Hersha Is Up 23% Since May 1st And Still Climbing
- Much of Hersha’s transformation has revolved around its recycling initiatives, as the company has been selling off its suburban hotels to focus in CBD markets.
- Hersha’s segmented cluster strategy enables the company to leverage local consumer insights and scale to capture a differentiated mix of leisure and business transient customers.
- Hersha’s management team are sharp-shooters, and they understand how to unlock value in the hotel sector.
As a financial analyst, I sometimes feel like I’m a basketball scout in search of the next LeBron James in the REIT sector. Just over a year ago, I wrote an article on Hersha Hospitality (HT) explaining that the company was a “prime-time player“. Then, earlier this year, I wrote on Hersha again in which I explained, “Hersha is a diamond in the rough“.
Then just last week I wrote an article titled Get Rich By Owning REITs With Growing Dividends in which I included Hersha as one of five REITs with above average dividend growth prospects. As I explained,
“Hersha’s portfolio of recently built hotels reflects current tastes and preferences, and is positioned to generate significant free cash flow growth in the coming years.”
As the above chart illustrates, Hersha’s share price has increased significantly – by over 23% since my last article (April 30, 2018) – and it’s obvious that this stock is no longer “under the radar”.
Yet, we believe there’s still more room to run for Hersha, and in fact, our fundamental research suggests that the company could generate another 20-25% over the next 18-24 months. Why?
Hersha Hospitality 2.0
Hersha Hospitality was once a private REIT that listed in a small $13 million IPO in 1999. Since that time, the company has transformed itself into a leading upscale hotel REIT where it has “clustered” its portfolio around several key gateway markets.
Today, the portfolio stands at 49 high-quality “transient” in Boston, New York, Washington, DC, Philadelphia, Miami, and on the West Coast. HT’s portfolio of recently built hotels reflects current tastes and preferences and is positioned to generate significant free cash flow growth in the coming years.
Much of HT’s transformation has revolved around its recycling initiatives, as the company has been selling off its suburban hotels to focus in CBD markets such as Miami and Southern California. Over the last two decades, Hersha has grown RevPAR (revenue per room) for around $39 (in 1999) to around $180.
Various market tailwinds and robust operating performance demonstrate the fundamental turnaround in a number of Hersha’s core markets, most notably South Florida and New York City, leading to 2017 comparable portfolio RevPAR of $184.23, the highest year-end RevPAR figure in the company’s history and at the high-end of the lodging REIT sector.
Many of the hotels are situated in the country’s most populated technology and innovation districts, including the fast-growing Seaport in Boston, Playa Vista and Santa Monica in Los Angeles, Silicon Valley and South Lake Union in Seattle. As you can see below, Hersha has a bi-coastal focus:
Hersha’s ownership philosophy is keenly focused on assets in the most sought after locations across the U.S. and a unique combination of category-killing branded hotels and independent lifestyle hotels.
In addition, the segmented clusters enable Hersha to leverage local consumer insights and scale to capture a differentiated mix of leisure and business transient customers while boasting assets that respond to the tastes and preferences of today’s traveler.