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General Growth Returns Not Enough for Ackman Requirements

Bill Ackman, the activist hedge-fund manager, said he sold his firm’s General Growth Properties Inc. shares because the expected returns on the investment after management fees wouldn’t be high enough for his investors.

“There’s still meaningful upside in General Growth,” Ackman said yesterday at the Harbor Investment Conference in New York. “I do view this as a teens compounded return over the next four or five years, so I think that’s actually a good investment.”

Continuing to own stock in the Chicago-based company, the second-largest U.S. shopping-mall owner, wouldn’t work with the expected return after Pershing Square Capital Management LP’s fees of 1.5 percent of assets and 20 percent of profit, Ackman said. “You don’t get to a high enough number to please our investors, so that’s why we sold General Growth,” he said.

The real estate investment trust, one of Ackman’s most profitable investments, bought back about 28 million shares from New York-based Pershing Square for $556 million, General Growth said this week. The hedge-fund firm, which in September sold 25 million shares for $500 million, no longer holds any General Growth common stock, the mall owner said.

Ackman, 47, helped rescue General Growth from near-collapse by pushing it to file for bankruptcy in 2009, and was part of an investor group in its subsequent reorganization. The effort “turned $60 million into $1.6 billion,” the hedge-fund manager told Bloomberg News in 2011, and contributed to his flagship fund’s net return of 29 percent in 2010.

“General Growth Properties is a great company,” Ackman said yesterday. “I’d recommend it to my sister, my mother.”

Largest Bankruptcy

General Growth filed the largest real estate bankruptcy in U.S. history in April 2009 after amassing $27 billion in debt that it was unable to refinance because of the financial crisis and collapse of the commercial mortgage-backed securities market. The company’s restructuring plan provided a full recovery for creditors and a rare recovery for shareholders.

Pershing Square was in an investor group that included Brookfield Asset Management Inc. and Bruce Berkowitz’s Fairholme Capital Management LLC. The partnership committed more than $8 billion to bring General Growth, the biggest U.S. mall owner after Simon Property Group Inc., out of Chapter 11.

General Growth shares rose 0.1 percent to $21.62 today. They’ve climbed 8.6 percent in the past year.

The company used “available liquidity” to fund the purchase of Pershing Square’s shares, according to General Growth’s Feb. 10 statement.

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