Lights, Camera, Action!
Hudson Pacific's Studio Business Creates an Interesting Opportunity for a Private Equity Buyer and Mispriced Yield for Public Markets Investors
I have decided to begin publishing more actionable REIT and listed real asset research on this platform. I hope these write-ups serve more as “trailheads” to ideas and exposure to the types of analysis unique to REITs and real assets. In addition to this post, I have several more lined up in the coming weeks which will appear alongside L.E.’s normal programming:
Notes from Prologis’ Investor Day
A Survey of Smid Cap Industrial REITs
Japanese Hotel REITs
These types of write-ups are considerably more labor intensive than posts where I highlight other investment writing. As a result, annual subscriptions will go up to $200/yr until March of 2024 before going to $500/yr. This post will go behind a paywall on Sunday, December 17th.
I have updated the About page to reflect this new format and provided a more detailed bio. As always, this is not investment advice and I or my employer may hold positions in the securities discussed.
Hudson Pacific’s studio assets represent their best option for unlocking value to deleverage. The firm’s preferred equity is an asymmetric opportunity to play an imminently improving credit situation.
Let's start with an obvious question, "Why are there three smidcap West Coast office REITs that all own virtually the same assets?" Such was the (rhetorical) question posed to me by a hedge fund manager. The answer is, of course, that REIT management hates to give up nice paychecks even when presented with rich valuations for their assets.
The CEOs of the three largest West Coast-focused office REITs earned an average of $9.4m in total compensation in 2022. Theses that identify even obvious gains from M&A often produce disappointing investment results for REITs.
Focusing on Kilroy Realty ( KRC 0.00%↑ ) & Hudson Pacific ( HPP 0.00%↑ ), the tenancy overlaps among the top 15 tenants, mostly technology companies create a zero-sum dynamic in West Coast office markets.
Massive value is transferred between KRC and HPP as these companies rationalize headcount and office usage. Notwithstanding, a combination of these portfolios under one umbrella is almost certainly not going to happen, but this market structure can benefit the enterprising public markets investor.