Good afternoon and welcome, everybody. Thank you for attending our presentation today of our interim results. Before we start, if there are any questions that you have, please fill them in in the question box, and we will address them at the end of the presentation. Very pleased to report a very positive start to the current financial year. We've had a very successful first six months, effectively characterized, I would say, by three key trends. Number one, a very strong operational performance. We've seen real growth in NOI in both the South African and Iberian portfolios, and Itumeleng Alfonso will talk you through that in more detail. The second key theme was really the bedding down and integration of the assets we acquired at the end of last year, predominantly in Portugal plus Panare in Spain.
I'm very pleased to say that that has gone very successfully. The assets are now well integrated into the business and are starting to contribute very positively to performance overall. The third aspect of what we worked on in this past six months is really laying the groundwork for future growth, and that was starting to build a pipeline of accretive opportunities, and I think we are very excited with the work that we've done there. There are a number of transactions we're currently working on, and hopefully those will close, you know, in the next six months from now, and we'll talk about that in a bit more detail. All in all, a very productive and good start to the financial year. Very active in the capital markets.
We raised ZAR 500 billion in a bond issuance that was significantly oversubscribed. Post the reporting period in October, had a very successful ZAR 2.65 billion equity raise, that really has strengthened our balance sheet, allowing us to pursue these opportunities. Before moving on and into the detailed results, I'd like to just pause and talk a little bit about the structure of the portfolio and where we are, because I think that provides context overall. Today, Vukile is sitting on about ZAR 54 billion worth of assets, approximately 2/3 of that by both asset value and then around 2/3 of the income is coming from Iberia, the balance in South Africa. I think it's important to unpack that a little bit.
The Spanish exposure, Portuguese exposure really is coming from two of the hottest markets in Europe, really growth engines in the European economy at the moment. I think a very good place for us to be operating. In South Africa, with the predominant exposure in township and rural retail, we really are in a sweet spot in the market. Not only have we got a very strong balance of exposure to different economies, but I think we're operating in very attractive markets, both offshore and in South Africa. Looking at the first six months, as I said, really happy with the operational results overall, which are showing continued growing strength across all metrics. Itumeleng Alfonso will take you through that in a bit more detail. The balance sheet is in a very strong position.
At period end, we had around ZAR 2.4 billion, sorry, ZAR 2.3 billion of cash, we raised another ZAR 2.65 billion post the period. We're currently sitting with around ZAR 5 billion of cash available to be deployed. That together with ZAR 2.4 billion of undrawn facilities, provides us with very significant liquidity to pursue the exciting pipeline of deals that we have. Overall, you know, two very positive trends were the upgraded credit rating for Vukile to AA+ and Castellana to BBB. I think the balance sheet really acknowledged as being in very healthy position overall. Most importantly for us is always about delivering for shareholders. I'm delighted to report a growth in dividends of 9% for the period.
At the same time, off the back of a very strong first six months, very happy to upgrade our guidance to growth in both FFO per share and dividend per share to at least 9% for the full financial year. I'm now gonna hand over to Itumeleng to talk you through the South African results in more detail. Thanks, Itumeleng.
Thank you, Laurence. Good day, everyone. It really does give me a great pleasure to present the South African results for the period ended, 30th of September, 2025. The portfolios over the past number of years consistently delivered admirable results in a continuously challenged operating environment. It has thus been pleasing to operate with some macroeconomic reprieve and consistent energy supply over the past six months. These much needed green shoots, in conjunction with our disciplined, inwardly focused operational efficiency strategy, have resulted in an improved performance across the main pillars of our portfolio, which is a significant highlight of this set of results. With regards to our key facts, portfolio is now valued at ZAR 17.7 billion, up from ZAR 16.7 billion at full year 2025.
This has resulted in a 5.9% increase in the valuation of the portfolio. The valuation uptake has quite pleasingly been driven purely by net operating income growth, with no cap rate compression coming through as yet. The resulting yield on the portfolio is a relatively conservative 8.5%. With regards to the performance overview, we're pleased to present a like-for-like NOI increase of 10%, and really increasing further from the high base already delivered last year of 6.4%. The key drivers to this NOI growth are steady growth in the top line. We've seen an improvement in the through rate in terms of churn space.
We've seen some utility management initiatives come through and deliver some margin, as well as some PV revenue. Our vacancies remain at a steady 1.8%, with our rental reversions at 2.5%. This is in line with where we were at year-end. We've also seen a pleasing 5% increase on new deals relative to budget, and this is on deals that represent about 3% of our overall GLA. With regards to the trade efficiency tab, we've seen an environment of improving trading densities, now up 5.4%, up from 2.4% in financial year 2024 and 5.2% the full year.
With regards to our cost ratio, in our year-end results, we were pleased to present the lowest cost-to-income ratio that we've ever put forward, down at that point from 16.8 -1 5.3. Following additional cost efficiency strategies and the execution of our most aggressive PV program last year, our cost-to-income ratio has decreased further to an impressive and sustainable 12.5%. As I proceed through the presentation, the key areas to note are really an improvement in the top line, significant savings in our cost base, increased support from our communities, in terms of improvement in footfall and spend. We've seen improved collections and decreased arrears, really making this a particularly pleasing print across the main levers of our portfolio. Moving into portfolio composition.
The portfolio continues to be well positioned, diversified and defensive across eight of the nine provinces. Our largest segments in terms of GLA and valuation, the township and the rural portfolio continue to trade well, effectively fully let, with low rent-to-sales ratios, really signifying the scope for strong reversions to come through in this space. The Western Cape portfolio has been the best performing province in the past six months, with trade increasing by 10.8%, followed by the Free State at 9.7%. These regions have also shown the greatest positive reversions over the period, increasing by the renewals by 4.5% and 4% respectively.
The KZN portfolio has shown the greatest increase in footfall, up by 5%, and we continue to see a steady increase in base rentals across all of our segments, and also across all of the province. With regards to our key value drivers, these remain strong. The interplay of all these key graphs that you see on the screen really states a story of sustained growth, looking forward. We carefully curate our tenant mix in the defensive growing categories of groceries, food, lower-end fashion, pharmacies, and health and beauty. This results in strong growth in turnovers. If you look at the second graph, trading densities over the past three reporting cycles have grown from 2.4- 5.2 and now at 5.4.
The growth in trading densities then really drives the affordability in asking rentals, with rent to sales constantly low. That then drives vacancies down, which increases reversions. All of these combined really drive growth in the top line. The interplay of all of these key levers drive the ultimate sustainable growth that you see within the portfolio. On the trading environment and footfall front, all of our segments within the portfolio showed trading density growth, with 7.1% in the township portfolio, 4.8% in the rural, 3.2% in the urban, 6.7% in the commuter, and 4.8% in the value centers. The commuter and value centers portfolio have shown the biggest improvement in the past six months.
The township and rural center portfolio continues to outperform, with growth, both in terms of sales and footfall. Our footfall overall in the portfolio has increased by 1.9% year-on-year, with all of our five segments showing growth. This is the first time in four reporting cycles where all of our segments have shown growth, in terms of footfall, really driven by a more aggressive promotional activity program. We've seen a 55.6% rise in promotional activity within the portfolio over the past 12 months. The amount that has been spent on these promotions has really returned the expected value, a strategy which we will continue in the years ahead. We also continue to see higher spend per head across the entire portfolio.
Turning our focus to our retail tenant composition, we continue to have a balanced tenant composition tilted towards non-discretionary essential shopper spend. When focusing on our top 10 tenants, 60% of these fall under the non-discretionary spend categories. These non-discretionary categories outperform the discretionary ones. If one focuses on the table and focuses on columns two and three and looks at trading densities, you'll see that the trading densities on the non-discretionary have increased by 6.8% relative to 3.2%. Our rent to sales in the non-discretionary space are lower at 4.1% relative to 7.4%. Also, our weighted average lease expiry is much longer in the non-discretionary space than it is in the discretionary.
This focus on essential categories of tenants provides a defensive buffer to our cash flows and results in solid, sustainable growth within the portfolio. This performance has formed a key part of our leasing strategy in the past six months. Looking at our retail category performance, growth momentum was achieved across all major categories and tenants, with our top 10 tenants growing by 5.9%. We've analyzed the average growth of our categories over the past three years, and the best performing category has been cell phones, which represent about 3% of our rental with a 12.5% average density growth over the period. This aligns very well with key retailers that have reported increased number of handsets sold in 2025.
The grocery category that accounts for about 21% of our GLA is up 7% over this three-year period on average. We've opened four new grocery anchor shops in the past six months, really highlighting the strong demand in this space and area. Fashion is our biggest category, accounting for 23% of our GLA. In the past year, we've seen that this category has increased by 4%. On average over the past three years, it's increased by 2.4%. I think more importantly, over the past six months, this category has had both winners and losers. In our portfolio however, we've seen that all of the fashion retailers who are listed have shown real growth in terms of performance. Moving on to leasing activity.
Leasing activity continues to be vibrant with strong support across all segments. 83% of leases renewed or concluded with national and emerging tenants, really with particularly strong support from our top 10 tenants. Our weighted average lease expiry on recent renewals and also new deals is higher from 3.5 years- 4.4, highlighting the support for longer tenure within our portfolio from our key tenants. We also saw an overall increase of 3% on rental growth on deals concluded. We're also tracking ahead in terms of our budget on the quantum and number of deals concluded in the first half. Again, you know, underscoring how vibrant the leasing environment is. On rental growth potential, our portfolio remains under-rented.
There's definitely scope for further rental appreciation driven by strong trading density momentum within the portfolio. When one looks at, you know, this table on the right-hand side, you'll note that our five-year historical average trading density growth is at levels higher than the five-year historical average rental growth. This really supports the view that there's upside potential on positive rental reversions within the portfolio, and that is a trend we've seen of positive reversions over the past three years, which will most likely continue when one looks at this table. Out of the key categories we track within the portfolio, groceries, fashion, bottle stores, and cell phones show the greatest potential in terms of growth into the future. Homeware has been the laggard and a challenging category across the industry.
On customer focus, promoting the mall in an authentic, relevant, culturally appropriate way is fundamental to how we call our communities to action. We have a strong customer focus with the ethos of building affinity within the communities in which we operate in. We use data to understand our customer preferences and then drive more targeted and relevant promotions to speak to these preferences. This, in turn, then drives footfall, which ultimately flows into increased spend. I'm extremely excited about the campaign which we've run throughout the country called DISKI FANFEST, with soccer legend Dr. Khumalo, motivating the youth. On days that we've run this promotion, we've seen a double-digit increase in footfall countrywide.
On the table, on the slide, when we hosted it at Devon Mall, we saw a 28% increase in feet on that particular day. Our key focus is getting people into the mall, running campaigns that encourage our customers to shop by speaking to topics that they resonate with. Our promotional activity is then strategically timed to take advantage of both high and low volume times within the malls, depending on the campaign. We continue to drive strategies to really look to decrease our cost in a sustainable manner. We like contrasting financial year 2014 and financial year 2026 on this slide, where you can see our cost-to-income ratio in financial year 2014 was at 22%, and we are now at 12.5%. The top three cost line items receiving significant strategic intervention are electricity, municipal costs, and water.
The biggest contributor to the savings in the past year have been the addition of the 14.4 megawatt peak solar, resulting in a 45% increase in savings compared to previous year. We've also added additional boreholes within the portfolio. We now sit at 19 boreholes out of the 33 assets which we have. In addition to this, the portfolio has 97% backup water to ensure that we have continuous trade. We have a dedicated strategy on water, and have identified six additional water backup projects, which we will look to deploy in the coming months.
Part of our key priorities, as a team, is really to drive a strategy on all the separate, line items, that we have as part of our expenses, we will continue to focus, on these, on these strategic initiatives. We view sustainability initiatives, within the business as a profit center. Our four-tiered strategy has the capacity to generate ZAR 170 million in NOI potential. This equates to 11.5% of our current portfolio NOI. The PV strategy is, in the current portfolio is approximately 83% done with 45 PV projects, that deliver 38.2 MW peak. Our current financial year, 2026, is on track to add an additional 10.6 MW peak at a yield of, 19%.
On the top right-hand side of the slide, we've indicated at the year-end results that with the battery costs decreasing by circa 65%, there was an opportunity for us to invest aggressively into the space. We've kickstarted this project with 13 BESS projects, which will deliver projected yield of 16%. This will increase our BESS capacity from 4 MWh to 20 MWh of capacity storage capacity. Water management is a key focus area. As I've mentioned, we've got the 19 boreholes. Looking forward, we think that we can generate an additional ZAR 10 million savings in terms of water projects in the next six-12 months. We're currently busy with our request for proposal on two wheeling projects. We anticipate having these agreements concluded in the next six months.
Sustainability is therefore not merely a response to managing global challenges, it is an FFO positive driver and value add which drives real and immediate returns to the portfolio and has indeed become a profit center. Last week, Tuesday, we relaunched a fully refurbished and redeveloped Mall of Mthatha. This project was an incredible effort and case study of how we have, as a core capability within the business, the ability to identify distressed assets, identify potential, transact effectively, reimagine and redevelop and turn them around. We invested ZAR 111 million for our 50% of this redevelopment, which has yielded 11.4%, notwithstanding the significant defensive CapEx on OHS Act fire electrical risks, which were once prevalent at the site. On this slide, we've listed in tabular format what the transformation has resulted in.
If you look at the purchase price relative to the current valuation, you've seen a 38.3% uplift. In terms of our net operating income, and where we forecasted it in this current year, you've seen a 17.2% uplift. Average rentals have increased by 19.7%. We've seen a significant decrease in our cost ratios from 46% - 21% and also a 15.5% increase in our trading statistics. The vacancies have plummeted from 20% - 1.7%. Really, you know, a proper turnaround of the distressed assets that had significant potential. Simply put, this is a transformed center. We have repositioned the tenant mix by introducing exciting new tenants such as Dis-Chem, JAM Clothing, Volpes. We've introduced Clothing Junction, Shoprite, as well as News Cafe.
We've completely uplifted the customer experience through new escalators. We've added new lifts and bathrooms, and we've really refreshed both the interiors and exteriors of the mall. I'm gonna take a second to pause and really just play a video that illustrates the transformative development that we've done at Mall of Mthatha. You will agree with me that that is a phenomenal turnaround, and we're really looking forward to strong trade coming through in the festive season, but also looking forward to really service the people of Mthatha.
In terms of the acquisition update, we're pleased to announce the acquisition of 50% of Chatsworth Centre, a 42,400 square meter northerly dominant regional mall in the township of Chatsworth in KwaZulu-Natal. It's a very strong, dominant, established, high-performing asset with a, with a quality tenant mix, which we are buying for ZAR 620 million at a yield of 8.75%. This acquisition aligns with our strategy of investing in northerly dominant assets, really with strong growth potential. The mall currently has no solar PV, and we will look to execute on a value add strategy immediately after transfer. The due diligence is complete. CompCom approval has been received. The transfer is imminent, and we expect it to transfer in early December.
With regards to valuations, the valuations are really an outcome of the key net operating income growth message, which I've communicated in this presentation. In the six months, we've seen a 3.5% growth in top line, an additional 2.4% in income profile adjustments, that has resulted in the ZAR 17.7 billion, 5.9% increase. Once again, when you look at our value density versus our replacement costs, and you look at the forward yield on the portfolio, they all point to a conservatively valued portfolio. To conclude, the portfolio has continued a strong performance, maintaining sound occupancy, growing through rentals and tightly managed costs. We expect the momentum achieved in the first half of the financial year to be sustained into the second.
With that, I'd like to thank you for your attention and hand over to Alfonso to give us an update on Castellana. Thank you.
Thank you, Ito. Congratulations for such a superb performance in the South African portfolio. Hola. Buenos días a todos. Good morning, everyone, or good afternoon, in this case. Always happy to be back in South Africa, and delighted to be able to bring these excellent results to the Iberian business. With tailwinds on the economy side and all the work developed already in Spain and Portugal, we can forecast a very promising future for Castellana and hence for Vukile. I am sure that with the good acquisitions made last year on the hand of our experienced team, we are to keep extracting good value out of the portfolio we have under management. Good proof of it are this set of results for the first half of FY 2026.
Jumping into the slides, as an economic update, I wanted to highlight some points quickly. Spain remains a significant economic contributor within Europe, with its GDP forecasted to increase by up to 3% in 2025. Economic growth is being supported by robust household consumption, a resilient labor market characterized by rising wages, and the lowest unemployment rate in nearly two decades, as well as record levels of tourism arrivals and spending. Inflation is gradually moderating, while population growth is largely attributed to an influx of skilled immigrants. All these factors predict a very healthy outlook for our business in Spain. Portugal's economy is projected to expand by up to 2.4% in 2025, propelled by increased private consumption and historically high employment rates, with wages expected to grow under a new long-term agreement.
Inflation has moderated to 2.4%, and household financial conditions continue to strengthen, evidenced by elevated savings and reduced debt levels. Tourism is anticipated to achieve a record year, contributing to elevated demand in core regions such as Lisbon and Madeira. Now, moving on to the key portfolio metrics. Here I want to highlight the outstanding recurrent net operating income growth of 8.7% versus H1 FY25, which was already very positive. This income growth and value-added projects remains to be the main drivers to keep growth in GAF, although with very conservative approach from our valuers yet. We'll see it later in a specific slide on valuations.
We give a very defensive and healthy tenant profile, with 95 of our tenant base being national and international best-in-class brands with a very solid WALE of 8.9 years and still low OCRs that confirm the growth potential of the portfolio in the future. Outstandingly positive growth indicators that demonstrate our ability to continue signing leases and increasing reversions. This confirms not only the strength and stability of our portfolio, but also ensures the sustainability of our cash flows, a key factor in our business. Now, focusing on the fundamental indicators of our portfolio, footfall and sales. These metrics demonstrate a strong performance, maintaining growth despite already operating from high baselines. In several instances, these results represent a new all-time records.
Worth to mention Granaíta with a 7.5% growth in traffic after its improved retail mix, now with more highly demanded tenants that attract more and different visitors. El Faro has brought impressive 33% more visits compared to H1 FY 2025 with the completion of the new extension area and the opening of new brands such as Lefties, Mango, and Alvaro Moreno. All categories show growth with culture standing out at almost 10% and homeware with 6.7%. Bonaire is doing exceptionally well with sales up 2.7% compared to the first half of last year. Considering it experienced the terrible flooding just eight months ago, its recovery has been remarkable.
At leasing activity level, between April 1st and September 30th of this year, 196 rental transactions have been signed. 112 new contracts and 84 renewals have led to a new and refreshed rent signed for a value of EUR 13.1 million per year. Which results in a 7.48% increase in the average rent per square meter of these transacted units. Please note, and as mentioned in past occasions, that that figure does not include indexation, which we'll add in the coming months. We are keeping leading portfolio metrics, such as occupancy of 98.7% and all rent collection ratio above 98%. Both levels well above the industry benchmarks.
All work performed at operations and balance sheet levels in Castellana have merited for Fitch to upgrade our rating one notch to BBB with a stable outlook. The key drivers for the improvement have been more diversified portfolio, especially with the entrance in Portugal, resilient performance in terms of sustainable rental growth, consistent execution of active and disciplined management, proven value creation through our VAPs, value-added projects, and a sound profile with robust liquidity and long-term maturities. Moving on to the gross rental income bridge. Given the incorporation of the last acquisitions, GRI has almost doubled in this period. In a like-for-like basis of same portfolio and same period of time, gross rentals have grown by more than 8% with respect to H1 2025.
This gross income translate to an NOI growth of also 8.7% versus last year's first half. At full let capacity and the work in progress Value-Added Projects completed, the portfolio should generate gross rental income of EUR 137 million annually. We expect this to come real in FY 2028. As for the GAAP bridge, here total growth for the semester of 6.7% made by 3.8% coming from the acquisition of Forum Madeira and almost 3% growth in direct portfolio, including CapEx invested. On a like-for-like basis, considering the same portfolio, GAAP increased by 2.3% from our last valuation cycle at the end of March. As you all know by now, Castellana is externally valued every six months by Colliers.
Despite this increase of 2.3% that I mentioned in the portfolio for the period, we believe there is still substantial amount of value to be extracted as Colliers' approach is being conservative in terms of exit deals and cap rates. The lack of evidence of representative transactions in their key argument for this approach. Given the increased activity in the market, we anticipate the market will provide more evidence in the next six months, enabling Colliers to refine their valuations. In the meantime, our team have been working hard on the alpha side that will assure extra value when yields turn around.
Aligned with our customer-centric philosophy, we prioritize the needs and preferences of our communities to encourage not only initial visits, but also frequency, extended stays, increased spending, and ultimately brand loyalty towards our shopping centers. At Castellana, we leverage technology to develop more connected and digitized centers, placing the customer at the core of our strategic decisions. We have launched several pilot initiatives, including Sophia, an AI virtual assistant that improves its responses to visitors' inquiries. In one month, at a single location, Sophia handled over 2,400 interactions with 95% accuracy. By identifying shopper intent and emotional cues, it provides recommendations that enhance both in-mall and online experiences. Our team use these findings to create better environments for shoppers.
Another project, another pilot project is testing an interactive counter design to gather more detailed and emotional feedback from our customers. Unlike current tools that collect quantitative data, like where customers come from, how long they stay, and how often they visit our centers, this new system let us obtain firsthand qualitative insights. These insights help us understand customers' concerns and views, which would lead to a better decision-making. We are continually enhancing loyal programs across our centers through innovative theaters that have recently been recognized by the Spanish Shopping Center Association with an award for best digital and innovation strategy. Our ongoing goal is to enhance our shopping centers as vibrant social hubs by delivering distinctive experiences and fostering synergies among them.
A recent example is the Golden Kingdom Roadshow, which brought exhibitions, live entertainment, and workshops to our centers, boosting foot traffic by 8% in the period showing. In fact, 81% of our customers reported that they visited the center specifically to attend the show. Regarding ESG, Castellana Properties remain dedicated to sustainability and corporate responsibility, applying top environmental, social, and governance standards throughout our operations. This commitment is consistently acknowledged by major industry benchmarks and certification bodies. In July 2025, we published our latest ESG report, highlighting our commitment to transparency and long-term value across environmental, community, and stakeholder impacts. We introduced last year our award-winning ESG strategy for the next three exercises called Beyond ESG Boundaries, which outlines ambitious goals and initiatives that surpass compliance and reinforce Castellana Properties as a leader in sustainability and responsible business.
Moving on as an update on our value-added projects. Regarding Vallsur, we are currently awaiting delivery of the custom design children's playground. Due to its unique nature, both manufacturing and assembly have required more time than initially anticipated. We now expect the playground to be operational by March next year, which should boost footfall that extra mile. Additionally, we have expanded the project scope to include a gym on the first floor utilizing previous underused retail space. The new tenant, Fitness Park, a renowned international gym operator, will occupy the rear section of Alvaro Moreno's unit, as well as part of the first-floor parking area. Through an effective team coordination, this expansion increases income without additional capital expenditure. The Alfafar project has been successfully completed, delivering impressive results.
Thanks to the team's exceptional efforts, the project generates EUR 2.5 million of new net operating income a year after investing EUR 22.4 million in CapEx, achieving an 11.16% year-on investment. The newly redesigned area has increased foot traffic by more than 20% compared to when Hipercor, the hypermarket, operated in such a space. The introduction of six new brands has turned what was once a cold area into one of the most popular spots in the center. The team's impressive performance is demonstrated by the graph on the left, which illustrates the growth trends on NOI and GAAP for the center over time. This is a great example of how we can add value to already good and dominant shopping centers and take them to new heights.
Los Arcos extension projects, our most ambitious undertaking in terms of transformation and repositioning, has experienced delays following the insolvency of the primary contractor midway through the works. This constructor has successfully collaborated with us on multiple projects for over the last eight years without any incident. Prior to the filing of Chapter 11, we managed to terminate and settle the contract, allowing us to transition to a new contractor as promptly as possible. A new tender is being finalized with the three, with three other contractors, we anticipate resuming work very soon. While the project deal on cost may be somewhat reduced, I remain confident that its added value will be evident in future valuations once completed and the quality enhancements are recognized by our prices.
The impact of this delay is already included in the guidance Laurence has already given. As of today, 81% of the new area generated is pre-let, achieving already 97% of the rent projected or budgeted, which is a great signal that demand is there and that we will complete the project successfully. Additionally, the new residential neighborhood adjacent to the center is progressing quickly. Once developed, it will provide more than 2,500 new homes within a five-minute walk, likely increasing foot traffic as the area becomes established over the next few years. To end my section, I could not leave without speaking about our last acquisition made at the beginning of the period, Forum Madeira.
Located at the west side of Funchal, capital city of the island of Madeira, it constitutes the hub of the wealthiest population in town and mandatory visit of tourists visiting the island annually. It is the dominant shopping center in the island and the only location of the Inditex group brands. With just above 21,000 square meters of GLA, it made 5.7 million visits last year in an island of just over 250,000 inhabitants, but more than 2 million tourists visiting every year. Acquired at a very competitive price, we expect to keep adding value through several possible Value-Added Projects that we have under study right now.
With that, I conclude the Iberian segment, and I hope you all share my excitement and satisfaction with these excellent results and recognize the tremendous effort made by the Castellana team. Many thanks for your attention.
Good afternoon. Thank you for joining us for Vukile's interim results presentation. I'm pleased to report another period of robust growth underpinned by strong operational performance. Dividends per share increased by 9% to ZAR 0.602 per share, delivering a total dividend payout of ZAR 824 million. In October, we successfully completed an equity raise, issuing 124 million new shares that will also participate in the FY 2026 dividend distribution. The payout ratio for H1 is around 79%, the payout ratio for the full year will be between 80% and 85%. For FY 2026, earnings per share increased by 73% to ZAR 1.90 per share due to the recent property acquisitions in Portugal and Spain, as well as the increase in fair value of investment property.
Following significant acquisitive growth last year, the recently acquired assets in Spain and Portugal have now been seamlessly incorporated into our core operations with 2/3 of the group's net property income now coming from Iberia. On a like for like basis, net property income for the South African portfolio increased by 10%, with the Castellana portfolio achieving like for like growth in net property income of 8.7%. The increase in income from joint ventures is due to Castellana's share of net profits of ZAR 128 million from Alegro Sintra, a 50% held joint venture in Portugal that was acquired in December 2024. The increase in the tax expense line results from the ZAR 48 million special levy on the Castellana distribution of the capital gain arising from the sale of Lar España.
On the next slide, the ZAR 48 million is added back to FFO by means of a non-IFRS adjustment since the disposal of Lar España is capital in nature. Apart from the special levy, the non-IFRS adjustments related to accrued dividends also includes an FEC accrual of ZAR 46 million related to Castellana's H1 FY26 dividend. For purposes of FFO, the non-cash impacts of IFRS entries have been reversed, of which ZAR 79 million relates to Alegro Sintra, our equity accounted joint venture, primarily relating to the increase in fair value of investment property. FFO per share therefore increased to ZAR 0.839 per share, up 2% from the prior period. This is primarily due to a base effect from the prior year's numbers.
To reiterate, we remain confident that our FFO growth per share upgraded guidance of at least 9% remains intact, as Laurence has mentioned. Group corporate expenditure equates to 9% of revenue, compared to 11% in the corresponding prior period. The improved ratio illustrates the impact of economies of scale following the recent acquisitions in the Iberian Peninsula, which is also evidenced by Castellana's cost ratio reducing from 12.2%- 8.6%. Total corporate costs in Castellana, excluding the impact of foreign exchange rate movements, increased by 32%. The increase was primarily driven by two factors: higher staff related costs stemming from the expansion into another geography and the consequential need to increase the size of the Castellana team, as well as additional non-staff costs incurred due to the new assets in Portugal.
In South Africa, salaries and other corporate costs, excluding variable staff costs, increased by 1% compared to the prior period. The increase in the variable component of staff related costs illustrates the pay for performance model that has successfully attracted and retained top talent, contributing to Vukile's consistent outperformance of the SAPY index over an extended period of time. NAV per share increased by 6.5% to ZAR 23.84, primarily due to the increase in net property income as well as the upward fair value adjustment on investment property. Our cash flow remains very strong, with the H1 dividend nearly two times covered by cash flow from operating activities.
Due to the acquisition of Forum Madeira in Portugal for EUR 63 million, there was an increase in borrowings during the period, followed by an outflow of cash for the acquisition of the investment property as the funds were deployed. We ended the period with cash of ZAR 2.3 billion and undrawn facilities of ZAR 2.4 billion. The ratio of cash and undrawn committed facilities to dates expiring over the next 12 months is 2.1 times, which demonstrates Vukile's strong liquidity position, with more than sufficient capacity to repay debts over the next 12 months if required. Our balance sheet remains strong and conservatively managed. At 30 September, group ICR was 2.7 times, and we anticipate that ICR will improve to three times by year-end.
The group's average cost of funding for the period was 5.4%, compared to 5.7% for the previous period. Base rates have decreased in South Africa and Iberia during FY 2025, and ZAR margins have reduced following recent DCM issuances. In May this year, ZAR 3.1 billion of ZAR interest rate swaps were executed, resulting in the ZAR cost of debt expected to remain largely unchanged for FY 2026 and begin to reduce in FY 2027 and FY 2028 as the debts and hedges mature. The additional interest rate swaps executed during the period resulted in the group interest-bearing debt being 91% hedged with a 2.4-year hedge maturity profile. ZAR 2.2 billion of funding is classified as green loans, supporting Vukile's funding strategy alignment with our continued commitments to ESG goals.
Funding benefits have been linked to carbon emissions, water efficiency projects, and social initiative targets, as well as the investment in PV and BESS projects. At 30 of September, our forecast EUR dividends over the next five years is 57% hedged, with Castellana's net forecast dividend for FY 2026 being 93% hedged. Historically, we've not hedged Castellana's FFO earnings and only hedged the dividend coming from Castellana. Significant ZAR weakness in April presented a unique opportunity to reduce exchange rate risk associated with Castellana's retained FFO. In April, we hedged EUR 25 million of Castellana's FY 2026 FFO at a strike rate of ZAR 21.25 to the EUR, costing a premium of ZAR 8.2 million. The hedge provides for a minimum exchange rate of ZAR 21.25, while still allowing Vukile to benefit should the ZAR weaken above ZAR 21.25.
At 30 September, group loan to value increased slightly to 41.6% following the acquisition of Forum Madeira in Spain, offsets by the increase in property valuations. Following the ZAR 2.6 billion equity raise in October, the group LTV is expected to reduce to below 40%. A detailed sensitivity of the LTV, both to property valuations as well as foreign exchange rate movements, can be found in the appendix on slide 110. In August, ZAR 500 million of unsecured corporate bonds were issued with 3 and 7-year tenors at margins of 102 and 135 respectively. Both margins were lower than guidance and Vukile's lowest margins since launching the DMT program. The bond issuance was six times oversubscribed, attracting bids from 21 investors.
The group has a healthy debt maturity profile of 3.5 years, while Castellana's average debt maturity extends to 4.3 years with their next debt maturity in FY 2029. As part of the group's funding strategy, Vukile proactively manages its debt expiry. Only 0.3% of debts matures in FY 2026, with all EUR 3.3 million relating to the amortization of Castellana's bank debt. Before I hand back to Laurence, I'd like to mention that in addition to Castellana's credit rating upgrade, the GCR also upgraded Vukile's long-term credit rating to AA+. Thank you.
Lizelle, thanks very much. To talk about our strategy, our strategy really is to set ourselves apart as a consumer-focused retail business. It's a consumer-led model that's really creating value for all of our stakeholders. This is a slide that you've seen before. It's the easiest way for us to capture our strategy and explain it, and it's something that we are very keen not to change, because I think you're seeing a strategy in action. When you look at the tremendous results that Alfonso and Ittu have just taken us through, you can see that the increased spending and investment and time that we're putting into our customer centricity is really paying dividends. You're seeing great growth in footfall and sales. That, in turn, is driving better performance from our tenants.
You're seeing growing rentals coming from that, and those growing rentals and overall operating performance really is driving growth in dividends for all of our investors. The model works. The focus on the consumer ultimately benefits the investors in terms of what we're doing. This is a model that we feel is applicable in any market that we operate in. We sort of wake up in the morning not thinking, "What should our strategy be?" Rather, "How do we just make it and execute on it even better than what we've been doing?" It's really around focused execution of a strategy that works. With that in mind, what are we focusing on for the the next six months and going forward? Number one, it's driving operational excellence in the business. I think that is core to what we do.
It's implementing our consumer-led model. There'll be continued investment in our accretive sustainability-led opportunities. I think you've seen that our view is sustainability is a profit center. We're seeing very good growth coming from that area. The growth from the first half of this year, we expect to see that momentum continuing into the second six months and beyond. Moving on to the value add opportunities in our existing portfolio. You've seen the tremendous work that was done at Mall of Mthatha, and really, that's a showcase of the value add projects that we can do. We are now busy with a project at Nonesi Mall, which will be an expansion of around 3,500 square meters.
In Phoenix Plaza, busy with a tenant movement, introducing some new tenants, and that is going particularly well. In Spain, again, you're seeing tremendous success at what the team can do in terms of the value add projects there. Los Arcos, Alfonso has mentioned the delay. We remain very committed to the project. I think it's gonna add tremendous value to the center, and the delay in income has already been taken out of the forecast for this year. This is a very exciting project that will really add to the long-term dominance of that center. Vallsur has been a tremendous success on the repositioning. We've now got that extra extension Alfonso has spoken about.
At Bahia Sur, we have a piece of land that we are now sort of moving forward with planning to build our own value center adjacent to the shopping center, really consolidating the node as the leading dominant center in the area. The assets we acquired in Portugal, some of them were acquired deliberately because of the value add opportunities. RioSul and Lares particularly fall into that category. Projects have now been put together by the team, and we're waiting for final city hall approvals before we move forward on those. Really what you can see is some good accretive money being spent on our existing portfolio, not only to drive income but to drive further dominance in the assets. Turning to the acquisition environment, and we are certainly seeing more deal flow coming through.
In South Africa, Isia has taken you through the acquisition of Chatsworth Center, which will hopefully transfer in December. We have an additional township-based shopping center currently under exclusivity and in due diligence. I'm afraid I can't share more details at the moment, but the due diligence is going particularly well, and we hope that that deal would close, if not in the fourth quarter of this financial year, certainly the beginning of the next financial year. That is going very well. We're starting to see some interesting opportunities in the SA market, beyond those two just mentioned. Turning attention to Spain, I must say that the environment has become more competitive. We are seeing more sellers emboldened and going to process instead of looking for off-market deals.
We have in fact lost out on two deals this year by coming second. Occasionally, it is good to be second, and in this case, I think it's testament to our discipline of saying, "We have a price. Beyond our price, a deal is no longer attractive to us." We really didn't mind being outbid when we were then chose to, you know, keep our pricing at the limits that we were at. Whilst our preference is still to try and find deals off market, we may have to participate in processes because that seems to be where the market is moving. I think what I can assure the investors, is that we'll remain very disciplined and really only do deals that make sense for us.
We currently do have an asset in under exclusivity and in due diligence that was secured off market. We have another couple of deals that we're working on which have been originated through our network and not relying on processes. All in all, very upbeat about the process, the pipeline of deals that we have going forward in Spain. Just to reiterate that with the cash that we've already raised, plus the cash on our balance sheets, we have sufficient funding in place to execute on the deals that we currently are evaluating. I would expect the pipeline to sort of start being closed out probably within the next six months from now.
That sort of is, you know, partially in this current financial year, partially in the first quarter of the next financial year. The fourth pillar of our growth strategy really is to look at new markets. We have been doing some homework. At the moment, it's very much contained to desktop research, in-country asset tours to really understand markets in more depth. We have, at this stage, not made a decision, or rather made a decision not to enter into a new market, purely because we have got a very strong pipeline in our core countries that we operate in. What we are doing is continuing to evaluate ways to build our knowledge and capacity for further European expansion. It's about using this time for learning and understanding markets.
Given the pipeline, our immediate investment attention is going to be focused on Spain and Portugal. In South Africa, we continue to see good deal flow and close out the deals that we have here. When you put these four pillars together, I think we are really positioning the business for sustainable real growth in earnings for our shareholders over the short, medium, and long term. Turning to prospects. Vukile commenced the financial year in a very strong position. We have a clear strategy. We have a proven operating platform. The momentum that we saw in the last financial year has certainly continued into the first half of FY 2026, and we would expect that to continue into the second half.
We're seeing significant real growth in net property income. I think that really is the strength that underpins the result overall. Having successfully integrated the new acquisitions in Spain and in Portugal, the assets are now contributing meaningfully to the portfolio's performance. Having strengthened our performance and our platform in Iberia, we really have created a high-performing, scalable platform that positions us well for sustained growth in the years ahead. This improved outlook is supported by a very well-capitalized balance sheet. With around ZAR 5 billion in cash available, we are well positioned to execute on our very exciting pipeline, as I said, over the next six months or so. Our focus remains unchanged.
That is to pursue opportunities that are aligned with our long-term strategic objectives and that deliver accretive returns for shareholders, reinforcing our commitment to sustainable growth and value creation. With that in mind, I'm very pleased to say that we are upgrading our guidance in both FFO per share and dividend per share for FY 2026 to growth of at least
9%. As always, I would like to thank my team for their tremendous contribution. These results don't happen without a very dedicated and committed team, both in South Africa, in Spain, and in Portugal. To my team, thank you very much for the great delivery. I'd now ask you to put any final questions into the question box. We'll take a very short break and then get on with answering your questions. Thank you all for your attention.
Good afternoon, team. The first couple of questions are from Wesh Manio from SBG Securities. I'll direct those to Ittu. Please let us know how the KZN assets have been performing. Channel checks have been growing more positive in the region. With the new inflation targeting by the SARB, have tenants begun pushing back on rental increases and/or securing lower escalations?
Sure. Thanks, Brian. I'll start with KZN. Historically, KZN has performed well. It's been a strong performer for us with very strong trading density growth. In fact, the grocery anchors at KZN have been the best performing across the country. In the past 12 months, KZN has continued to do well. Trading densities were up by 4%. Reversions are also growing nicely at 4.5%. We've also seen footfall up. Slightly below the two that I had highlighted in the presentation, but in our portfolio, you know, that KZN portfolio has really, you know, performed well, and we expect that to continue. Next, second one. Inflation.
Yeah.
I mean, on the inflation targets, of 3%, I expect tenants to start, you know, pushing back. Our view has always been to say, you know, the way that we manage our portfolio and our properties, we have significant amounts of labor-intensive expenses. Generally, if you look at security costs and cleaning costs, those don't necessarily grow in line with inflation. You know, our tenants have generally understood that. I do, you know, anticipate an environment where we have a lot more of those discussions. The reality is, you know, if you are getting pushed back on escalations on rentals and reversions, you're also gonna see your cost base decrease in line with inflation that would have decreased.
I think, another benefit you know, the inflation target that would be lower is, you'll probably find that there'll be cap rate compression in your valuations. I think, you know, the environment will be about discussing this with tenants. There will be pros and cons. Fundamentally, to me, it always ends up in terms of supply, demand. Have you got the right centers? Do tenants want to stay? You know, if tenants want to stay, the pricing power generally is on our side, and we have kind of the bargaining power.
With the vacancies in our portfolio being where they are, and the trade being positive, on a relative basis, I think we will still continue to see, you know, strong reversions, strong rental growth, and also strong escalations.
Thanks, Ittu. Staying with you, next question from Zinhle Simelane from Sasfin Capital. Congratulations on a strong set of results. Just on the SA portfolio, given the recovery in trading and footfall within the urban portfolio, when do you expect occupancy rates to start reflecting this improvement?
Yeah. Our vacancies in the urban portfolio are sitting at 3.5%. You know, the key asset there is East Rand Mall. It's got a vacancy that's slightly higher at 3.3. We're working on a project where we've taken back space from Ster-Kinekor, and we've converted that, and we're producing a Dis-Chem. Once we've executed on that project, in the first quarter of next year, we anticipate those vacancies to decrease significantly. If you look at the rest of our urban portfolio, the vacancies have generally been low. I think, you know, Zinhle, to your, to your question, maybe more broadly around urban space, occupancy, my view is, you know, it will be winners and losers.
If you've got a dominant mall that's well located, that's got high demand, those vacancies will be low. In areas where, you know, you find that, you know, the node is overtraded and you don't have the dominant assets, I think those vacancies in that particular, you know, kind of context will continue being under pressure. In our portfolio, it's not a, it's not a significant issue.
Thanks, Ittu. A couple more questions from Wesh, directed at you, Alfonso. I'll come back to the third. If you could perhaps provide us with NOI growth, excluding the value add projects. Just trying to understand perhaps what the floor for growth is and just added to that. How large is the expected NOI impact in euros of the delays in the Los Arcos extension due to the contract insolvency? We assume that that part of the mall is inaccessible at the moment.
First question, related to what is the base growth without the Value-Added Projects, is something around 5.5%. Pretty much the rest of the growth is coming from El Faro project, which by the end, please note that the total annual income is not yet there. I mean, part of the income is coming in this, in this period of time, but by the end of the year, it should be a little bit more. Base growth from semester to semester is 5.6%, if I recall well. Second question related to Los Arcos.
I mean, the fact is that the impact in NOI that it was going to be for FY 2026 because of the delay is already recorded in our forecasts. What Laurence, the guidance that Laurence has given it does include that impact already. We are saying that it's around EUR 400,000 for FY 2026. In 2027, because the delay is running into 2027, it's another EUR 700,000 for the 2027 forecast that we had in the past. Now we have to redo all that in terms of our future budgets in March.
We'd expect to cover for that impact with other sources of income in the portfolio, especially with the new acquisitions and the things that we have in the oven right now.
Thanks, Alfonso. Just the other question from Wesho. If you could perhaps explain the listening tools that you mentioned regarding the emotional data from customers. What exactly is this tool?
Well, it's a counter where customers can leave any kind of message. We do ask questions at the same time, customers can actually leave any kind of message that they want related to the shopping center on how clean are the toilets, what are they expecting to have in the shopping center, what kind of services are missing, and all these kind of questions. As I said, it's a pilot test right now. What we are recovering from it is that people actually become very interactive with them and start giving you a lot of messages through the tool.
Thanks, Alfonso. The next question is again from Zinhle, from Sesfikile Capital. I'll direct the question at Ittu, because Zinhle doesn't specify whether it's Iberia or South Africa. Perhaps Alfonso, if you'd like to add something, you can. Could you add more color on the performance of fashion retailers specifically? For example, which retailers are performing well? What trends are you seeing? Is there more rationalization of space or certain brands expanding?
Thanks. Thanks, Zinhle. Yeah, I mean, I think if one looks at our top 10 retailers, you know, you'll note that we've got four listed retailers there. You know, there's obviously been kind of release around performance. In our portfolio, all four of those retailers have performed in terms of trading density growth that has shown real growth, so growth above inflation. You know, out of those four, all of them have shown growth of 4% upwards. There have been, you know, there has been a divergence, so there's a top two and bottom two in the context of those four. Then when you drill deeper into the offering and the different stores that they would have, you know, there's further divergence there, you know.
Our view, looking at our data is that, you know, the consumer is shopping. The consumer is choosing a way to shop in terms of better merchandising, better pricing. Perhaps what has happened is where the merchandising hasn't been as strong, there you would have seen a decline in terms of trading densities. On the whole, that trade, you know, continues to be positive and continues to show real growth above inflation.
Thanks, Ittu. Next couple of questions from Maher Handulei from Absa. Laurence, I'll direct this to you. Good afternoon and congratulations on the good result. What is the potential value and yield of the additional South African and Iberian assets being considered as acquisitions? In addition, what is your expectation for full year like for like NPI growth in South Africa?
I would say, Maher Handulei, I really don't wanna get into the values per acquisition at this stage. I think it's a competitive environment. All I would say is that when I look at the deal pipeline that we have, we have got sufficient cash to be able to close on those transactions. With regards to yields, I would say in South Africa, probably in the range of 8.5%-9.5%. In Spain, I would say, probably, 6.5% to just over 7%. There has certainly been a tightening in the Spanish market, 6.5% to just over 7% is probably the range that we're playing in at the moment.
With regards to the like for like NPI for the full year, I'm sorry, I don't have that figure. We'll have to get back to you. I don't have that at top of my head.
Thanks, Laurence. The next question from Maher. Perhaps Alfonso to yourself or to Laurence. Is the Iberian operating platform at scale? What should we expect in terms of admin cost increases for the full year and going forward?
Shall I go?
Yep.
You go first.
Yeah. I think, you know, we certainly have grown our business dramatically. Last year we grew our
Our gross assets by, I think, just over 60%. It was a very big year of growth, and I think we're expecting to see the next six months, you know, some additional growth coming through. I think there are different areas in the business. Probably the admin side of the business is probably getting more towards scale and I think, you know, maybe one or two more people there. I think we are seeing a need to bring on some more people on the marketing side. I think you're seeing the tremendous results that our marketing team is doing at a center level. As we get more centers, we need more people to drive that, but that should pay for itself in due course.
Equally on the development side, I think we started to get a bottleneck, with the Value-Added Projects, and again, it's an area that's unlocked tremendous value for us before. One that we're very comfortable, to invest in. Alfonso, if you'd like to add anything to that.
Yeah, no, I mean, we are in constant analysis of our resources, of course. The thing is that when we model any acquisition, there's always a certain amount of corporate costs that come with any new acquisition that, of course, we don't overpass in order for the transaction to be accretive. But definitely, I mean, we have increased NOI more than 70% in the last period because of the acquisitions that we've made. However, the team has only grown 30%. There would be a little bit of a growth in terms of the resources needed.
Always keeping the synergies and always keeping the, let's say, the growth rates of expenses or costs in the effectiveness and efficiency area.
Thanks, Alfonso. The final question from Maher. What rate return are you achieving on excess cash in South Africa versus Castellana?
Well, obviously, rates are higher, in South Africa. And I think, you know, through our treasury management, we always try and optimize the balance sheet and sort of where we get the best return, often keeping cash, not in deposit, but rather paying off access facilities generates a better return overall. It's sort of very much of an active management approach on treasury, overall, making use of both, deposits and access facilities on debt to get the best optimal outcome.
Thanks, Laurence. Another question from Wesho, from SBG. Hi, Lizelle. You have said that margins continue to fall on variable facilities. What are the margins Vukile is currently receiving, and does FY 2026 guidance include cost of debt decreases?
Thanks, Wesho. Based on our most recent DCM issuance, the three-year bonds achieve margins of 102, and the seven-year bonds at margins of 135. We do expect to see benefits from reductions in ZAR margins over time, with the benefit most likely coming through as the debt expires, most likely in FY 2028. The questions around our guidance for the full year, we don't really expect to see changes in base rates impacting our guidance for the rest of the year, given that our debt has been hedged, we won't really see any impact on that. Where we might see an impact due to base rates might be where we're investing surplus cash and receiving an interest income.
Thanks, Lizelle. Another question from Pranita Daya, from Truffle Asset Management. Hi, team. Well, well done on the results. Can you advise us on your payout ratio going forward and how you're thinking about that? Secondly, and perhaps you've touched on it, are you considering investing into any regions outside of South Africa and Liberia?
Great. Pranita, thank you. Our payout ratio, we said, will sort of be between 80% and 85% for this current financial year, probably, you know, working around 83% for your, for your modeling purposes. Obviously, what that means is that we have got scope to potentially increase our payout ratio if we, you know, choose to do so. I think the Vukile payout ratio is probably on the lower end of the, you know, the industry payout ratios. We've got very exciting opportunities. You know, we enjoy investing in our, not only our assets, but the sustainability projects, and I think that cash often is generated from retained earnings. I think to the extent we do retain cash, it's earning very positive returns, you know, in the way that we're investing that.
Really the summary is 80%-85% for the time being is our guidance. For this year, we'll be at around 83%, but you certainly do have a situation where there is upside potential in terms of dividend growth if we do decide to raise that ratio closer to industry norms, which I think is sitting at around 90% industry averages. We certainly do not believe that we'll ever go back to the old days of the 100% payout ratio. I know some players are there. We don't believe that that is the right model, certainly not for us. You know, for us, the points are 80%-85%. We're seeing 90% potentially as the next range in the market, but not going beyond that towards the 100% payout ratios.
We think that is not the most sustainable way. Remember also, the 80%-85% where we are is still well above the norms of what you see in European REITs and I think some American REITs as well, operating at a lower level. We still feel we're on the lower end of that payout ratio, but there is some scope to increase that a little bit higher if we so choose. In terms of other markets, as I said, you know, we are confining our efforts at this stage to Western Europe. We're not looking in Eastern Europe. Don't wanna go into too much detail on the markets other than to say at this stage it is all desktop research, in-country visits.
We are by no means ready to start deploying money into new countries just yet. We rather are looking at ways at this stage to build capacity and knowledge around other markets while we focus on executing on the very exciting pipeline we have in Spain at this stage.
Thanks, Laurence. There are no further questions. I'll just give it a couple more seconds to see if any other questions come in. No further questions, Laurence, if you'd like to close.
Great. Just to thank everybody again for your attendance. We really appreciate it. We are very excited, very upbeat as a team. I think it's been a great first six months. We're looking forward to an equally strong second six months and to continue our growth trajectory going forward. Thank you very much for your attendance. I wish all of you a safe holiday, safe travels, and a great festive season with your families. Thank you so much. Have a good day.