After years of building Hersha Hospitality Trust (HHT) into one of the most productive publicly traded REITs in the hospitality sector, Executive Chairman Jay Shah is poised to help complete one of the industry’s largest transactions in 2023.
Having been at the helm of the company for some 17 years as CEO before stepping into the executive chairman role last year as his brother Neil Shah assumed the position of CEO, Shah reflected on the pending $1.4 billion sale of the company to KSL Capital Partners. He pointed out that leadership believed that HHT was undervalued in the public markets and that interest on the private equity side seemed to be gaining momentum.
“Earlier this spring during and around the NYU Hospitality Conference, a few different firms approached us and expressed an interest to open a dialogue to discuss a potential transaction. From there, the board and management authorized Goldman Sachs & Co, LLC—which has served as our advisor since 2017—to launch the robust process that brings us here,” he stated. Shah further explained, “We weren’t sure there was going to be any catalyst that was going to help us reach our goal of narrowing the [valuation] gap.”
The deal—which was announced in late August and was recently approved by HHT shareholders—is expected to close in the fourth quarter. In an all-cash deal, KSL will be acquiring all outstanding common shares of Hersha for some $10 per share, which represents a premium of about 60 percent over the REIT’s closing share price on Aug. 25.
Building an Outperforming Portfolio
Hersha Chairman Emeritus Hasu Shah started the family-run company as the Hersha Group in 1984 with the purchase of a single hotel in Harrisburg, Pennsylvania. The company—named after Hasu’s wife, Hersha—became a publicly traded REIT in 1998. The Harrisburg-based company’s portfolio consists of some 25 luxury and lifestyle hotels with more than 3,800 rooms in a handful of major urban markets such as New York, Boston, Washington, D.C., and Philadelphia, as well as resort markets such as South Florida and California.
Shah touted the portfolio’s high RevPAR and high EBITDA growth hotels in what the company terms “innovation-driven gateway markets and high-barrier resort locations.” According to HHT, the segmented local clusters of properties provide immediate operations advantages and local knowledge to drive outperformance in each of its core markets. Highlighting the unique nature of the properties, three of the company’s independent hotels—The Rittenhouse Hotel, Philadelphia; The Envoy, Boston Seaport; and The Cadillac Hotels & Beach Club, Miami Beach—received Condé Nast Traveler 2022 Reader’s Choice Awards.
In addition to recent performance gains, Shah further suggested that the collection—which has a strong New York City presence with eight hotels, including the Hyatt Union Square and Nu Hotel, Brooklyn—is poised for continued growth.
“It is a very pure-play luxury and lifestyle portfolio. As we look out into the future, these are all assets where we’ve invested significant capital, and they’re markets that are all growing and still have the tailwind from a continuing business transient recovery. There are urban markets where the leisure component of that market has increased significantly after the pandemic. This portfolio is very well-positioned to be able to leverage some of those tailwinds,” he explained.
Marty Newburger, partner, KSL Capital, underscored the point. “Hersha and its team have built an impressive, curated portfolio of experiential luxury and lifestyle hotels and resorts in strategic markets. With KSL’s extensive track record of investing in high-quality assets in dynamic metropolitan markets across North America and around the world, we are uniquely suited to position the business for further success over the long term,” he stated.
The Future With KSL
KSL Capital—a private-equity firm specializing in travel and leisure enterprises in five primary sectors: hospitality, recreation, clubs, real estate, and travel services—has acquired several hotel companies in recent years, including Outrigger Hotels & Resorts in 2016.
Shah emphasized that KSL “had a similar outlook as we did” when it comes to moving the portfolio forward, among other things.
“Strategically, we found through the process that KSL had a view on value most similar to ours and were also very constructive on the luxury and lifestyle segment and the positioning of the portfolio looking ahead. Strategies for the portfolio going forward will be developed in the coming months. Closing the transaction and delivering value to our shareholders remains our first priority,” he said.
Shah—who has been involved in all areas of the business with a particular emphasis on strategic relationships, capital transactions, asset management, and acquisitions—noted he looks forward “to serving the portfolio” he helped assemble. However, he acknowledged that when it comes to his role going forward, “nothing has been decided yet and I have a lot to consider before I make any decision.” He added, “I plan on continuing to help our team and the KSL team as we close the transaction and finish our year-end planning.” Meanwhile, it is still unclear how the potential sale of HHT will affect HHM Hotels, Hersha’s third-party management affiliate, which operates some 240 hotels, including a majority of the REIT’s portfolio. Shah remains on the board of directors for HHM, which last year launched the Echelon Luxury and Lifestyle division to cater to owners in the independent and boutique hotel space.
Shah touted some of the potential upside for HHM going forward. “I think one of the big advantages that HHM has is they’ve worked with HHT in this owner-operator environment for so long that they bring this very unique perspective of an owner-operator approach to most things. For HHT, that has been the secret sauce for a long time. In the owner-operator tradition, what are the advantages? The advantages are you have very quick response time, communications are extremely streamlined, and there’s generally remarkable alignment of agendas. I think they bring that spirit to all of their clients, and it leads to successful investments. So, it’s very exciting to see what HHM will do in the coming years,” he said.
A Diverse Professional Background
Prior to joining Hersha in 2005, Shah formed Shah & Byler, LLP, a Philadelphia-based law firm specializing in real estate and construction. Earlier, Shah was also a consultant at the former Coopers & Lybrand, LLP, now PricewaterhouseCoopers, and he served as a legislative assistant to the late Senator John Heinz on Capitol Hill. He also worked with the Philadelphia District Attorney’s office.
Neil Shah—who spearheaded the deal on the part of HHT—shared his insights on working with Jay and his brother’s broad range of expertise. “Jay’s greatest strength is his ability to think as a hotelier, developer, and an owner. And it’s not transitory, thousand-foot level observations, but insights from years of being a desk agent, bartender, sales director, practicing attorney representing entrepreneurs raising capital, and tax and real estate consultant, [as well as insights from] building a management company from scratch, developing hotels from the ground up in big cities, leading our family and partners to an IPO, and then building a three-billion-dollar hotel portfolio. That’s a wide range of deep work across four cycles, and it has cultivated his greatest strength in business,” he commented.
Jay Shah also commented on their collective accomplishments with Hersha. “Over the course of the last two-and-a-half decades, we have collaborated on the architecture of this company, how we want to run it and how it should distinguish itself. Our work together has brought me indescribable joy,” he concluded.
Staying Engaged: Jay Shah Plans to Continue Advocating for the Industry He Loves
While best known for his work taking Hersha Hospitality Trust to the next level, Jay Shah has demonstrated his commitment to hospitality in many ways, and the industry veteran fully expects that to continue going forward. Active on the Board of Directors for the AHLA (American Hotel & Lodging Association) and the Dean’s Advisory Board for the Cornell Peter and Stephanie Nolan School of Hotel Administration, as well as several other hospitality organizations, Shah emphasized, “I do plan on staying involved with the industry for sure.”
As an example, Shah—who graduated from Cornell University in 1990—touted the importance of the AHLA’s ongoing advocacy initiatives. “I really do feel that the industry needs to support those advocacy efforts because they’re making a difference, and these are not things that you can turn on and off. With advocacy, there has to be a continued presence and a point of view,” he said.
Shah further noted that as part of the AHLA’s Hospitality Investment Roundtable he’s been involved in trying to create an Owner’s Roundtable. The inaugural meeting for the event—which would have some 50 hoteliers gather to discuss some of today’s top issues and challenges—took place in October in Nashville.
“We’re all looking at the industry today and the balance sheets have changed significantly, as have the P&Ls, and there’s a variety of things that are impacting all of that. I think the brands take a close look at it, the management companies take a close look at it, and there’s never really been a roundtable where owners deliberate over these topics and generate a plan,” he noted. Shah went on to detail a couple of things he likes most about hospitality—diversity and career mobility—and how the industry has evolved.
“I particularly have a passionate sense about the industry, and my passion for it has changed over the years. I think one of the things that I love about it today is the role it plays in communities. I often say, ‘Hospitality was doing diversity and inclusion before it was a thing.’ Just by definition, hotels are where we welcome people from all different parts of the country and world and welcome them into the same building and gather. Everybody is a guest as anybody else is a guest. That, in and of itself, just seems so extremely timely right now. For the industry I think there’s potentially even a bigger role to play,” he noted.
Shah further added, “I’ve really grown very focused on the impact that the hospitality industry has on creating access to portable careers. We are in one of those industries where you can come and enter the industry on the line in the kitchen or at the front door of the hotel. And just through your learning on the job and your work with your team, you can grow into a supervisory role, a management role, and in some cases executive roles. There are very few industries left in this country where that happens as organically as it does [in hospitality],” he said.
Shah concluded, “Those two elements of the industry are going to keep me very engaged.”
