Investment heavy-hitter The Blackstone Group is to buy almost half of movie studio and office owner-developer Hudson Pacific Properties' media portfolio in Hollywood.

Blackstone is to purchase a 49% stake in three Hudson studios and five Class A office buildings that are either on the same lots as the studios or adjacent. Hudson remains majority owner with 51% stake and also oversee daily operation, leasing and development.

Altogether the 2.2 million square feet of real estate is valued at $1.65 billion.

The Blackstone-Hudson joint venture was rumored last week and the finalization of a deal was announced on Monday. The final portfolio valuation is slightly higher than the $1.4 billion deal value reported last week.

The transaction is to close in this year's third quarter.

Under the deal, Blackstone is to become part owner of Hudson's Sunset Bronson, Sunset Gower and Sunset Las Palmas studios in Hollywood. They add up to 1.2 million square feet of production and ancillary space across 35 stages. The office buildings included in the purchase are 6040 Sunset, ICON, CUE, EPIC and Harlow, which is under construction and soon to be finished. They add up to 966,000 square feet.

That's not all as the JV opens the door for an expansion of the joint holdings by purchasing more movie studios and unlocking 1.1 million square feet of development potential at the Sunset Gower and Sunset Las Palmas studios.

Blackstone, based in New York, and Hudson, based in Los Angeles, both are publicly traded. Blackstone's investments are global and diversified, spanning from real estate and private equity to insurance and life sciences. Hudson is a real estate investment trust that buys, redevelops and developers office property mainly for technology firms as well as movie studios.

The deal speaks to the growth of the content-creation industry as more streaming platforms pop up. This in turn feeds the demand for movie production facilities.

The industry growth is what turned Blackstone on to the deal, a company executive said in a news release.

"Our business is driven by investing thematically in sectors with powerful secular tailwinds, and there is no better example of that than content creation in Los Angeles," Ken Caplan, global co-head of Blackstone Real Estate, said in a prepared remark.

Blackstone's purchase into Hudson opens the door for more growth of the movie studio group, Victor Coleman, chairman and CEO of Hudson Pacific, said in a news release.

"Our latest joint venture with Blackstone unlocks a portion of the value we've created for our shareholders and provides us with significant capital to grow both our studio and office portfolios, including the build-out of additional development rights at our existing studios," Coleman added.

Blackstone and Hudson have completed at least four deals together, including a joint venture purchase last year of 1.5 million-square-foot Bentall Centre in Vancouver, Canada.

Mizuho Securities USA issued an analysis last week, concluding the transaction would bode well for Hudson.

Hudson's stock price could reach from $32 to $40 per share, up from $24.76 reported last Wednesday.

Hudson for some time has trailed other West Coast office REITs in terms of its stock market valuation more than likely because it includes a movie studio division. It's an asset class with "lumpy" income, something investors find challenging, Mizuho said in its analysis.

The spin off of Hudson's film production arm from its office division would change this, Mizuho concluded. Hudson's purely office focused arm would get a higher valuation multiple given that office real estate generally is a safe investment because it generates steady income from locked in long-term leases.

At the same time, the coronavirus pandemic is expected to play a role. The deal could mean the jointly owned film portfolio would give Hudson enough cushion to weather any blows to its office real estate prompted by the pandemic.

It remains to be seen how this asset class will fare as employees across the US continue to work from home as COVID-19 continues to spread.

Mizuho ultimately reiterated its buy rating for Hudson, setting a price target per stock at $32, up from the previous price target of $30.

The increase partly is based on Mizuho's brighter forecast for Hudson as well as on the overall improved market outlook as volatility has dissipated since the onset of the coronavirus in March.

Instant Insights /

Blackstone, Hudson Pacific Strike $1.65B Film Production Deal

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