General Growth Says Most of Share Buyback From Pershing

General Growth Properties Inc. (GGP), the second-largest U.S. shopping mall owner, said it spent $567 million repurchasing shares, mostly from Bill Ackman’s Pershing Square Capital Management LP.

The real estate investment trust’s board has approved the repurchase of 28.3 million shares at an average price of $20 a share in the third quarter through yesterday, according to a statement today. General Growth, based in Chicago, said it bought 25 million shares at $20 a share from Pershing yesterday.

Chief Executive Officer Sandeep Mathrani said the shares are being bought at a capitalization rate of about 6 percent. “This is a discount to private-market valuation for high-quality U.S. retail properties,” he said in the statement.

Pershing was the second-largest investor in General Growth, holding about 68 million shares as of June 30, according to data compiled by Bloomberg. The New York-based hedge-fund firm previously sold about 7 million shares of the mall landlord in June, the data show. General Growth’s shares fell 1.1 percent to $19.36 yesterday and have dropped 2.5 percent this year.

Mall REITs, which enjoyed strong tenant sales growth since the credit crisis and recession, now face sluggish retail sales and limited opportunities to expand. This has pushed investors to look elsewhere for earnings growth.

Share Performance

The Bloomberg mall REIT index has fallen 5.4 percent this year, the worst performing part of the industry, after posting the biggest increases from the start of 2009 through 2012. REITs that own regional malls reported the smallest increase in tenant sales per square foot in three years in the second quarter, according to data compiled by Bloomberg.

General Growth’s purchases reduced the REIT’s total shares outstanding to about 964 million, according to the statement. The company paid for the transaction in cash.

Ackman, founder of Pershing, helped rescue General Growth from near-collapse by pushing it to file for bankruptcy in 2009, when he also won a board seat. The effort “turned $60 million into $1.6 billion,” Ackman told Bloomberg News in 2011, and contributed to his flagship fund’s net return of 29 percent in 2010.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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