Consistent with its strategy of adding premium properties, Hudson Pacific Properties, Inc. (HPP) acquired a Class-A office property – Pinnacle II – in Southern California. This real estate investment trust (REIT) bought the asset through its existing joint venture (JV) with M. David Paul & Associates/Worthe Real Estate Group (MDP/Worthe).
Property Details
Situated at the center of BurbankMedia District, Pinnacle II spans 231,864 square feet. The property is currently 100% occupied by Warner Bros. Entertainment, Inc. of Time Warner Inc. (TWX) through Dec 2021.
Notably, Pinnacle II is one of the two buildings in Pinnacle office complex, the other being Pinnacle I – which Hudson Pacific acquired last year through a JV. The complex is strategically located in proximity to Warner Bros. Studios, Burbank Studios and Walt Disney Studios of Walt Disney Co. (DIS). On a combined basis, Pinnacle I and Pinnacle II are currently 95% occupied by various top media and entertainment companies in Southern California.
Back Story
In Nov 2012, Hudson Pacific inked a JV with MDP/Worthe to buy the Pinnacle office complex. Consequently, the company acquired Pinnacle I building for $212.5 million and agreed to buy Pinnacle II building. On Jun 14, MDP/Worthe completed 100% interest contribution toward the Pinnacle II building in the JV for $130.0 million (including the assumption of an existing loan of $89.1 million).
With the completion of the transaction, the JV now has possession of both the buildings for a combined price of $342.5 million, subject to $218.1 million of project financing. Hudson Pacific now owns about 65% of the JV, while the remaining stake is owned by MDP/Worthe, which will oversee the day-to-day property management responsibilities.
Conclusion
The acquisition of the major complex in Burbank reflects the company’s strategy to own and operate best-in-class office properties with strong media and entertainment tenancy. Notably, the company targets high barrier-to-entry, in-fill locations with favorable, long-term supply-demand characteristics – in markets such as Los Angeles, Orange County, San Diego and San Francisco.
The acquisition will provide Hudson Pacific a strong foothold in one of the top media and entertainment submarkets in Southern California.Moreover, it will greatly complement the company’s other 15 upscale properties in the area and hence, we remain encouraged.
Hudson Pacific currently carries a Zacks Rank #3 (Hold). Other REITs that are performing better and deserve a look include CubeSmart (CUBE) with a Zacks Rank #2 (Buy).
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