Hudson Pacific Properties (NYSE: HPP) continues to make moves to expand its global studio platform. The office-focused real estate investment trust (REIT)) is enhancing its production-services offerings by making two acquisitions. They're the latest in a string of deals aimed to grow the platform.
Here's a closer look at the latest transactions and why the company is focusing on growing this platform.
Expanding its Hollywood role
Hudson Pacific is acquiring Star Waggons and Zio Studio Services for a combined $222 million over two separate transactions. The companies provide transportation and logistics services to studio productions. Combined, they have a fleet of more than 1,100 luxury location trailers, specialized vehicles, and other transportation assets.
Star Waggons provides luxury- and multi-cast trailers, high-quality makeup, wardrobe, production, and other specialized trailers used to support various productions and events. The company's fleet comprises more than 650 trailers, with operations in Los Angeles; Atlanta; Albuquerque, New Mexico; and Vancouver, Washington.
Meanwhile, Zio Studio Services provides transportation solutions and vehicle rental services to content producers. The company services more than 70% of the major production studios in Southern California. Its fleet, which operates in Los Angeles and Atlanta, has about 750 transportation and equipment assets, including specialized vehicles, portable power generators, and cast, makeup, and wardrobe trailers.
At first glance, these companies might seem like an odd fit for an office REIT. However, they'll significantly expand the production services offered by Hudson Pacific's global studio platform.
Jeff Stotland, head of global studios at Hudson Pacific, stated that "These acquisitions perfectly align with our global studios strategy to accelerate growth, increase profitability and ultimately expand our role within the content production ecosystem -- all while delivering excellent returns for our investors." They will broaden the REIT's production-services offering, deepen its relationship with existing clients, and provide access to new ones.
Building a dominant global platform
Hudson Pacific set the stage to expand its studio platform last year. The company formed a joint venture with an affiliate of Blackstone Group (NYSE: BX), which acquired a 49% interest in Hudson Pacific's three Hollywood studios and five on-lot or adjacent Class A office buildings. The deal valued the studio platform at $1.65 billion.
The platform had three Hollywood studios sites, with 35 stages spread across 1.2 million square feet of production and support space. In addition, it had about 966,000 square feet of office space. Netflix (NASDAQ: NFLX) was the largest tenant in terms of space -- at more than 700,000 square feet -- as well as long-term deals for stage and production spaces.
The joint venture also included the rights to develop up to 1.1 million square feet at two of the Hollywood studios and pursue additional acquisitions in Los Angeles and other markets.
Hudson Pacific has since unveiled two notable expansions of its studio platform. Its joint venture recently detailed plans to develop the first large-scale, purpose-built studio in Los Angeles in 20 years. The 240,000 square foot project will include seven stages, as well as production-office and support spaces.
The company expects to invest $170 million to $190 million to build its fourth studio in Southern California, which it should finish by the third quarter of 2023. Meanwhile, the partnership also unveiled plans to create a major new center for film, TV, and digital production in the U.K.
The company is working on other studio opportunities as well. CEO Victor Coleman stated on the Q2 conference call that "There is a couple of marketed studio properties that we are working on right now, and both are value-add." In addition, Coleman said the company is working on several off-market studio deals.
The REIT is working so hard to expand its studio business because of the sector's attractive returns and growth prospects. This strategy will also help diversify its operations and offset some of the headwinds facing its office portfolio. In many ways, the studio business enhances its office platform because it provides opportunities to build new office spaces near the studios to support the growth of streaming companies like Netflix.
Meanwhile, acquiring Star Waggon and Zio Studio Services will enable Hudson Pacific to provide more services to content producers, which could open new expansion opportunities in the future.
Playing a leading role in the streaming revolution
Hudson Pacific is angling to be the landlord of choice for video content producers. The company wants to provide them with the space and services they need to produce high-quality content. That strategy could pay big dividends down the road by enabling the REIT to continue growing its studio-related earnings.