The landscape of hospitality has changed significantly since Hersha Hospitality Trust became a publicly traded enterprise in 1999. But Chief Executive Officer Jay H. Shah is confident in the diverse set of tools the company wields, ready to fix any issue that might stand in the REIT’s way.
Shah joined the family-owned business in 1996 and has held his current position for nearly 11 years. In that time, he has seen the 1-800 booking numbers of old become all but extinct and computer technology render manual guest folios obsolete. And, most important from where he sits, Shah has been eager to meet the new needs of guests as their tastes and preferences evolve. Regardless of age, all travelers are influenced by technology. In order to enhance the guest experience across all touchpoints, Hersha is rethinking its hotels from top to bottom to identify ways it can leverage innovative technologies.
“It’s a really exciting time, but to stay half a step ahead, you have to really invest time and resources to know where the puck is going to be so you can skate to it,” Shah explains.
Zeroing in on the guest experience is one of Hersha’s primary strategies. The REIT focuses on what Shah calls “clusters”; six carefully selected urban gateway markets. By maintaining a diverse portfolio of 56 independent and branded hotels within submarkets of New York City, Boston, Washington, D.C., Miami, California, and the company’s home base, Philadelphia, Hersha can collect guest insights in order to deliver the best product. The company’s 2015 annual report notes that 16 percent of its 8,892-room portfolio is independent, and the rest branded. Since upscale properties account for nearly 50 percent of the portfolio while the rest comprises of upper midscale, luxury, and upper upscale hotels, Hersha is able to give each submarket a taste of all it has to offer.
“When you understand what guests are looking for in different markets, and you have a variety of offerings, it’s going to help your portfolio drive maximum share,” Shah explains. “Having a variety of segments and a mix between branded and independent hotels in any given market gives us a lot of cross-selling opportunities based on different customer tastes and preferences, as well as based on a customer’s stay occasion.” Hersha selects properties in markets with high business and leisure demand, and it aims to provide experiences that will please guests who visit for both reasons—hence Shah’s phrasing, “stay occasion.”
In recent years, using a diverse portfolio to analyze guests’ needs in different markets has paid off. The company continues to grow the value of its assets and increase its hotel operating revenues, with a 13.5 percent spike in EBITDA in addition to ADR and RevPAR increases in 2015. And although overall RevPAR projections in the industry are subdued, Shah is not concerned. As a means to pay dividends over the past several years, the company has recycled mature properties with projected lower-than-portfolio-average growth, using the proceeds to buy higher-
gross assets.
“We and the industry are both at record-level occupancies. That, combined with the fact that supply growth is still below long-term averages, means that kind of compression is going to allow for ADR growth. We think it’s a great time to be a hotel owner,” Shah says. “ADR growth at these high levels of occupancies is some of the most profitable growth that a hotel can have.”
Despite a strong U.S. dollar and macro-economic concerns, Shah has faith that the strong economic fundamentals in place will continue to drive travel. If the cycle begins to slip, he has been in the industry long enough to know the drill. “There is always volatility, and there are always challenges,” Shah says. “You just have to manage through it.”
Good Advice
Jay H. Shah, CEO of Hersha Hospitality Trust, dishes on how to keep shareholders happy.
Communicate. “We communicate very clearly what our strategy is and we update shareholders pretty frequently. Transparency helps a great deal and creates a more comfortable environment for everyone involved.”
Generate absolute returns. “We maintain a strong dividend policy, which is another way to return capital to investors and enhance their returns. Maintaining that total shareholder return perspective will generally keep you pointed in the right direction.”
Think like a long-term investor. “It’s pretty easy for us because most members of management here are significant shareholders as well. It’s not just about day-to-day business and economic cycles, it’s about creating returns for the shareholders’ invested capital.”
