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For Mall REITs, There Is More to Growth Than Retail

Kimco Realty Trust is joining what looks like an emerging trend for some mall developers. Seeking new growth opportunities and ways to improve earnings and shareholder value, Kimco says it is looking at places where it can redevelop some of its strip malls into residential projects.

"What we are doing is we are taking a look at every property where a lease may be expiring and we don't intend to necessarily renew all of those just for retail," CEO Milton Cooper told analysts in an earnings call Monday. "We are also thinking of high-rise residential."

Kimco's move follows news that Equity One is branching further into mixed-use developments from its base in retail. Currently, Equity One, which traditionally develops and manages community shopping centers, is in a joint venture with Amprop Development Corp. to develop the 155-acre mixed-use Sunlake Development near Tampa. Equity One and Amprop will develop the office and retail components together, but are also looking to add a housing component to the project.

In a recent column in Retail Traffic, Doron Valero, president of Equity One talked about his company's diversification plan and how he expects it to add value: "A mixed-use development can become the center of a neighborhood, having guaranteed traffic from the residential component," he explained.

The largest mall owner in the country, Simon, is also seeing more potential in the mixed-use format. Recently, the company announced Version 5.0, a new design program for its regional malls, where it will add residential, hotel and office components to its malls.

Kimco did not provide specific details on how many properties it will convert or if the properties will become mixed-use centers or purely residential. Kimco did not make executives available for further comment.

However, Cooper said the company has looked at several New York area properties for possible conversion. Kimco may also team with a local developer and add residential components to other properties in such hot markets Miami, according to an analyst note from KeyBanc Capital Markets.

"It doesn't surprise me that the company is thinking outside of the box at the end of the day to maximize the value of the real estate they manage for their shareholders," says David Aubuchon, an A.G. Edwards & Sons Inc. analyst. "It appears that they are looking at specific assets that may translate well from retail to residential." -- David Koch

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