Pimco shelved plans on Tuesday to create a standalone publicly traded mortgage REIT, opting to postpone the US$1bn offering because of “unfavorable equity market conditions”.
The fixed-income asset manager had hoped to raise US$1bn from an IPO of the mortgage REIT affiliate, Pimco Mortgage Income Trust, in what would have been the largest-ever raise for a new mortgage REIT.
That large size and ability to rapidly invest proceeds were key selling points of the IPO, bankers involved in the offering previously told IFR.
“The company elected to postpone the offering as a result of unfavorable equity market conditions, specifically in the market for initial public offerings,” Pimco said in a statement.
Credit Suisse, Bank of America Merrill Lynch, Goldman Sachs and Morgan Stanley, the joint bookrunners on the offering, had hoped to place 50m shares at a fixed-price of $20.00 apiece after the market close Wednesday. They were “north of half-covered” as of early Monday, according to the bankers.
Pimco had agreed to pickup the tab on underwriting fees, providing the new mortgage REIT access to all of the $1bn funding target. It was to have invested proceeds in agency-backed residential mortgages, a deeply liquid market, before broadening out to mortgage servicing rights (MSRs), whole home loans and other mortgage-related assets.
Pimco parent Allianz also planned to invest US$25m on the IPO.
Pimco, which oversees US$1.76trn in assets worldwide, envisioned the new REIT as a new source of market liquidity during periods of volatility.
“One of the biggest advantages that we have at Pimco is the ability to be a liquidity provider at times when the market needs it,” said Jason Steiner, a co-chief investment officer of the planned REIT in the company’s online roadshow presentation.
“We think the REIT will be well positioned to take advantage of opportunities we see today.”
Other large asset managers such as Apollo Global Management and KKR formed publicly traded mortgage REITs as an alternative source of permanent capital. Pimco shelved plans for a similarly structured mortgage REIT in 2011.
Pimco’s decision follows poor performance on recent large IPOs.
Uber Technologies has fallen 15.5% since its US$8.1bn IPO last week and rival Lyft is off 29.3% from its offering price in March.
Trade tensions between the US and China have added to market volatility. The S&P 500 Index plunged 2.4% Monday, its second-biggest decline of the year, after US President Donald Trump threatened to impose billions worth of new tariffs on imports.
