Wednesday, November 10, 2010

Hersha bets $250M on hotel recovery, NYC, KofP deals

"Members of the Shah family, who control Hersha Hospitality Trust, are betting the economic recovery, and corporate overnight travel, are coming back fast.

Today they arranged to borrow up to $250 million from TD Bank and other lenders, almost double their old $135 million credit facility. Hersha has also sold five hotels in New England's Connecticut River Valley, upstate Pennsylvania, and other slow-growth markets. They'll use the money to buy more hotels in the New York, Philadelphia, Boston and Washington areas, says chief executive Jay H. Shah.

Founder and chairman Hasu P. Shah remains in Hersha's Harrisburg headquarters. But his Ivy League-educated sons, CEO Jay and President Neil H. Shah, now work from the Penn Mutual tower in Philadelphia's historic district, closer to the company's East Coast growth markets.

Also yesterday the Shahs opened their newest hotel, a $150-a-night Park Hyatt, on the renovated King of Prussia site where they formerly ran a $120-a-night Mainstay Suites.

"We have taken a bet on the recovery," Jay Shah told me. "We're relying on the corporate transient traveler in the Northeast markets. You've got the recovery in financial services. You're starting to see signs of life in the pharma industry."

The strategy shows early signs of paying off: In 2008 Hersha bought New York's Tri-Be-Ca Hilton Garden Inn at $400 a room; the price today, Shah estimates, would be closer to $500, boosting the company's valuation.

At around $6 a share, Hersha stock remains down at the same price it fetched in the early 2000s. But it's up 132% for the year, vs. 39% for other real-estate investment trusts and 46% for other hotel REITs, according to Bloomberg LP. Unlike many REITs, Hersha didn't cut its dividend, Shah notes, and hopes to boost it.

The recession has changed some hotel practices. By selling distant hotels, Hersha has been able to centralize engineering and maintenance in its major markets. The chain has left coordinator and assistant coordinator jobs vacant. The Hyatt Park has a staff of just 30, for 129 rooms.

The Hyatt Park idea is also post-2008. Instead of trying to draw a fancy marquee restaurant, it's room service by the laptop and flatscreen: "The rooms are larger, it's a work-eat-live concept. Generation Y likes to work while it's eating, while it's watching television. It's more of a Starbucks feel. But with deeper wood finishes."

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