General Growth Properties to Purchase Major Share of Plaza Frontenac

General Growth Properties, Inc. (GGP.N) one of the top mall owners in America is bulking up on high quality properties.

General Growth says it has agreed to buy Plaza Frontenac, deemed on of the two trophy malls in St. Louis. It already owns the Saint Louis Galleria Mall. Davis Street Land Co., Evanston, Illinois is the present owner of Plaza Frontenac.

Under the proposed deal, General Growth will sell 26 percent of the Galleria to pay for 55 percent of Plaza Frontenac. An unnamed institutional partner will own the other 45 percent.

At the end of the quarter, General Growth malls owned or had an interest in 166 malls across America. About 92.5 percent of the space was leased, up from 91.6 percent a year ago.

General Growth’s top 20 malls generated $775 in sales per square foot last year. General Growth said second-quarter core funds from operations fell 3.2 percent to $199.6 million, or 20 cents per share, from $206.1 million or 63 centers per share a year earlier.

Net operating income from its core properties--the net cash from operations at the property level--fell 2.6 percent from last year.

Sandeep Mathrani, who took over as CEO in January defended General Growth’s overall performance, saying he said earlier that it would take 18 months to 24 months for the company to show strong growth.

“We’re going to do what’s right for the business,” Mathrani said in a conference call recently with analysts. Mathrani predicted the second half of the year will be better than the first as tenant sales improve and tenants who signed leases begin to occupy their stores and pay rent, adding about $25 million more a quarter.

The focus will continue on high end locations. During the second quarter, the sales at its tenant stores rose 8.4 percent to $465 per square foot on a trailing 12-month basis, but not enough to yield rent increases.

Canada’s Brookfield Asset Management Inc (BAMa.TO) owns or controls about 36 percent of General Growth. Hedge fund Pershing Square Capital, headed by William Ackerman, has about a 14 percent share. Brookfield and Pershing helped recapitalize General Growth, enabling it to emerge from bankruptcy as an independent company.

The City of Frontenac is a major benefactor of tax revenue from Plaza Frontenac. Two restaurants Brick Top Restaurants and Panera Bread are expected to open operations on the northwest corner of the property soon.