Hilton acquires Graduate Hotels brand for $210M

McLEAN, Virginia – Hilton is further pivoting to the bolt-on acquisition game announcing on Thursday morning that it has agreed to acquire for $210 million Adventurous Journeys Capital Partner’s (AJ Capital) Graduate Hotels brand with 35 hotels operating or in the pipeline.

Marking its first true acquisition in many years, Hilton will acquire all rights to the Graduate brand worldwide, enter into franchise agreements for all existing and signed pipeline Graduate Hotels, and become responsible for the brand’s future development and growth. AJ Capital will remain the owner of the operating and pipeline Graduate properties, each of which will be operated under long-term Hilton franchise agreements. Graduate Hotels are expected to be available for booking on the Hilton website later this year.

With thousands of colleges and universities around the world, we believe the addressable market for the Graduate brand is 400 to 500 hotels globally.

Chris Nassetta

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Hilton said the transaction, which is expected to close in the second quarter and subject to customary closing conditions, including review and approval pursuant to Hart-Scott-Rodino, will be immediately accretive with fee contribution for the first full year of ownership to be approximately $16 million.

R.W. Baird analyst Michael Bellisario said the contribution is in line with expectations and his math calculations assume ~$150 RevPAR and a 5.0% royalty rate.

“Adding Graduate Hotels to our portfolio of award-winning brands accelerates our expansion in the lifestyle space by pairing an existing much-loved brand with the power of Hilton’s strong commercial engine to drive growth,” said Chris Nassetta, president and CEO, Hilton. “We have long had a high bar for adding brands to our portfolio, whether organically or through acquisition, and Graduate will be another driver of growth for us, presenting a unique opportunity to serve more guests in more sought-after destinations. With thousands of colleges and universities around the world, we believe the addressable market for the Graduate brand is 400 to 500 hotels globally.”

Graduate Knoxville in Tennessee

When asked why he was selling the Graduate brand, Ben Weprin, founder, Graduate Hotels and CEO, AJ Capital, told Hotel Investment Today via email, “because Chris [Nassetta] is the best and most trusted public CEO in any business, and we are proud to be his partner and have them as stewards of the brand for the next 100 years.”

Truist Securities C. Patrick Scholes wrote that assuming key counts for Graduate properties are 150-200, Hilton could add 60,000 to 100,000 rooms over time (at least 5% of current Hilton room count). “Today we estimate the Hilton room count would rise by less than 1%; however, it is transactions like Graduate that will help Hilton get to their long-term net unit growth target of 6% to 7% year over year, especially as the rooms denominator grows every year,” Scholes said.

Scholes added that the fee contribution from these hotels should be considerably higher than new Hilton U.S. select-service hotels over time but relatively modest for now (<1% of 2024 franchise fees estimate).

“We view Graduate makes sense for Hilton given the strength of consumer spend to go to events on campuses such as football games where hotel room rates can be 'nose-bleed' expensive during peak periods,” Scholes added.

Next, could a luxury/lifestyle brand acquisition be next for Hilton with rumors swirling about its potential acquisition of NoMad Hotels?

Scholes added, “An easier albeit sometimes pricier way to add a brand is via acquisition and perhaps NoMad could potentially be that vehicle just as Graduate was the case for college towns. We cautiously assume there are hotels globally that can be converted into NoMads and where hotel owners would view Hilton affiliation as highly valuable despite the Hilton brand control.”

Weprin added that both Hilton and Graduate Hotels “are committed to delivering exceptional experiences and making a positive impact on communities. Our shared values and close collaboration will ensure a smooth transition while keeping the Graduate Hotels' unique brand identity intact. With Hilton's extensive network behind us, guests can anticipate even more exciting opportunities. We're certain this partnership will propel Graduate Hotels to even greater heights, while AJ’s ongoing ownership of the real estate assets lays a strong foundation for our future success.”

The Graduate brand will be incorporated into Hilton’s lifestyle portfolio alongside Canopy by Hilton, Curio Collection by Hilton, Tapestry Collection by Hilton, Tempo by Hilton and Motto by Hilton – each of which has been launched in the last 10 years.