HT-Hersha Hospitality Trust

[Sullivcd]

This is a hotel REIT trading near 52 week lows.  I do not currently own but have in the past and I really like management.  They recently initiated a large buyback to take advantage of the low stock price and say all the right things on conference calls. Here is an article that lays out the pros and cons well:

 

https://seekingalpha.com/article/4143195-6_2-percent-yielding-reit-20-percent-near-term-returns-strong-catalyst

 

Has anyone else taken a look?

[Foreign Tuffett]

A few thoughts after 30 minutes of research:

 

Management certainly seems to be adept at buying and selling hotels. Overall capital allocation seems solid.

 

The Shah family only owns about 6.5% of the outstanding shares/units. Seems low given that the Shah patriarch founded the company and two of his sons have been executives officers for over a decade. All three of them are well compensated, with a combined 2016 compensation # of around $7.5 million.

 

The Shah family members involved with the company own 24.5% of Hersha Hospitality Management LP ("HHMLP"), a separate company which provides, among other things, property management services for substantially all of the hotels HT owns. While HHMLP seems to do a good job, I think that the incentives for HHMLP aren't the same as the incentives for HT, leaving the Shah family conflicted. 

 

Any thoughts on the replacement cost for their hotel portfolio?

 

 

 

 

 

[Sullivcd]

From the q4 earnings call:

 

"In the fourth quarter, we were also able to repurchase $30.4 million of stock at an average price of $17.60. We consider opportunities to purchase our existing portfolio at a 20% to 30% discount to private market values very attractive."

 

Trading at $17.30 now, hopefully they are aggressively buying back.

[Sullivcd]

I thought this exchange was interesting also:

 

Michael Bellisario

That's helpful. And then just kind of on the same buyback topic, kind of what do you guys think from your seats the market is missing in terms of valuation. And how do you get investors onboard that that 20% to 30%, NAV discount, you guys talk about is real and then it will close over time.

 

Jay Shah

Michael, I think one major catalyst side I think for HT is the reopening of the Parrot Key Resort and the Cadillac Hotel & Beach Club, these are two very big assets. That are going to be extremely productive for the portfolio as Ash mentioned in his prepared remarks, the first two quarters of the year when these two hotels are out back in 2015, these two assets produced $11.6 million of EBITDA in those first couple of quarters. We’re now repositioning these hotels up and so these are very productive assets, represent 10%, 15% of our EBITDA. And those being out will have – has probably made it more difficult for investors to see the benefits of our recycling story and the ramp up that’s embedded in our portfolio.

So, I think it also requires just some fewer puts and takes. I think we probably would have gotten there a little bit earlier without the hurricane, at least a quarter earlier. We could have been able to demonstrate some of this churn. But it takes in the public market, especially with a focused, lean company like ours, you take on $1 billion of recycling and it’s choppy and it's choppy for investors and the research community. But as you know, we have a lot of conviction in it. We’ve bought back over 20% of the stock. We buy, as a company, we buy personally and we make sales of individual assets well above where we trade.

And so, I think we're patient, we don't need to raise equity capital and so we’re patient. But we do believe that 2000 – as the year goes on, some momentum will build. As we get into the third and fourth quarter, I think people will see that 2019 and 2020 will line up for very significant growth. As we look at this portfolio, imagine this portfolio producing $200 million, $205 million of EBITDA without any additional acquisitions. Whether that takes 18 months or 24 months, we're not sure at this point, that depends a bit on the market. But we just have to do it on a quarterly basis, show the growth and help you bridge it.