Pebblebrook Hotel acquired the Sir Francis Drake Hotel for US$90.0 million from a partnership led by The Chartres Lodging Group.
Pebblebrook Hotel Trust announced that it has acquired the Sir Francis Drake Hotel for $90.0 million from a partnership led by The Chartres Lodging Group, LLC. The 416-room, upper upscale, full-service hotel is located in downtown San Francisco, California in the heart of Union Square. The hotel will continue to be managed by Kimpton Hotels & Restaurants ("Kimpton"). The transaction was funded entirely with proceeds from the Company's initial public offering.
"We are very excited to acquire one of San Francisco's most recognizable hotels," said Jon Bortz, Chairman, President and Chief Executive Officer of Pebblebrook Hotel Trust. "We are also extremely pleased to invest in San Francisco, which is one of our top target markets. The historic Sir Francis Drake Hotel is located in the heart of the city's world-renowned shopping and entertainment district and is central to San Francisco's primary business demand drivers, including the Financial District and the Moscone Convention Center. This provides the hotel with a diversified mix of leisure, corporate and convention travelers which we expect will continue to strengthen in-line with the economic and lodging recovery which has begun to take hold."
"We considered numerous offers, but chose to transact the property with Pebblebrook because they recognized the property's significant potential given its strong location," said Robert Kline, president and co-founder of The Chartres Lodging Group, LLC.
The Sir Francis Drake Hotel is located at the center of Union Square, San Francisco's most popular retail and visitor attraction. The hotel is adjacent to Saks Fifth Avenue's San Francisco flagship store, and is located within a half block of some of the world's other leading retailers, including Prada, Gucci, Tiffany's and countless other boutiques and department stores. The Sir Francis Drake Hotel is surrounded by numerous dining establishments, nightclubs and entertainment venues and is adjacent to the city's celebrated Theatre District.
Originally constructed in 1928, the iconic 23-story hotel offers 416 well-appointed guest rooms, as well as the award-winning Scala's Bistro and the Wine Room at Scala's. The hotel's rooftop also features the famed Harry Denton's Starlight Room, featuring 180-degree views of Union Square and downtown San Francisco from the hotel's twenty-first floor. Other property amenities include 18,000 square feet of meeting space, a 24-hour fitness center, a 24-hour business center, off-site valet parking, Bar Drake in the hotel's historic lobby and a Starbucks store.
The Sir Francis Drake Hotel has been well maintained, with approximately $23 million in capital investment since 2005, including the addition of the lobby bar, full modernization of the hotel's HVAC system, full renovation of guestroom bathrooms and other guestroom upgrades.
During 2009, the hotel achieved occupancy of approximately 76 percent, with an average daily rate of approximately $139. During the next 12 months, the Company currently forecasts that the hotel will generate earnings before interest, taxes, depreciation and amortization ("EBITDA") of approximately $3.8 to $4.3 million and net operating income after capital reserves of approximately $2.5 to $3.0 million, both of which are well below the levels at which the hotel operated during 2007 and 2008.
The hotel will continue to be managed by Kimpton, which has managed the property since 2002.
"Kimpton has a remarkable track record in San Francisco, its hometown, as well as around the country, of operating high-end, unique boutique hotels," continued Mr. Bortz. "We are extremely delighted to be developing a strategic relationship with their organization and look forward to working with Kimpton on the Sir Francis Drake Hotel, as well as future opportunities."
"We are very pleased to be partnering with Pebblebrook on this special property," commented Michael Depatie, President and CEO of the Kimpton Hotel & Restaurant Group, LLC. "We have a long history of managing hotels in the competitive San Francisco market and currently operate nine hotels in the city. We look forward to developing a relationship with Pebblebrook through their first investment in San Francisco."
The Company and Kimpton believe the hotel has tremendous upside and will be working closely to realize its potential. The downtown San Francisco hotel market has already begun to recover, exhibiting strong growth in 2010 as business travelers have gotten back on the road. According to Smith Travel Research, room demand in the San Francisco -- Market Street tract has increased 8.6 percent on a year-to-date basis through April as compared to the same period last year. Occupancy in the market on a trailing 12 months basis has climbed to 74.6 percent, providing strong support for potential increases in average daily rate. The Company anticipates investing approximately $7.0 million over the next 12 to 24 months on guestroom and meeting space refurbishments and is evaluating the implementation of several value-creation opportunities at the property.
The Company expects to incur approximately $1.1 million of costs related to the acquisition of this hotel that will be expensed as required by SFAS 141-R.
The Sir Francis Drake Hotel marks the second acquisition for the Company since completing its initial public offering in December of 2009.
The Company has previously announced signed agreements to purchase three other hotels, including:
-- $74 million for a hotel in the Washington, D.C. / Baltimore region
-- $36 million for a hotel in the Minneapolis / St. Paul region
-- $105 million for a hotel in the Atlanta region
Closings for each of these properties are expected to occur within 45 to 60 days from the filing date of the corresponding Current Report on Form 8-K. However, because these acquisitions are subject to customary closing requirements, conditions and due diligence, the Company can give no assurance that the transactions will be consummated during that time period, or at all.