CalPERS, Fund Advisor to Buy Warehouse Developer Cabot

The California Public Employees Retirement System and a partner agreed to buy warehouse developer Cabot Industrial Trust for $2.1 billion in cash and assumed debt, part of a plan to increase its holdings outside the stock market.

CalPERS, the biggest U.S. public pension fund, and RREEF will pay $24 a share, 20% more than Cabot’s closing price Friday of $19.95, RREEF spokeswoman Cathy Reardon said. The partners will also assume about $925 million of debt and preferred stock.

CalPERS, with about $151 billion in assets, last year raised its real estate allocation to 8% of assets from 6% to help diversify away from the stock market. The pension fund’s investments fell 7.2% in the 12 months ended June 30, though its property investments, which total $12.4 billion, rose 14.4%.

“Earnings revisions in the real estate sector have been much less than what we’ve seen in the broader equity market,” said James Sullivan, a real estate analyst at Prudential Securities. “The outlook for real estate in a recovering market is pretty good.”

Cabot owns about 370 warehouse and industrial properties with more than 40 million square feet of space in Seattle, Phoenix, South Florida and elsewhere. Cabot stock closed up $3.86 to $23.81 on the New York Stock Exchange.

Cabot’s occupancy rate fell to 93.7% in the third quarter from 96.2% a year earlier, as a slowing economy reduced space manufacturers needed to store goods. One of Cabot’s largest tenants, Exodus Communications Inc., which accounted for about 1% of annual rents, filed for bankruptcy.

As a private owner, CalPERS would have more flexibility in weathering the slowdown in the economy, analysts said.

The acquisition is the second takeover of a public REIT by Chicago-based pension-fund advisor RREEF and CalPERS, which are operating through their CalWest Industrial Properties joint venture. The two acquired most of the warehouse properties owned by Pacific Gulf Properties Inc. in November for $929 million.