INTEGRATING RISK MANAGEMENT, BUSINESS STRATEGY, AND SHAREHOLDER VALUE CREATION: THE CASE OF HERSHA HOSPITALITY TRUST

Abstract

Hersha Hospitality Trust was a real estate investment trust (REIT) in the hospitality sector that owned a portfolio of high-quality hotels in a variety of geographic markets. After acquiring the Courtyard Marriott Cadillac Hotel in Miami, Florida, Hersha decided to rebrand and reposition the hotel into a more upscale brand. As a result of these renovations, the company projected to generate significant EBITDA growth between 2017 and 2020. However, Hersha’s plans were interrupted when Hurricane Irma hit Florida in September of 2017, causing unprecedented damages along the coast. Hersha faced a critical decision. Should they spend several months repairing storm damage while operating at a reduced capacity and then resume planned renovations at a later date? This option would allow Hersha to collect interruption insurance and generate some operating revenues. Alternatively, Hersha could close the hotel for about a year, forgo hotel revenues and the interruption insurance, but complete the upgrades at once in preparation for a reopening celebration. This case integrates the issues of business strategy, enterprise risk management, shareholder value creation, and investor expectation management.