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SAN FRANCISCO-Pebblebrook Hotel Trust of Bethesda, MD hasacquired the 416-room Sir Francis Drake Hotel in Union Square froma partnership led by the San Francisco-based Chartres Lodging GroupLLC for $90 million, funding the buy with IPO proceeds. Pebblebrooksays that it anticipates investing approximately $7 million overthe next 12 to 24 months on guest room and meeting spacerefurbishments and is "evaluating the implementation of severalvalue-creation opportunities at the property." The REIT says thatthe hotel will continue to be managed by Kimpton Hotels &Restaurants, which has managed it since 2002.

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Pebblebrook chairman, president and CEO Jon Bortz calls theproperty "one of San Francisco’s most recognizable hotels,” sayingthat San Francisco is one of Pebblebrook's top markets. RobertKline, president and co-founder of the Chartres Lodging Group, saidthat the seller "considered numerous offers, but chose to transactthe property with Pebblebrook because they recognized theproperty’s significant potential given its strong location.”

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The Sir Francis Drake is located at the center of Union Square,adjacent to the Theater District and to Saks Fifth Avenue’s SanFrancisco flagship store. It is half a block from retailersincluding Prada, Gucci, Tiffany’s and other boutiques anddepartment stores.

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Originally constructed in 1928, the 23-story hotel includes18,000 square feet of meeting space, a 24-hour fitness center, a24-hour business center, off-site valet parking, Bar Drake in thehotel’s historic lobby and a Starbucks store. Pebblebrook says thatthe hotel has been well maintained, with approximately $23 millionin capital investment since 2005, including the addition of thelobby bar, full modernization of the hotel’s HVAC system, fullrenovation of guestroom bathrooms and other guestroom upgrades.

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During 2009, the hotel achieved occupancy of approximately 76%,with an average daily rate of approximately $139. During the next12 months, the company forecasts that the hotel will generateearnings before interest, taxes, depreciation and amortization(“EBITDA”) of approximately $3.8 million to $4.3 million and netoperating income after capital reserves of approximately $2.5million to $3 million, both of which are well below the levels atwhich the hotel operated during 2007 and 2008.

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Pebblebrook says that both it and Kimpton believe the hotel "hastremendous upside and will be working closely to realize itspotential." The Downtown San Francisco hotel market has alreadybegun to recover, exhibiting strong growth in 2010 as businesstravelers have gotten back on the road, according to Pebblebrook.The REIT cites Smith Travel Research data showing that room demandin the San Francisco–Market Street tract has increased 8.6% on ayear-to-date basis through April as compared to the same periodlast year. Occupancy in the market on a trailing 12 months basishas climbed to 74.6%.

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