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CEO Spotlight:Shah Reflects on Hersha's Transition to Gateway Portfolio

12/13/2013 | By Sarah Borchersen-Keto

Jay H. Shah, CEO of Hersha Hospitality Trust,(NYSE: HT) joined REIT.com for a CEO Spotlight video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.

Shah was asked about the recent sale of assets and Hersha’s transition into an urban, transient hotel portfolio. Shah noted that Hersha has been working to focus more on the six major gateway markets in the United States: Boston, New York City, Washington, Miami Los Angeles and San Francisco.

“We felt that if we were to focus a pure play strategy on just these gateway markets, we’d be able to drive overall a stronger RevPAR (revenue per available room) in our portfolio and achieve EBITDA (earnings before interest, taxes, depreciation and amortization) growth rates that are above the national average,” Shah said. He added that the sale of 16 non-core assets for $217 million earlier in the year was an “essential part” of positioning the portfolio to outperform in terms of RevPAR and EBITDA growth.

Shah noted that he has seen a disparity between different segments of the lodging sector. Urban markets and hotels focused on corporate transient business have recovered very well in the cycle, according to Shah.

“That’s been the real sweet spot of the recovery,” he said. Shah added that the recovery in this sector should last another two to three years with growth rates in the mid-single-digit range.

Meanwhile, Shah commented that most of the U.S. has returned to peak occupancy levels. A handful of markets have gotten to peak levels of average daily rates (ADR), and in some cases, have exceeded them, said Shah, citing Miami as a prime example. On the other hand, Shah said, there are still a good number of markets that have stabilized occupancy, but are up to 9 percent off peak ADRs.

“Those markets still have some strong runway for growth as we move through the remainder of the cycle,” he said.

Turning to international travel, Shah observed that “it’s been a great story across the last several years.” He noted that the U.S. is expected to have an international travel compounded annual growth rate of about 4.9 percent for the next three to four years.

“This is pretty attractive growth. It’s growth that sometimes is in excess of what the market growth is, so it’s something that most hoteliers have been focused on very closely,” Shah said.

Shah added that the U.S. visa waiver program will continue to translate into increased international travel. Other trends impacting growth of international travel, he observed, include the growing number of people entering the middle class.