Hilton intends to buy Graduate Hotels for $210 million

Hilton is set to become a leading hotel player in college towns and cities across the U.S.

The hotel giant plans to acquire Graduate Hotels — a brand that's heavily concentrated in the U.S. but also has properties in the U.K. — from owner AJ Capital. The deal is valued at $210 million.

Hilton will own the rights to the Graduate Hotels brand and be in charge of future development and growth through franchising. But, AJ Capital will retain real estate ownership of the existing Graduate portfolio of open hotels and those in development under new long-term Hilton franchise agreements.

Rumors that a takeover was in the works were first reported last month. Graduate began as a boutique hotel brand focusing on U.S. college towns like Oxford, Mississippi (home of the University of Mississippi); Athens, Georgia (home of the University of Georgia); and Ann Arbor, Michigan (home of the University of Michigan).

The company has since expanded to larger cities — albeit ones with a significant higher education presence — like Nashville, New York City and Providence.

"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," Hilton CEO Chris Nassetta said in a prepared statement. "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."

Graduate Hotels has more than 35 hotels that are either open or in development, but that figure is expected to throttle much higher: Nassetta noted the brand could eventually reach as many as 500 hotels. The acquisition is expected to close by the end of June.

Graduate will reside alongside Canopy, Tempo, Motto and the Curio and Tapestry Collections in Hilton's lifestyle brand portfolio.

"Both Hilton and Graduate Hotels are committed to delivering exceptional experiences and making a positive impact on communities," Ben Weprin, the founder of Graduate Hotels and CEO of AJ Capital, said in a prepared statement. "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."

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Hilton's new growth strategy

The brand takeover is a strategic departure for Hilton, which has largely followed a path of organically launching and growing brands while its competitors like Marriott, Hyatt and IHG acquired brands to get into spaces they hadn't previously occupied or geographic areas where they had a limited presence.

"The name of the game in the hotel business these days is definitely consolidation of brands," LW Hospitality Advisors CEO Daniel Lesser said.

The Graduate Hotels deal wasn't even the first rumored brand takeover for Hilton in recent months.

Investor and analyst chatter at the Americas Lodging Investment Summit in January pointed to Hilton's potential takeover of the trendy NoMad Hotels brand, which operates hotels in Las Vegas and London. That would add fuel to Hilton leadership's hint that some sort of luxury lifestyle brand expansion was in the works at the company, but most assumed the company would launch its own brand in this space.

"There are pluses and minuses to everything," Lesser said. "If you [develop and launch a brand] organically, it takes a lot of time. Time is money, as opposed to acquiring where it's sort of instant gratification."

Not to overly speculate, but Hilton pulling a one-two-punch acquisition of both brands would also give the company immediate exposure to the lifestyle hotel sector across a variety of markets and price points.

Graduate Hotels can deliver a lifestyle hotel offering in smaller markets that still want a cool hotel with local bars and restaurants. NoMad can be the head-to-head competitor with Marriott's Edition in some of the world's largest — and priciest — cities.

If Paris Hilton's bedazzled, Hilton-branded clutch for the Grammy Awards earlier this year is any clue, it's clear Hilton is all about shiny things these days that garner maximum exposure.

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