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Hersha Hospitality Well Positioned For A Turnaround

Jun. 05, 2020 12:25 PM ETHersha Hospitality Trust (HT)19 Comments
Marel profile picture


  • Hersha insiders have been buying shares in the open market in a consistent manner even during the peak of the lockdown.
  • Occupancy levels steadily increased across the 27 hotels that were open in April and May.
  • The Sanctuary Beach Resort in California generated 84% occupancy in May.
  • Hersha received a full covenant holiday for five quarters, amended its credit facility to draw an additional $100M through the covenant waiver period, and there are no debt maturities until 2021.
  • These initiatives bought Hersha substantial time and the positive occupancy trends make me hopeful for a swift turnaround.

Hersha Hospitality (NYSE:HT) is poised to surge as the economy reopens and things go back to normal. However, this is a process that will take some time. Therefore, discipline and patience is required, especially if we go through a large second wave of the virus. HT made a comeback following the financial crisis of 2007-08 and I am confident that it will make a comeback this time round as well.

The hotel market was significantly impacted by the lockdowns. As a result, HT, along with other hotel owners, is going through a very rough time. This is reflected in the share price. On a YTD basis, HT has fallen more than 50% versus declines of ~7.9% and ~3.7% for the Dow and S&P 500, respectively.

Not so long ago (in 2018), HT traded in the $20s. If we ever return to those levels, we are talking about three times upside from the current share price, and almost five times upside from my entry point (low to mid $4s). Rebounding to $15-20 is certainly possible unless there is permanent value destruction (e.g. dilution at rock-bottom prices). The following events make me feel confident about HT's prospects.

1. Insiders are buying

Insiders are buying shares in the open market in a consistent manner despite already owning a substantial stake (10%+ ownership):

Source: OpenInsider (SEC filings)

It is very comforting seeing insiders "chasing" the share price down, buying all the way to the all-time lows ($3 zone). While insider purchases are a nice confidence booster, the following events are way more important.

2. Notable improvement in operating metrics

Occupancy levels steadily increased across the 27 hotels that were open in April and May (note as of June 1st, 31 out of the company's 48 hotels are open). As illustrated in the graph below, for

This article was written by

Marel profile picture
Value-oriented investor focusing on marketable securities, real estate as well as early-stage companies.

Analyst’s Disclosure: I am/we are long HT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (18)

Now that it has pulled back to around $5.5/share, it's worth thinking whether to buy. I think the author's analysis is compelling but it only focuses on HT's ability to weather the storm. My concern is whether the pandemic would have a permanent or at least long term impact on hotel occupancy via reduced business travel. This potential LT effect won't affect the resorts, but HT's other hotel assets are mainly located at the business centers of the US. Marel, what's your view? Is HT substantially undervalued even if this is taken into account? Or do you think hotel will fully recover? Thanks.
Now that the share price has pulled back to around $5.5, it's perhaps worthy to think if it's another good entry point. I think the author's argument is compelling but it is focused on whether the company can weather the storm. My concern is instead whether the pandemic will have a permanent or long term effect on hotel occupancy through reduced business travel. This will probably not affect the resorts, but the company has most of its hotel assets in the major business centers of the US. Marel, what's your view regarding this? Is HT still substantially undervalued with this taken into account? Or do you think hotel occupancy will fully recover? Thanks.
AssetMonk profile picture
@davidma00 I am thinking same. There is serious possibility that conditions will remains like this till 2022. Malls could recover in a month but Hotels & Cruise lines are at the end of queue in recovery train. With slight hope HT price ran from $5 to $10 in matter of weeks.
Can HT survive till end of 2021 with partial recovery in occupancy rates and not print more shares?
Management buying at this price is giving me confidence.
waldipup profile picture
What about my Preferred div's?

They're cumulative , they have to pay the deferred plus new div's .
bought around 3$ sold slightly above 9$ but it is really good hotel reit and there is no doubt it will recover
5ofDiamonds profile picture
By the time you posted, it has already turned around. Good or bad I dont know. But has it turned around better than other REITs?
fasthandssam profile picture
I doubled down on some hotel and mall REITs like HT and MAC at the crash.

So far my portfolio has rocketed back into the green, but time will tell. Of my hotel REITs I didnt expect HT to be shooting up like this tbh. I'll take it though!
plschuler profile picture
Any thoughts about if and when the preferred shares’ dividend will be restored?
March 2021. That's supposedly when the "holiday covenant" will end.
Bought both the common and preferred a while back. Sold the common first and then the preferred at >100% profit a few days ago so missed this last surge. Think the market is ahead of itself since down less than 10% from all time highs and 2nd quarter will be bad. If you read quarterly report, break even occupancy is fairly high. Still waiting to see how new normal of video meetings will affect occupancies, etc. Waiting for pull back.
Keep it Country profile picture
Bought some preferred E shares at approx $9. Up approx 70% and still not close to par.
Haha. I've sold it all. Looking for new horses to ride.
Great news after HT.E went from $2.93 to $17.
ESGFIRE profile picture
Where was this article 1 month ago ? Train has passed since long . This stock already went up 100 %.
Marel profile picture
@filip erhardt it is up 35% today. I started the article a couple of days ago. A lot has happened in the past 2 days!
06 Jun. 2020
If I wanted to play the hotel turnaround space, what is the most conservative option. Maybe less upside but relatively strong balance sheet
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