Hersha CEO: Lodging Demand Fed by Millennials, Growing Global Middle Class, Urbanization

Jay Shah, CEO of Hersha Hospitality Trust (NYSE:HT), joined REIT.com for a CEO Spotlight video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Hersha owns select-service hotels operated under brands that include Marriott, Hilton, Intercontinental and Hyatt, as well as a small but growing number of independent hotels. Shah addressed the different demand drivers at play in the lodging sector.

Millennials want to “collect experiences,” which is an important factor fueling demand, he said. At the same time, Shah highlighted the growing numbers of individuals entering the middle class globally.

“One of the great characteristics of the middle class is that as soon as they have things at home settled, they are ready to travel,” Shah said.

Another trend influencing demand is urbanization, according to Shah. Hersha’s portfolio, he points out, is focused on major gateway markets that combined account for about 25 percent of the nation’s gross domestic product.

“As we continue to see concentration in urban centers for work, living and play, I think we’re going to be able to continue to leverage the urbanization trend,” he noted.

Shah also discussed Hersha’s focus on transforming its portfolio.

“I think we’ve made some great headway. A lot of the transformative work is now in the rear view mirror,” Shah said.

During the last two years, Hersha has sold more than 42 hotels, or approximately $450 million worth of assets. Shah explained that Hersha reinvested the proceeds in 13 new hotels located in its core urban markets. The acquisitions are boosting the average EBITDA (earnings before interest, taxes, depreciation and amortization) growth rate of the portfolio, as well as net asset value (NAV) growth, Shah noted.

“We feel very comfortable with the transformation and are really looking forward to leveraging some of the embedded growth that’s created,” he said.

Meanwhile, another trend impacting the lodging industry is the rise of the sharing economy, especially companies such as Airbnb.

“Innovation and technology are very important to our sector. They drive great change and they make every stakeholder in the industry do better,” Shah said.

However, Shah said his concern is whether companies such as Airbnb are operating on a level playing field “with the same level of care and compliance” as hotels with regard to issues such as zoning, safety and taxes. If the new model is able to provide accommodation that is competitive with hotels, “then I think we have to accept that and take a look at our industry and see what we need to do in order to remain even more competitive going forward.”