(Bloomberg) -- Billionaire Sam Zell's Equity Commonwealth agreed to buy Monmouth Real Estate Investment Corp. in an all-stock deal worth about $3.4 billion including debt, increasing the firm's exposure to fast-growing industrial real estate in the U.S.
Monmouth investors will get 0.67 shares of Equity Commonwealth for every share they own, or about $19.40 based on Tuesday's closing price, the companies said in a joint statement. That's a 6.3% premium for Monmouth holders.
Chicago-based Equity Commonwealth, part of Zell's Equity Group Investments LLC, will hold about 65% of the combined entity, and will add about 120 industrial properties across 31 U.S. states with the acquisition.
The deal provides Equity Commonwealth with a “high-quality, net-leased industrial business with stable cash flows while preserving EQC's balance sheet capacity for future acquisitions,” Zell, chairman of Equity Commonwealth, said in the statement.
After closing the acquisition, Equity Commonwealth will have about $2.5 billion of pro forma cash on its balance sheet. The company also plans to sell four office properties totaling 1.5 million square feet (139,355 square meters), along with Monmouth's portfolio of marketable securities over time and reinvest the proceeds in future acquisitions.
Goldman Sachs Group Inc. is the financial adviser to Equity Commonwealth, while JPMorgan Chase & Co. worked with Holmdel, New Jersey-based Monmouth.
Industrial Growth
The deal marks Equity Commonwealth's entry into industrial property, which has seen tremendous growth during the pandemic. Industrial leasing activity in the U.S. jumped 27% in 2020 from a year ago as a result of the growing e-commerce sector during Covid-19, according to Jones Lang LaSalle. Asking rents rose in the first quarter to a record $8.44 per square foot, 7.1% higher than a year ago, data from CBRE Group Inc. show.
The pandemic has taken a toll on the office market, EQC's main focus. Office net absorption hit a record annual low in 2020, with vacancy rate posted its biggest annual increase in more than a decade, said Colliers International.
The divergence is reflected in the share prices of the two real estate firms, with Monmouth up 52% including dividends over the past 12 months, compared with a 3% decline for EQC.
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