Honolulu's Ala Moana mall is already known as one of the most profitable shopping centers in the United States, with annual sales per square foot exceeding $1,000. But owner General Growth Properties is set to squeeze even more dollars out of Hawaiian retail's Big Kahuna. The Chicago-based REIT is redeveloping the mall's three-level, 220,000-square-foot JCPenney, which was vacated in December, into 30 small shops. The center is anchored by Macy's, Sears and Neiman-Marcus and includes small tenants ranging from luxury retailers such as Chanel and Christian Dior, to the lower-end Wet Seal and Crazy T-Shirts.

After JCPenney's lease expired at the end of last year, General Growth paid the retailer an undisclosed “nominal” amount to cover the residual value of the lease's extension options, according to Salomon Smith Barney REIT analysts. And it plans to invest about $40 million in the project. Salomon Smith Barney's Jonathan Litt says the return could be as high as 20 percent, considering Ala Moana's mall shop rents currently range from $75 to $100 per square foot. Litt adds that General Growth's FFO accretion from the Ala Moana revamp could amount to 8 cents per share assuming rents of at least $75 per square foot, a 75 percent operating margin and a 4 percent interest rate on redevelopment costs.

General Growth bought the mall and some peripheral properties in 1998 from a joint venture between Equity Life Assurance and Tokyo's DAIEI Hawaii for $810 million. The company completed a $160 million renovation of the mall in 1999, expanding its Neiman-Marcus anchor and adding new vertical space for small shops.

The Ala Moana project is not General Growth's only Hawaiian expansion. The REIT recently purchased Waikiki's Victoria Ward Center, a mixed-use development near Ala Moana that includes 880,000 square feet of retail.