Construction has begun on the DNZ Property Fund's $160 million mall at Westgate in West Auckland.
The mall, which is scheduled to open in October next year, is part of a new 56-hectare Westgate Town Centre and a wider Auckland Council strategy to transform northwest Auckland.
It will have about 90 specialty stores, a Farmers department store and a Countdown supermarket.
The total development cost of the mall is just over $155m, including land at cost, with the value on completion estimated at $160m.
This represents a yield on cost of about 7.75 per cent, assuming the centre opens fully leased.
DNZ said the initial pre-leasing target of more than 40 per cent, including the two majors, had been exceeded.
The project will be funded from DNZ's bank facilities.
The company does not expect to raise equity to fund it as it is looking at selling non-core assets over the duration of the project.
DNZ's loan-to-value ratio is not expected to exceed 40 per cent during that period, while it forecasts dividends during the development phase will at least be maintained at of 9 cents a share.
The project will see DNZ exceed its target of having more than 15 per cent of the value of its property portfolio held as investment properties under development at any one time.
This measure is forecast to peak at under 25 per cent during the Westgate project.
DNZ chairman Tim Storey said Westgate provided the opportunity to enhance the "age, quality and growth orientation" of the DNZ portfolio.
"This, combined with the experience and capability of the company's management team, a fixed-price construction contract and pre-leasing already achieved, has given the board confidence to approve an exception to the guideline," he said.
DNZ is one of the largest property managers in New Zealand, with more than $770m of commercial office, retail and industrial properties throughout the country.
As at last December 31, the fund owned 47 properties with 297 tenants, a weighted average lease term of 5.5 years and an occupancy rate of 99.4 per cent.
DNZ shares last traded at $1.53 on the NZX.
- Fairfax Media