Streaming giant Netflix has signed a huge new lease at Shepperton studios near London, as a new bond issue by Shepperton’s parent company Pinewood Group values the company and its real estate at more than £2B.

The prospectus for a new £300M bond being issued by Pinewood Group said that Netflix had signed a lease on "the bulk of" an 800K SF extension to Shepperton called Shepperton South. Netflix already leases more than 435K SF at the current Shepperton North facility, which totals 560K SF. The leases on both sites will expire in 2029.

Pinewood is owned by real estate private equity business Aermont, which bought the company and its real estate for £323M in 2016. It includes two main sites, at Pinewood and Shepperton, both of which are being expanded. The two sites lease soundstage and office space to TV and film production companies.

Aermont has transformed Pinewood and increased its value by tapping into the growing demand for content creation while also making it more like a real estate company.

Prior to its ownership, the 2.1M SF of studio, office and post-production space at Pinewood and Shepperton were leased to production companies on a short-term, ad hoc basis.

But in 2019 the company signed long-term leases with two production giants, Disney and Netflix. Disney leases the whole of the Pinewood studio, which will total more than 1M SF when extensions are completed, with its lease running to 2031. And Netflix leases the whole of Shepperton and most of the expanded space planned there.

That long-term, secure income and expansion means the business is valued at £2.2B, Fitch said in a note on the bond issue.

As well as the 800K SF it is building at Shepperton South, there is a further 165K SF being built at Shepperton North West, all of which will open in 2023. Shepperton North West is not yet pre-leased, Fitch said in its note, but the owners said they had received strong interest in the space already.

“The new contract with Shepperton highlights our commitment to investing in the UK creative industry and will provide a wealth of opportunities and production jobs, from entry-level to heads of department,” Netflix Vice-President Of Physical Production For The UK, Europe, Middle East and Africa region Anna Mallett said.

At the Pinewood site, Disney has pre-let the 100K SF Pinewood West development, and a further 150K SF is being built at a site called Pinewood East.

The extensions will cost about £700M, Fitch said, which is partly why Pinewood is raising new debt. It already has a £750M bond and is raising a new £300M bond set to mature in 2027. The free case flow generated by Pinewood is currently about £30M, Fitch said, and will rise to £80M when the new space is completed and leased.

The amount of money being spent by production companies on content creation is growing rapidly, with Disney and Netflix two of the biggest players. Fitch pointed to British Film Industry data showing that during the pandemic, high-end TV production companies spent £3.5B on content production in the UK and feature film producers spent £1.7B.

Even so, there is not enough studio and ancillary space in the UK to host the production companies that want to film here — companies that are partly attracted by tax breaks offered by the UK government.

That means property owners are either building purpose-built studios, like at Pinewood; or north of London, where Blackstone is building a new studio complex; or repurposing industrial property into studio space.

Today, Frasers Property UK said it had signed studio space operator Stage Fifty to take 195K SF at its Winnersh Triangle business park near Reading.

Brookland Partners advised Pinewood Group on the bond issue, Deutsche Bank acted as lead book-runner, with Barclays and Credit Suisse also acting as book-runners.