past few years and we would like to be able to share some of that profits,'' he said, ''hence the decision to acquire more equity in some of the properties which we manage.'' The company also has been increasing the yield of hotels which have been foreclosed by financial institutions, boosting the value of the property for eventual sale. ''But really, the risk and reward balance for our efforts in such properties is not much, and therefore we would like to take a 10 per cent stake in some of the properties so that we can get a share of the profits when the properties are sold,'' he said. Last year, the company improved the cash flow of foreclosed properties by 50 per cent, with 30 per cent of its management contracts from foreclosed properties. ''These contracts are usually short-term and terminated when the properties are sold,'' Mr Yu said. ''However, we get recurring business from the financial institutions who hire us to manage such properties.'' In the remainder of its properties, the company improved occupancy from 61.5 per cent in 1991 to 65.8 per cent last year, well above the US industry average of 62.2 per cent. Year-on-year cash flow from operations rose by 18.2 per cent in 1992 over the previous year. According to Mr Yu, the hotel market is expected to grow by two to three per cent for this year, while buying opportunity for hotel properties will remain promising for the next 18 months to two years. ''The supply-demand adjustment for hotel properties has been taking place for the past four to five years since the change in tax laws and credit crunch,'' he said. ''There has hardly been any new development and supply has almost stopped. ''However, the demand side has been growing, not at a high rate but between two to three per cent.'' He said that a buyer should not buy on a cycle but on a specific deal. ''Investors should look at hotels as an operating business and not as a real estate property whose value will increase with time and inflation,'' Mr Yu said. He said the US market was ''very complex, very big and scattered''. ''Other than the gateway cities of New York, San Francisco and Los Angeles, the market mix is 89 per cent domestic and 11 per cent foreign,'' he said. ''Franchises are the key elements in bringing in business at all times, and selecting a franchise require a lot of analysis and understanding of the market. ''The operating capability, organisation, labour force, is very difficult.'' He said many Asian investors bought hotel properties and managed them on their own, but warned that ''if they are not selective or run the business with market sense, they could end up not making the returns which they expect''. ''We went into the market and bought a management company which had the expertise combined with hard assets to generate the cash flow,'' he said.
