Summary
- Hersha Hospitality Trust is a very proficiently run business created by the family that now dominates its leadership – and holds a sizable stake.
- It aggressively re-engineered its business practices to manage the shutdowns. As such, it’s already very close to the cash flow breakeven point while its competitors are in disarray.
- The crisis continues to ease, sans many competitors. Little more is needed for the preferred stock, which is currently at a 40% discount to redemption value.
- This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »
- This article was coproduced by Investing With Confidence.
In the late 1970s, Hasu and Hersha Shah – a young Indian couple – bought an 11-room motel in Harrisburg, Pennsylvania, in order to flip it. But the horns soon began to blare at nearby nuclear power station Three Mile Island.
And all seemed lost.
The reactor was showing signs of going into meltdown, causing government authorities to shut down the entire area – including the motel – for months.
(Source)
The family had only made the purchase to advance their goal of building a nest egg of $50,000. That was to build a business back in India, where they had every intention of returning to.
They’d accurately noticed the large profits available from buying and updating foreclosed properties. And they already had successfully flipped a series of single-family homes.
Had their luck completely changed?
Hersha’s Management Was Born to Do This
During the three-week nuclear lockdown itself, there was of course no revenue. But soon after, armies of cleanup workers and inspectors came swarming in. And they needed somewhere to stay.
Hasu and Hersha were happy to accommodate them.
Later, they bought a larger hotel. Nearby was a driving school looking for a simple system to guarantee student accommodations. And so the Shahs obliged once again, even expanding the building as the driving school grew.
This family ended up spending a lot of time in hotel management roles, particularly selling placements to corporate clients. And so their sons, Jay and Neil, learned the business first hand as a result.
In 1999, Hasu and Hersha took the company public, beginning a continuous streak of expansion funded largely by debt.
(Source: iREIT analysis of company data)
In 2006, Jay stepped in as CEO and Neil as president and COO. Together, they reached into the vacation market, especially in New York City, Miami, and the area around Disney World.
The group now owns 48 hotels with a combined 7,600 rooms nationwide. Just over half its earnings come from five-star luxury and lifestyle hotels. Another 32% falls into the upscale, or four-star, category. And the remaining 14% is three-star, or upper-midscale.
Half of earnings come from Hilton or Marriott branded hotels. Hyatt and IHG Hotels also are among its clients, and it works with independent hotels and collections as well.
