Hudson Pacific, Blackstone CMBS Soundstages Loan at Risk From Hollywood Strikes: Barclays
By Andrew Coen September 13, 2023 3:05 pm
reprints
Hudson Pacific Properties’ (HPP) suspension of a quarterly dividend on its common stock due to the ripple effect of Hollywood strikes will mean only ”limited” risks for a 2021 commercial mortgage-backed securities (CMBS) deal the studio operator executed with Blackstone (BX), according to new analysis from Barclays (BCS).
Victor Coleman, HPP’s CEO and chairman, said in the company’s Sept. 7 announcement that the suspension of quarterly dividends was driven by “current market conditions,” including the ongoing Hollywood strikes. The Writers Guild of America went on strike May 2 followed by the Screen Actors Guild – American Federation of Television and Radio Artists on July 14, halting most film and TV production and resulting in empty soundstages this summer.
Blackstone acquired a 49 percent interest in HPP’s 2.2 million-square-foot office and film studios portfolio in June 2020, and in August 2021 the joint venture secured a $1.1 billion loan to refinance a recapitalization of the portfolio, which includes Netflix (NFLX) as its largest tenant.
The BXHPP 2021-FILM deal was co-originated by Barclays, Bank of America, Wells Fargo and Société Générale. The loan featured a two-year initial term and three one-year extension options.
A recent remittance report on the loan shows a new maturity date of August 2024, an indication that “an extension might have already been processed,” Barclays analysts Lea Overby and Anuj Jain wrote in their report released Wednesday.
The portfolio backing the BXHPP 2021-FILM CMBS transaction consists of three studio properties “that are likely to be negatively affected by the ongoing Hollywood strikes,” according to Barclays, along with five office properties. A deal prospectus shows that 24.2 percent of the underwritten revenue for the portfolio was derived from income streams related to items like lighting, control room rentals and parking.
“We think this portion of the revenue is at risk from the strikes, especially in light of the recent update from HPP,” Overby and Jain wrote in the report. “Additionally, since the strikes have lasted a while, they might negatively affect the lease roll-over for the studio component.”
Overby and Jain noted though that three of the five office properties (representing 75 percent of the total office space) are 100 percent leased to Netflix, whose lease does not expire until 2031. Netflix is also the largest tenant in two of the three studio buildings, with leases that rolled in 2026 and 2028 along with a smaller lease that rolled in March 2023. A heavy lease roll remains with the remaining studio space, though 20 percent of the space has leases set to expire in 2023, according to Barclays.
The portfolio’s net cash flow debt service coverage ratio (DSCR) was 1.37 times for the first three months of 2023 and 2.57 times for the full 2022 year, both lower than the underwritten figure of 6.62 times, the Barclays report shows. The DSCR dips are attributed to rising interest rates coupled with a 12 percent increase in expenses compared to how the loan was originated.
Overby and Jain said the borrower needed to buy a new interest rate cap for the maturity date extension, which would result in a DSCR at the cap of at least 1.1 times, but it also could elect to select a higher rate cap and “reserve or guarantee the difference.”
Andrew Coen can be reached at acoen@commercialobserver.com
