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Sun 13 May 2007 01:35 AM

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Investcorp in $450m U.S. hotel deal

The Bahrain-based investment bank acquires nine U.S hotels.

Bahrain-based investment bank Investcorp said on Saturday it had acquired nine U.S. hotels for $450 million, including Marriott and Hilton branded properties.

The bank, which last exited a similar hotel portfolio in 2005, said a boom in the U.S. residential construction market had constricted the supply of new hotels, boosting occupancy and room rates.

Investcorp real estate specialist Andrew Charlesworth told Reuters that increasing construction costs in the United States had also restricted hotel supply, further increasing the profitability of existing establishments.

"In the last couple of years hotels have come back very strongly, room rates have been increasing, occupancy rates have been increasing ... The industry is growing and forecast to continue for the next few years at least," he said.

Charlesworth said Investcorp was targeting a five-year holding period for the portfolio, and sources close to the deal who declined to be named said the bank was eyeing an average net yield of 8 % to 9.5 % per year for the portfolio.

Including capital gains from the eventual sale of the portfolio, either piecemeal or in its entirety, the bank hopes to make an overall annualised return of 10 % to 12 %, the sources said.

The hotels have recently undergone or are undergoing renovation, minimising the bank's costs in running them, Charlesworth said. Investcorp plans to increase occupancy and room rates, he said, declining to outline strategy details.

The Procaccianti Group, which has a small equity stake in the portfolio, will manage the hotels.

Three hotels, the Marriott Schaumburg, Crowne Plaza and the Holiday Inn Express are in Illinois. Two hotels, the Holiday Inn Select and the Marriott Palm Beach are in Florida, and a further two, the Doubletree and Marriott Waterford, are in Oklahoma.

The remaining two hotels, the Marriott Waterside and the Westin DFW are in Virginia and Texas respectively.

Britain's InterContinental Hotels Plc, the world's largest hotlier, operates Crowne Plaza and Holiday Inn hotels. Starwood Hotels & Resorts Worldwide Inc. owns the Westin chain of hotels.

Investcorp, which manages more than $10 billion in assets, focuses its real estate activities in North America, and oversees a real estate portfolio worth more than $3.5 billion.

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