For the last few months, I had reserved a BUY rating for Hersha Hospitality (NYSE:HT) but now I’m upgrading shares to the company to STRONG BUY. If you have shares of this company or want to buy soon, here is something for you.
Hersha Hospitality was once a small private real estate investment trust (REIT) that listed in a small IPO of $13 million in 1999. Ever since, the company (Jay Shah as the CEO and Neil Shah as the president and COO), has amazingly transformed itself into one of the most reputed and successful “transient oriented” hotel real estate investment trusts. Today, the company’s portfolio stands at 51 properties and a total capitalization of around $2.45 billion. This company generates around 46 percent of EBITDA in New York City and 96 percent from gateway markets.
A few weeks ago, HT announced a deal of $50.7 million acquire the 155-room St. Gregory Hotel & Suites in Washington, DC. Jay Shah remarked the hotel was different as it has 101 full kitchen suites that make the St. Gregory Hotel & Suites one of the larger room hotels in the comp set. The company is expecting the purchase price for the St. Gregory would reflect a forward economic capitalization rate and EBITDA multiple (based on the company’s underwriting assumptions) of 7 percent and 12.9x, respectively.
Many in the industry believe that the transformation of HT has been due to its recycling initiatives as the REIT has been selling off its suburban hotels to focus in central business district markets of Southern California and Miami. It would be a surprise to learn that the company has grown its revenue per room for around $40 in 1999 to about $160 today. What I like most about this company is that Hersha Hospitality has strong EBITDA growth (around 10% – 12%) that is primarily driven by solid operating fundamentals and strong markets. The company has also managed to cluster the “transient oriented” assets in core markets to leverage its management resources.