Good afternoon, welcome to the Vukile Annual Results presentation. Thank you for making the time to join us. I'd like to extend a very special welcome to Alfonso and Debra who are here from Spain in person, really wonderful to be in the same room as them. We have certainly missed you being with us. I'd like to start off by saying really we are delighted to present this set of very strong results to the market, especially when considering the very tough environment that we've come through in the last 12-24 months. Obviously, with the COVID pandemic, with the riots in South Africa, more recently, some flooding.
When looked at against the backdrop of that very difficult environment, I think you'll agree with me that we really have produced tremendous results in both South Africa and Spain. What we're starting to see on the ground is some strong competition developing amongst retailers for space in our centers. That is really driving a change in the reversionary cycle now starting to move positive in most of our sectors, as Itiu will explain a bit later in Spain, we continue to see positive reversions. What that is playing through is now an uptick in the valuation cycle as well. Values in South Africa have grown by around 4.6%, in Spain, around 4.5%. Really the business is in a very strong position operationally, as you'll see the detail shortly.
Turning to the balance sheet, that remains in a very strong and healthy position. We've lengthened our expiry profile through the refinancing of a EUR 187 million facility in Spain into a 7-year facility. Our liquidity is very high at ZAR 3.1 billion, and all ratios and covenants in a very healthy position. We've also worked to reduce even further the EUR exposure to the balance sheet. I'll explain how that plays through. In terms of the active asset rotation, that's been another real highlight of the year for us. We've sold a number of non-core assets in South Africa, just under ZAR 800 million, at or above book value. We've equally sold our office assets in Spain for EUR 26 and a half million, also above book value.
We've finally been able to conclude the sale of a stake in our Namibian business. We've sold 64% there. That generated some ZAR 700 million in cash. Also following the merger of Arrowhead and Fairvest, we've lightened our stake there, selling around ZAR 500 million over that period. That collective cash pile has then been recycled into core strategies, most importantly being the acquisition of a 21.7% stake in Lar España, and we'll talk to that in more detail in later slides. Overall, both FFO and dividend per share coming in ahead of our guidance and very happy with that. What I thought I would do is really just talk a little bit about the overall context of the business.
Given all the changes that have taken place, we thought it'd be a good idea to provide a snapshot as to how our business is now really turned into a focused retail REIT with blue-chip tenants providing well-diversified exposure across macroeconomic drivers. Our asset base is now slightly tilted towards Spain, with 54% of the assets in Spain. We, to all intents and purposes, are a 100% retail fund. That remaining 5% retail in South Africa will be disposed of in due course. These strategic investments, probably worthwhile just pausing there for a moment. Certainly, we don't believe in being a hybrid fund of having passive stakes in REITs simply 'cause one gets a return.
Every time we've had a stake in a REIT, it has been as a result of corporate activity or to provide strategic optionality to the business overall. You can see that our exposure in Fairvest is now reducing. We own about 7% of Fairvest. That's the enlarged Fairvest. At the same time, we've increased our stake in Lar España. At year-end, we had 21.7% of the company. We have been buying post year-end, so we're now up to around 23%, and that really gives us strategic optionality to further grow in the Spanish market. Again, I'll talk through that in a bit more detail. It's also important when looking at Vukile as a whole, to understand the mix between earnings coming from Spain in EUR and South Africa in ZAR.
The South African portfolio yielding around 8.8%, the Spanish portfolio yielding 5.8%. Earnings still slightly skewed towards South Africa on a 60/40 basis. When you look at net exposure, which is a very, you know, high-level NAV type calculation, 45% coming out of Spain and 55% in South Africa. Really what we are highlighting is that the international components of our business is growing, and what does that mean for the business going forward? Really, if one has a look at it, the business is now structured in a way where the earnings and NAV growth are very positively geared towards a weakening rand, and yet there is no negative impact on LTV as a result of a weakening rand.
In the graph, you can see over an extended period of time, the rand on average weakens by around 5.8% to the euro. Often, however, the short-term volatility masks the long-term trend, but it's worthwhile taking that step back and seeing what the long-term trend is. Now, putting that into perspective for Vukile and how the business is now structured, if one were to assume a 10% weakening of the ZAR relative to the euro, and that's based on the figures that we used at end March 2022, you would see that your net asset value would increase by around ZAR 840 million or ZAR 0.86 per share. That's roughly 5%.
Your earnings, based on 100% of FFO, would grow by ZAR 36 million or 2.7%, and yet your LTV pretty much remains constant at 43%. You can see how a lot of the work that we've done in the last two years has strengthened the balance sheet and the asset mix and the company overall, such that we have got two very strong businesses balanced slightly in favor of Spain from an asset point of view. Slightly in favor of South Africa from an earnings point of view, but nonetheless, with the balance sheet the way it is, any weakness in the rand will be a net benefit to the shareholders with no worsening of the LTV overall.
Hopefully that provides just a little bit of context in terms of the group structure, given all the changes that have taken place in the last 12 to 24 months. With that, I'd like to hand over to Itumeleng, who's going to talk you through the detail of the South African performance. Itumeleng.
Yeah. Thank you, Laurence. It gives me a great pleasure to present the South African portfolio results for the period ending 31st of March, 2022. A set of results which we are very proud of, what has as Laurence had mentioned, a particularly tough year. Not only do we have to navigate the lagging effects of the COVID environment, we also had to navigate through the riots in Gauteng and KwaZulu-Natal in last July, as well as more recently, the floods in KwaZulu-Natal and also in the Eastern Cape. Notwithstanding these significant challenges, the results that we've delivered are ahead of those that we delivered in financial year 19, which was the period pre-COVID, which is encouraging.
We also, I think, quite excitingly seeing green shoots that are starting to emanate, which I'll share in the presentation. These have got us upbeat and excited about the forthcoming period. With regards to our portfolio and key facts, our portfolio is currently valued at ZAR 13.8 billion with 36 assets. We've seen an increase of 4.6% in our valuation compared to the 1.4% that we saw at this point last year. We've also seen an increase in our asset value. Our average asset value has increased by ZAR 55 million. This comes on the back of disposing of some non-core assets. Again, this is in line with our strategic intent of having notably dominant assets in the context in which we operate in.
With regards to the portfolio overview, I'm very excited that our like-for-like net income growth is at 3.9% for this period. We've seen an improvement in vacancies in our reversions, as well as our base rentals over the period. Our vacancies are down from at this point 3.2 last year, and they're down to 2.6 at the moment. Our reversions have shown an improvement from -3.3 to -2.4, and I think the interesting story here is if you look at the different segments within the portfolio, you'll see that in the value, in the rural and the township segments, we're now starting to see positive reversions, which tells the story that the reversionary cycle has now turned.
Our base rentals have seen a slight increase from 3.5% to 4.2%. Across our overview of our performance, we've seen an improvement in the portfolio. With regards to our efficiency measures, all four of our efficiency measures have improved over the period. We've seen a decline in our rent to sales ratio, which is positive. Our trading densities have grown from 1.7 at this point last year, they've grown to 6.1 at the moment. I think our cost to income ratio is now closer to our long-term average of 17%, at 16.7%. Later on in the presentation, I'll share a bit more detail around our cost to income ratio.
With regards to our tenant profile, pleased to announce that our tenant retention ratio has improved from 90%, now at 93%, and our collection ratio has also improved from 98% at this point last year to 100% at the moment. I think the key story of this set of results is one that tells of strong performance, strong improvements across all segments, which is very encouraging for us looking forward. With regards to our portfolio composition, we've got a well-positioned defensive portfolio. If one looks at our township, rural, and value center categories that account for about 70% of our portfolio, and then assesses our trading densities, our rent to sales, as well as our WALE, there's significant upside potential on our base rentals, which we've put forward in the slide.
This is something that the team will be focusing on in the year ahead to ensure that we start increasing those significantly. With regards to our tenant exposure, we have high quality cash flows from a well-diversified blue chip tenant mix. 33% of our rent comes from essential services that have a strong non-discretionary spend underpin. I think what's also been exciting in this set of results, the 27% of our fashion component, our top 3 fashion retailers in our top 10, if you look on the right-hand side of the slide, all of those have introduced new segments and trading as new formats within the portfolio, which shows that, you know, this diversified blue chip tenant mix is only strengthening.
With regards to our portfolio performance, we've seen an improvement in both sales and footfall across the portfolio. Our portfolio sales are up 6.6%. Our portfolio trading density growth is up 6.1%, driven predominantly by our township and rural portfolio. Also, on the footfall side, an exciting story. If you compare our footfall this year to what we had last year, we are at 104%, so you're seeing significant improvement in our rural and our township portfolios. Our commuter portfolio, which just has three assets, has shown the biggest improvement over the period. I think overall, when you look at our trading densities and you look at our footfall, we've seen an improvement in the past year.
With regards to category performance, our fashion and grocery categories account for 40%, 44% of our GLA. When you translate that to rental, it equates to about 60%. We've seen an increase in trading densities in those categories of 4.7% and 7.7% respectively. We've seen a significant improvement, I think, in the fashion space across womenswear, across menswear, as well as unisex clothing, which has been a category that, you know, we've been closely monitoring over the past 24 months. Out of our 13 categories that we measure within the portfolio, we've seen an improvement in 12 of them, in both trading densities as well as turnovers. Where we haven't seen an improvement is on home decor.
You would recall that the home decor category was the best performing category last year, having come from a significantly high base of 14.6% in trading density growth. With regards to leasing activity, this is perhaps, you know, the highlight of the South African portfolio's performance over the past year. We've seen a vibrant leasing environment, increase in leasing activity, predominantly in the township and rural portfolio. The deals that we've concluded in the past year, majority of them have been with listed national tenants. We've increased the activity that we've done in the past year to 22% of GLA. This is a significant increase if you compare it to last year where we were at 11%.
Our retention ratio at the start of COVID was at 83% and is now trending at 93%, which has been a good improvement. A key story that I think is worth highlighting is the reversions, which I touched on earlier. Our value portfolio has shown a positive 4.9% increase. Our rural portfolio has shown a positive 3.2%, as well as a 0.7% increase in our township. We're also starting to see an improvement in the urban and the commuter reversionary cycle. We think that, you know, with the performance that I've highlighted in the previous slide, this reversionary cycle and the deals that we'll be concluding into the future should trend upwards.
In the past couple of results presentation, we've been talking about, you know, the rise of these second-tier retailers, which are emerging retailers within the portfolio. We just thought that we should put a slide just to show you how, you know, the segment of the portfolio has performed. They have been the most bullish in terms of footprint expansion during COVID. 11 of our top 20 store footprint expansions in the past 3 years have come from these second-tier retailers. I think also quite excitedly is the fact that they're growing in high-performing categories. We've seen them grow in fashion, athleisure, health and beauty, as well as home decor.
If you look at our total rental that comes from our second-tier retailers, especially our top 10 second-tier retailers, we've still got a very small exposure compared to the listed retailers, which shows that there's significant room for growth. We're also, you know, closely monitoring overexposure in this segment. We've listed the names, and we've got storefronts of the pictures. To me, I think, you know, the key takeaway of this slide is the last bullet point that says, you know, these second-tier retailers are growing at trading density growths that are higher than the portfolio average, which in itself is a strong, has shown a strong performance of 6.1%.
Not only do you have nimble operators that understand their consumers that have been growing aggressively over the past 3 years, they're showing strong performance on the ground, which has been a positive output. We've been closely monitoring our cost-to-income ratio over the past 2 years. 65% of our cost comes from municipals, electricity, and rates and taxes. We've put forward some significant initiatives and interventions to try and manage this cost base. We've rolled out PV. 9% of all of our energy usage now comes from PV. We've optimized metering. We've had interventions around water management. Where it's been appropriate in terms of municipal valuations, we've successfully objected.
When one looks at the graph on the left-hand side that looks at our cost-to-income ratio, you'll see that in the current year, our net expenses are trending lower than our long-term average, but excluding the municipals are slightly higher. The primary reason for that has been a slight concessions that we've granted in this year of ZAR 7 million, significantly lower than last year. We've also had to spend on security over the looting environment. My sense is, you know, with continued focus on soft and hard services, managing our cost base, executing on our capital budget program, we should start seeing our cost-to-income ratio trend back to where it was over the period pre-COVID. With regards to our valuations in the portfolio, our valuations of 36 properties is at ZAR 13.8 billion.
We've seen a 4.6% increase. I think to me, one of the key issues of this slide is if you look at the detail in terms of the drivers of our valuations, the growth is coming from our cash flows and not necessarily from cap rate compression, which is a positive, and it speaks to the improving trade that we're seeing on the ground. Our township, rural, our commuter and value centers are trending positively. Our urban portfolio, because of the lag in terms of the reversions and the uptake in terms of occupancy, is still showing a negative movement. Our view is that, you know, looking forward in the next 6-12 months, that should also start showing some positive improvement.
With regards to our portfolio disposals, we've made significant traction in the disposal of non-core assets in the past year. We've sold seven non-core assets, four in the retail space. They were disposed for ZAR 798 million at or about book value. We've also disposed of 64% of our Namibian portfolio and received proceeds of circa ZAR 700 million. We remain responsible for the delivery of the portfolio, the Namibian portfolio, where we've signed a five-year asset management agreement with the purchaser. Moving on to the asset management interventions that we've done in the past year in the form of redevelopments. Daveyton Mall was our only top 10 asset where we haven't undergone a significant redevelopment in the past 10 years. We've completed the development. We've maximized on our bulk.
We've introduced new defensive tenants. We've introduced a new food court at the mall, and we've also done a full redevelopment of the internal features of this mall. We launched it at the end of April, and feedback over the month of May from our retailers as well as our community has been positive. It is our view that this project entrenches Daveyton as a dominant mall in the Daveyton environment. With regards to the KwaMashu Mall, this is a wonderful outcome out of a very tough, you know, event with the rise in the looting. We've fully reinstated KwaMashu Mall, which was, you know, structurally damaged during the looting. We've introduced new tenants. We've improved on the tenant mix. We've recently relaunched it.
We've seen significant strong demand, seeing that this is the one mall that has been reinstated the quickest in the context. Yeah, we're looking forward to seeing some continued growth out of this one, where we've now rationalized and improved the tenant mix and also introduced a new banking court, which we didn't have previously in the area. This is perhaps the last time that we're sharing this slide on the civil unrest. All of the malls that were damaged in July last year have been reinstated and in all instances ahead of competition. The team has done phenomenally well to interact and work with the communities in order to rebuild these centers.
The reinstatement claim that we put forward was for ZAR 150 million for material damages and ZAR 59 million for loss of rentals. This full claim has been submitted and was approved by Sasria. We've received 77% of our total claim. The remainder of the 23%, we anticipate to receive by the end of July. We've also, as part of this slide, included a bullet point that just gives, you know, color that none of our properties were damaged in the recent flooding in KwaZulu-Natal. One of, you know, my favorite slides in the presentation is our progress in using data analytics to drive asset management decisions.
You know, we've in the past, in terms of renewing deals or doing new deals, we've been driven mostly by tenant data, you know, your trading stats, your inter sales. We've now gotten to a point where we've augmented additional data to assist us in making decision-making. Here we've got an example of East Rand Mall. If you look on the top right-hand side of the slide, we use in-mall data to now fully track the movement of shoppers within the mall environment, where you can see the most popular journey. We know now that, you know, tenants would move from... I mean, shoppers would move from Truworths to Woolworths to H&M and then to Clicks.
What we've then done with this data of understanding how shoppers move within the mall, if you look at the bottom left-hand side of this slide, we've used external data. This is our fashion analytics, where we understand where our shoppers in our primary catchment are going outside of our mall. In the East Rand Mall context, we now understand that our shoppers for groceries go to Pick n Pay and Checkers, which we don't have at East Rand Mall. Should we look to improve on our tenant mix, you know, we would then look to attract one of those two tenants. If one makes the example around clothing and apparel, Adidas and Nike in the primary catchment area are the most popular clothing and apparel tenants.
We would look at the flow and the journey of the shopper within East Rand Mall. We would approach 1 or 2 of those tenants, and we would show them, you know, facts and figures in terms of where to place them and how popular those areas are in the journey of the shopper. This is, you know, as exciting as the evolution of, you know, of asset management, and we're using a lot of this data to drive decision-making. I think lastly from my side, you know, we will continue focusing on tight operational focus in terms of our short-term focus areas. We've seen a strong rebound in key operating metrics in the past year. We're now trading ahead of pre-COVID.
We've seen increasing leasing activity across all of our segments, even commuter and urban segment. We've seen an improved environment of improved trading metrics across all of our segments and categories. We'll continue focusing on our operations, driving the focus with regards to the tenant, as well as building our customer insights. I think, you know, our core competence within Vukile is driving operational and asset management. We'll continue driving operational excellence to ensure that our assets improve and move from being good to great. Lastly, you know, we've seen in the past year, being close to our people and communities adds value, particularly after the looting unrest as well as the floods.
We'll be spending quite a lot of time getting closer to our communities to ensure that our assets continue to trade well in the context in which they operate. I think with that, I'd like to thank you all for your attention and invite Alfonso in the flesh to present the overview of Castellana.
Thank you, Itu. Great performance on the South African portfolio. Congratulations on that. Good afternoon, everybody. I'm delighted to be back after 2 and a half years, and thank you all of the Vukile team and so for all the warm welcome back. Let me go through the Spanish results that we feel very proud of because I have to admit, they are pretty good results. As an introduction, I want to highlight the consolidation of the recovery of the retail sector in Spain, despite the headwinds that we have suffered during the year, such as 2 COVID waves, cuts in the supply chain, and finally, the outbreak of the war in Ukraine.
Uh, despite all this, the real estate sector has improved a lot in the recent months, and in our case, thanks to our active, uh, management and the hard work of the team, uh, we can say that we lead the Spanish retail market with better operating indicators than anybody else. As an economic update, uh, I would say that uncertainty is still in the air. Uh, COVID-19 effects over the economy is very much of the pas
Being reviewed several times lately, Spanish GDP growth for 2022 will be in the region of 4.5% and 3% for the 2023 year. This takes into account a longer period for the war to end and finding a stabilization. Such economic growth will continue as a result of the persistence of 3 major factors. The dammed up demand accumulated during the pandemic, which is still not exhausted and something that is allowing to partially offset the effect of inflation on household income. The positive rebound in tourism, adding to domestic demand and the greater execution of the European funds. All this contribute to think that the possible scenario of recession is still unlikely.
This is also supported by the improvement in employment, during the last months, that predicts for Spain to be around 13% unemployment rate, by the year-end. A figure that is half of the top reached, during the GFC in 2012. Spain will, in any case, outperform all Western European economies, going forward, which gives a positive outlook for investors around the world. We are seeing high demand in the markets to invest in Spain as a country.
Let me move to the key portfolio metrics, where I want to highlight the recovery of the portfolio valuations with a 4.5% increase compared to those made in March 2021, and at 0.2% compared to the pre-COVID data, with a very conservative approach by Colliers, I have to say, our values in all market assumptions, that gives us room to improve going forward. Despite selling the office buildings, we are back to our gross asset value of over EUR 1 billion, and that is almost EUR 1.1 billion, including the investment in Lar España. We have achieved an NOI growth of circa 6% for the year, reversions of 3.12% for all let units.
We have consolidated the occupancy rate above 98%, and collection rate at 99%. On the repositioning projects, astonishing numbers as well, we'll talk about it in detail later in the presentation. Let's fully enter into operations and focus first on the recovery of the fundamental indicators of our assets, which are footfall and sales. Once again, we can present some very good data on the recovery of visits and sales, which consolidates the recovery of retail, and especially of shopping centers, once again surpassing the sales data prior to the pandemic. As we see in our index that compares to 2019 as being the best year since the GFC, footfall is slightly below the total recovery at the end of the period.
However, we already see that in the month of April, we have recovered 100% of visits compared to the same month in 2019. Sales highly correlated to footfall. We already saw last year in the months of September, October and November, how they exceeded the values of 2019 until Omicron arrived and that returned the curve below the 100% line. However, and despite the outbreak of the war, we see that in the last three months, sales remain above the total recovery compared to 2019 figures. We also observe here that our portfolio data is much higher than the benchmark, which also reinforces the strength of our portfolio and the positive effect of our active asset management. On cumulative last 12 months, sales are positive with a growth of 2.21%, well above the sector.
By sectors, those that were most affected, such as leisure, fashion, and restaurants, have seen a very strong recovery in the recent months. F&B has recovered 90% of its sales, and leisure stands at 65%, with levels already above 70% in the last months. Thus, fashion has also had a very strong recovery in the last six months, reaching 92% of 2019 sales in the last month of March. As a matter of proof, Inditex has just reported Q1 highest profitability in the last decade, even with hiking prices. Other sectors, such as pets or DIY, which were much benefited by the pandemic with double-digit increases. They are maintaining the good data with very significant growth as well.
At the leasing level, in the last 12 months, 170 transactions have been signed, of which 118 correspond to new contracts and 52 to renewals. These contracts generate an annual sustainable income of EUR 9.5 million. The average income per square meter of the portfolio has increased by 3.12% in the period. The occupancy ratio is consolidated about 98%, that is full occupancy. Rent collection stands at 99%, minimizing arrears. I have to say that a great work done by our management team that maintains a great relationship with our tenants at all levels. Excellent data, as you can see, that keeps us optimistic for the new fiscal year. Moving on the gross rental income bridge.
Gross rentals have grown 45.5% in comparative terms with respect of the previous year, as rental aids to tenants have mostly been removed during this period. Compared to FY 20, on a like-for-like basis prior to the pandemic, gross income has grown 3.8% in the year, reflecting the completion of the value-added projects and the reversals in renewals and new leases. The ECI projects have been completed, these are already generating income for a complete year. The potential income of the portfolio comes now to EUR 64 million and is what we expect to obtain during this year in FY 23. The gross asset value of the asset portfolio, we see that the portfolio as of March 2022 stands at just above EUR 1 billion.
Its variation with respect to the previous closing corresponds to the net effect of three items. One is the sale of the Connecta buildings, the investment in our repositioning projects, in the amount of EUR 20.7 million, and a revaluation of EUR 22 million, which adds 4.5% in comparative terms. Worth to mention that this value appreciation comes very much from the NOI increase generated by the repositioning projects, as all of our valuations assumptions have stayed the same, as in previous valuation rounds back in September 2021, keeping value is view in the conservative side. On the other hand, taking into account the investment made in Lar España, the gross value of the portfolio sums almost EUR 1.1 billion.
Regarding investment operations in the period, as we announced last June, we sold the two office buildings that we owned located in Madrid and Seville, which immediate effect was for us to claim to be a 100% retail specialized SOCIMI. With a premium over the purchase price of EUR 4 million, the sale price was EUR 26.5 million, which also allowed us to increase the cash and reduce the company's global LTV. Regarding the value added or repositioning projects, the ECI projects as we call them, those have been completed already after a total investment of EUR 71 million, including acquisition costs. We have introduced a total of 51 new brands to these three centers.
We have generated an additional NOI of EUR 4.5 million, which already represents an increase with respect to the target of almost 16%, with still some space to live, which will grow over performance. The rate of return of investment stands at 6.32% and average cash on cash at 10%. Some excellent results of the projects that without doubt demonstrate the capacity and know-how of the team. The other major investment operation that we have carried out in this fiscal year was the purchase of 21.7% of LAR España last January. With this operation, we become the largest shareholder of LAR, increasing our footprint in retail.
With a total investment of EUR 97 million at a discount of 48% on the EPRA net tangible assets, it represents an opportunistic financial investment which combines a high dividend yield with a clear long-term appreciation potential. Worth to mention the extraordinary strong results of LAR reported, not as good as Castellana, as you can see, but still very good results that make us confident in our projections. Together with this acquisition of LAR, there have been other two major milestones achieved in the year that are worth to highlight for its importance. Firstly, is the closing of a financing agreement with Aareal Bank and Santander for EUR 185 million for the next seven years, which removes any further financing risks for the next five years.
Secondly, in a fantastic exercise of transparency and communication, Castellana Properties has obtained a long-term BBB- investment grade rating with a stable outlook from Fitch. The well-renowned agency have valued the stability and dominance of the Castellana portfolio, the incremental NOI driven by the team's active asset management, as well as the conservative balance sheet of the company. From the point of view of digitalization and innovation, as Itu was explaining, in recent months, we have implemented a new digital geolocation tool to expand the knowledge we have about our customers and how they interact, not only within our shopping centers, but also in the surroundings. This tool will allow us to be informed practically in real time, of changes in habits, socio-demographic profiles, et cetera.
It will also allow us to analyze in much more detail the different campaigns that we launch in our centers and see their effectiveness. We will also be able to deeply understand what our customers need and how we can offer it to them. All of which will even lead us to be able to advise our tenants with more objective and accurate data. We also continue to work on bringing the best of digital and physical worlds together. We want to bring the physical experience to our most digital customers, continue offering something different, fun, experiential, and emotional moments. In addition, we want to emphasize our commitment to continue making our centers the social and neurologic hub of the cities where we are present. We have given here an example of one of the many actions we carry out in our centers.
This is an action that we carried out at Christmas in 3 of our centers, in which we managed to interact with 56,000 participants, of whom 8,500 actually physically went to our centers and more specifically to the stores of the participant retailers. Where are we going to be focusing our efforts in the following months? We continue to excel in our operations, keep increasing income as much as we can, while taking care of all of the metrics to keep beating the market. Also embed our data insights for better decision-makings and creating new valuable services. Continue the good restart we had at year-end on getting back to investment and growth mode. We are seeing a lot of opportunity in the market in the immediate future, and we should be taking advantage of it.
To do so, we need the capital markets to get back and bet on retail more aggressively. We are publishing this June our first ESG full report with all of our action on the subject, and so far, and the targets marked for the following three years. We'll consolidate the reporting, and we'll follow on those targets to achieve them as soon as possible. With this, many thanks for your attention, and now pass it over to Laurence Cohen on Treasury and Financials.
Good afternoon, everyone. The very positive trading stats that Alfonso Brunet outlined in both the South African and Spanish portfolios have contributed to an impressive set of financial results, supported by a strong balance sheet and continued simplification of the business. At pre-close in March, we guided the market an FFO per share of ZAR 1.30-ZAR 1.35 and dividends per share of ZAR 1.00-ZAR 1.05. We completed the year slightly ahead of the top end of our guidance with FFO of ZAR 1.363 per share and a full year dividend of ZAR 1.058 per share. The dividend is based on a payout ratio of 77% of total group FFO.
We are in a unique position to be able to retain ZAR 308 million in cash while still being in a tax-neutral position in both South Africa and Spain. In our numbers for FY22, we have not brought in any income from LAR España, but we have included interest on debt to fund the investment in LAR, so the results are arguably conservative. We have included detailed guidance in the appendices as to how we will be accounting for the investment in LAR, both in terms of IFRS and FFO. The FFO bridge reflects the strong operational recovery in both South Africa and Spain. Total FFO increased to just over ZAR 1.3 billion. The reduction in income from listed investments was due to a reduction in our interest in Fairvest in the last quarter of the year.
We sold approximately 58% of our holding in Fairvest, reducing our shareholding to 7% of the combined Fairvest Arrowhead at year-end. There was an increase in interest paid during the year, mainly due to the conversion of South African Euro debt to ZAR debt, which is at higher rates. The simplified income statement is based on the IFRS income statement but excludes those items that have no impact on FFO, like fair value adjustments to investment property. Revenue and property expenses are reflected on a net basis. Recoveries from tenants have been netted off utility expenses and included with total property expenses. The MERV top-up amount will reduce in future periods since we purchased 3.5 million Castellana shares from MERV in December last year.
Net finance costs includes a once-off EUR 3.8 million in structuring and other costs relating to Castellana's refinance of its EUR 185 million syndicated loan. Tax of ZAR 21 million relates mainly to Namibian normal tax and Namibian withholding tax and interest on dividends. ZAR 42 million of the amount in non-controlling interests relates to Castellana minorities, while the balance relates to the 20% minority shareholding in Moruleng Mall. Income from the termination of FECs reflects on the previous slide as an inflow of ZAR 101 million. However, in terms of SA REIT best practice, only ZAR 43 million of this amount is included in FFO for the year. Hence, the non-IFRS adjustment. Equity accounted profits included in non-IFRS adjustments relates to the fair value adjustment in the Namibia portfolio.
We implemented the disposal of a 64% interest in that portfolio on the 1st of March. On that date, we ceased consolidation of the portfolio and began equity accounting our remaining 36% interest. The first half of the year generated slightly more than 57% of total group FFO for the year. There were a number of factors in both the first and second half of the year, which resulted in the first half FFO being higher than the second half. Profit on the sale of Castellana's office assets, which generated ZAR 57 million for Vukile, was earned in the first half. This amount is not included in IFRS earnings since it is capital. We included it in FFO in the first half, since in terms of Spanish REIT rules, Castellana is required to distribute the capital profit on sale.
The refinancing of Castellana's syndicated loan resulted in once-off costs in the second half. For the full year FY22, the benefit from the sale of Castellana's office assets and the once-off cost from the refinance of the syndicated loan largely net each other off. High interest rates as a result of the conversion of South African euro debt to ZAR debt impacted the second half to a greater degree than the first half, since the first few months of the year benefited from lower euro interest rates. We settled a nominal EUR 117 million in cross currencies in June last year, so the first few months of the first half benefited from the interest on the cross currencies that matured.
As mentioned earlier, we incurred interest on debt to acquire the shares in Lar España in the second half of the year, but did not include any income from Lar in FFO. Finally, we issued new shares in the last quarter, but did not include any antecedent income in FFO or dividends in the second half. All things being equal, we anticipate that the H1-H2 split will normalize in the coming year. The cash flow bridge reflects the cash flows from non-core property sales in South Africa and Spain with the deployment of the proceeds on sale into the investment in Lar España. While there was a reduction in total group cash year-on-year, this was largely due to repaying a substantial portion of floating debt facilities prior to year-end.
With committed undrawn facilities of ZAR 3.1 billion, the overall liquidity position has improved over the year. Dividends paid during the year were just under ZAR 1.4 billion. This relates to 18 months of income, the full year dividend for last year and the interim dividend for this year, since we did not pay an interim dividend in FY21. There was a marginal 1.3% decline in the NAV per share to ZAR 17.92. A strengthening rand was the main reason for the slight decline in NAV per share, with the rand strengthening from ZAR 17.32 to the EUR at the end of FY22 one to ZAR 16.16 at the end of the current year.
This past year has been very busy in terms of overall debt and balance sheet management, with significant progress being made to further strengthen the balance sheet. Two-thirds or ZAR 2.3 billion of FY23 maturing debt has already been repaid or refinanced. Undrawn debt facilities at year-end increased to ZAR 3.1 billion, providing us with more than 3 times cover to fund debt expiring over the next 12 months. The group debt maturity profile increased to 3.8 years and 76% of total group debt is hedged. Total euro debt on the South African balance sheet reduced to EUR 37 million, a 78% reduction since FY21. Unencumbered assets at year-end increased to ZAR 10.3 billion, reducing the unsecured debt to unencumbered assets ratio to 15%. Unencumbered assets now also include the shares in Lar España.
We have hedged the remaining EUR 65 million of cross currencies, eliminating FX risk at maturity later this month. The net amount payable when we settle the cross currencies will be ZAR 119 million. During the year, we raised a five-year, ZAR 200 million green loan with Nedbank. The loan will be used to fund 19 solar energy projects in the South African portfolio. As Alfonso mentioned, Castellana obtained an investment-grade credit rating from Fitch. This may provide Castellana with an opportunity in future to replace some of its bank debt with debt capital market funding. Our interest cover ratio is a healthy 3.4 times. Stress testing of the group interest cover ratio indicates that the portfolio would need to undergo a 40% reduction in group EBITDA before reaching the 2 times bank interest cover covenant level.
Stress testing of Castellana's valuations indicates that the Spanish portfolio has a 34% or EUR 369 million headroom before reaching Castellana's group LTV covenant of 65%. The group aggregate cost of funding increased to 4.9% from 3.9% last year. This largely due to the reduction in South African euro debt. The debt expiry profile in South Africa is fairly evenly spread over the next few years. Castellana's average maturity profile has increased to just under 5 years, with the next material maturity being in FY 2026. In the early part of COVID, we had some short-dated facilities in South Africa. These are now being replaced with 3-5-year facilities, which will further increase the overall group expiry profile. Only 12% of total group debt is in the debt capital market.
Although there was significant movement during the year as a result of a number of transactions, the LTV ratio at year-end remained largely unchanged at 43%. The LTV benefited from increases in property valuations and non-core asset sales in both South Africa and Spain. This was offset by the deployment of capital to acquire the stake in LAR, the settlement of cross currencies, and the purchase of Castellana shares from MERIV. The effect of the material reduction in South African euro debt is evident from this slide, with the currency movement during the year having had little impact on LTV. Looking forward, we will continue to prioritize the very good relationships that we have with our banking partners, an essential component of proactive and effective property asset management.
Our strategy of maintaining significant undrawn facilities not only ensures a very comfortable liquidity position, but also allows us to quickly deploy capital for strategic opportunities. As regards interest rates in South Africa, we are cognizant of the fact that we are in the midst of a hiking cycle. The cost of interest rate swaps is currently at all-time highs. Given that the long end of the curve is still very high, using swaps to hedge our floating debt in South Africa simply locks in future rate hikes. We will continue to use caps where appropriate, which will protect us from rate hikes in the long term, but still benefit from relatively lower rates in the short term. We've adopted a layered approach to hedging dividends from Castellana.
This means we hedge 100% over the next 12 months, 80% in year two, 60% in year 3, et cetera. This results in aggregate 60% of Castellana dividends being hedged over a 5-year period. This approach achieves a predictable dividend income stream in the short term, while still benefiting from a weaker rand over the longer term. Income from Lar España has not yet been hedged, or rather the dividends that will result from the income from Lar España has not yet been hedged. We will monitor Euro Rand FX rates and hedge the income from Lar when FX rates have stabilized. Although only 12% of total group debt is in the debt capital market, we remain committed to the DCM market, and we will be doing a debt roadshow in July with a potential auction in August to fund existing DCM maturities.
We are aware of the need to further explore green bonds and sustainability-linked bank funding. However, our view is that it must fulfill authentic, meaningful, and long-term ESG outcomes. This concludes the financial section. I'll now hand back to Laurence. Thank you.
Laurence, thank you very much. I think it's a great place to pick up on the ESG side. As you'll recall, last year we spoke about using financial 22 as the year to set the framework for our ESG compliance. I think we have made very significant progress over that period. We've established our ESG reporting framework and will be reporting for the first time in our upcoming integrated annual report. Whilst I'll go through these slides quite quickly, I would encourage you to please read that when the annual report comes out and have a look at the goals and objectives and what we're setting ourselves in terms of ESG. Just to say, however, we have already completed our inaugural carbon footprint calculation, both in South Africa and in Spain.
We will be subscribing to the GRESB benchmark, our first submission is being finalized for submission beginning of July. In Castellana, all of the assets have got BREEAM certification, we'll be submitting data to the EPRA Sustainability Review as well. Very significant progress in getting ready for our ESG journey. I think over the past year, we've made very significant progress across all three pillars. I'm not gonna go through that in great detail now, other than just to say that ESG is something that we believe is now mission-critical to business going forward. It's something where, just as Vukile has always adopted best-of-breed practices in terms of good governance, that is what we are aiming to do now in terms of ESG, it does come at a cost.
In the past financial year, that was around ZAR 14 million. We do expect that to increase going forward, and it's a cost that one does need to incur to be ESG compliant in many areas. Just to highlight a few things, though, in this past year, we continue with our investment and rollout of PV. That is very successful for us. We increased our capacity year on year by around 26%, and have got numerous projects in the pipeline for the next few months. In Spain, as I mentioned, all the assets are BREEAM certified, and Castellana very proudly was nominated for three BREEAM awards earlier in the year.
The Vukile Academy continues to be an absolute highlight for us, providing numerous bursaries to students in their final year of property studies and then bringing in eight highly talented people into Vukile on internships and then facilitating their placement into the industry. Castellana won the Geppetto Award for its campaign against cyberbullying, and is working with the Red Cross on a pioneering project aimed at making shopping centers healthier and safer. In terms of our governance side, our board composition, the succession planning, is going very well. We are now at 30% female representation and 60% Black representation. We once again participated in the GIBS Ethics Barometer and showed an exceptionally high performance in that. It's a way of really benchmarking ourselves against some of the leading companies in South Africa.
25,000 employees, in fact, there, and absolutely delighted with the strong ethical standing that Vukile has achieved there. I would strongly encourage other corporates in South Africa and certainly in the REIT sector to participate as well. Then very proudly achieved EPRA Gold status in Castellana. With all of those great achievements, the one that really is exciting us the most is the launch of the Vukile Retail Academy. This is an innovative and uniquely South African retail incubation program. What we decided is that we need to sort of really get behind growing retail SMEs and providing what we could to help them become the next great national retailers and grow in the country. We are providing access to expert mentorship. We are providing access to space in our malls.
We'll be making about 1,000 square meters available to these nine tenants. You can see their businesses, the categories that they operate in. These are people that have been selected after in excess of 200 applications to come onto the program. These are people that we believe have got scalable businesses, are the right types of entrepreneurs, and we are putting some skills and expertise and space behind them to allow them to reach their dreams. Really excited about this and hope to take the Vukile Retail Academy forward in this year and well into the future. In terms of the future of ESG, again, the integrated annual report will list the three-year targets we've set for ourselves under each of the three pillars. Again, just to highlight a few, continued investment in PV and sustainable energy.
We expect to increase our capacity by more than 50% over the next 3 years. Castellana has started its journey. We'll be expanding its journey in PV as well. Also running various water and waste management projects across both businesses. On the social front, we continue to put money behind the Vukile Academy, the bursary students, finding jobs for them, and then the Retail Academy, as I've just spoken about. Something that we take very, very seriously, we're very proud of, is maintaining our role as an employer of choice, and that will be ensuring that we are able to keep our Great Place to Work certification in Spain and Deloitte Best Company to Work For certification in South Africa.
Because of our business model, we really try and decentralize our CSI initiatives to the shopping centers, not running them, at a centralized level, but rather having each shopping center working with a community in which it operates to meet the needs of those communities. There are various initiatives happening at a shopping center level across both South Africa and Spain. From a governance point of view, as I said, we remain committed to the GIBS Ethics Barometer and, continue to ensure that we have a high-quality independent board with appropriate diversity of skill, race, and gender. Turning to one of the highlights of the year, and that is the active asset rotation in order to drive strategic objectives. Starting off, well, what did we generate during the year?
We sold about ZAR 800 million of South African assets at or above book value. The Namibian deal, as I mentioned, finally closed. That generated ZAR 700 million. We supported and motivated the Fairvest Arrowhead deal and have since lightened our stake there by around ZAR 500 million. Sold the Spanish office assets. We did raise some equity of ZAR 300 million in a private placement. We have the retained FFO again with no tax leakage. Collectively, we raised about ZAR 3 billion during the past 12 months. How have we deployed that? Well, you can see the list on the right, but just to go through one or two. Obviously, the Lar España investment is the most significant that we made. I'll talk through that in a couple of slides' time and go into more detail.
Castellana, Alfonso has spoken about the Alcorcón projects and how well those have done. That yielded a 10% cash-on-cash return. In South Africa, the money is being used largely on operational CapEx, the Daveyton development, and then PV projects, which generate significant returns, usually above 13% on PV projects. Going forward, how do we see it panning out? Well, there is a certain amount of cash that gets carried over, approximately ZAR 380 odd million. We've got some unconditional sales that will transfer in the next couple of months. That will generate a further ZAR 186 million. The potential further sale of Fairvest. We still have around ZAR 360 million in Fairvest.
Just to be clear, there's been quite a lot of volume in Fairvest of late. That hasn't been us selling. We think the price has been too low. Really, at the right time and at the right price, we will be prepared to lighten our exposure to Fairvest. It's not strategic going forward, and you rather recycle that money into strategic opportunities. Then again, there'll be a retained amount, assuming a constant payout ratio with this past year. Approximately ZAR 1.25 billion of cash will be generated. How does that then get deployed? There are a number of opportunities that we have on the table. For the first time in a couple of years, there are some SA retail assets that are under evaluation. These are assets that are of the right size, in excess of 20,000 square meters.
They are in township and rural areas, and we believe assets that we can add value to. Deals being evaluated under due diligence, not concluded yet, but happy that there is a pipeline to invest further in South Africa. In terms of investing further in LAR, we've bought a further 1.15 million shares since the year-end for EUR 5.7 million, and that's an average price of EUR 4.99. Really, the message is very simple. We thought this was a great deal, as I'll explain now, when we bought at EUR 5.35. If we can continue picking up shares at cheaper prices, we will do so on the screen. It just really increases our returns and increases our optionality. In Spain, we have two further development opportunities in our existing portfolio.
The Los Arcos Phase Two and Vallsur, that would cost around EUR 26.5 million. EUR 17 million of that, though, is already financed. As I mentioned, PV projects around EUR 140 million, and those should yield a minimum of 13%, hopefully closer to 15%. Turning now to the investment in Lar, that really has been made as a way of positioning Castellana for further growth in Spain. When we had a look at it, clearly it's a market we know and understand very well. We know the assets. It's highly complementary, we're able to buy a stake which made us the largest shareholder at a very large discount to net asset value of around 45%. 48%, sorry.
That really generates a very significant investment return for us with a high single-digit yield and long-term capital appreciation potential. We think the yield may, in fact, be closer to double digits, but time will tell. Certainly on the basis of their first quarter results, we are trending towards probably a 10%-11% type of FFO return on Castellana. Really, this is something that needs to be seen in the context of being an exceptional investment return that provides strategic optionality in our core market. We continue to engage with the Lar España management team. Since we made the investment, we've been meeting with them on a very regular basis to really understand their strategy and how to unlock value for shareholders and reduce that discount to net asset value.
One of the key topics of discussion has been the deployment of cash on their balance sheet of around EUR 200 million, which is really leading to a very lazy balance sheet. EUR 200 million of cash sitting there earning zero. If one deploys it at 6%-7%, you can start seeing how the FFO and earnings jump very significantly. That is an area that we are really pushing them on. There are a lot of investment opportunities in Spain and would like to see them start investing their money. One of the big questions is why is Castellana... Sorry, why is Lar trading at such a big discount to net asset value? In the discussions with management, we believe that it's got nothing to do with operational metrics in terms of what the company is producing.
Alfonso went through last year's results. You can see the first quarter results now. These are very strong operating metrics all around. Not as strong as Castellana, we might add, but very strong. There is nothing wrong with the business that would be leading to the yield, the discount to NAV being justified where it is. We think it's a function of scale, that perhaps they are too small to attract investment money coming internationally. Therefore, one of the areas where we believe there is potential to discuss is saying, what if one had a bigger entity, would that start attracting more capital from investors? That is something that we are discussing with them and exploring further ideas.
In terms of dividends, they've been very clear that they intend on paying a high dividend ratio and would expect dividends to be in a similar level, a similar ratio to what they've paid out in this past year based on our discussions with them. The business continues to perform very well. If you look at our forecasts for the last financial year, they exceeded our forecasts. If one takes their first quarter numbers and simply annualizes them, they're slightly ahead of our forecasts. We believe that we've made a very good investment that will yield tremendous returns and give us optionality to really grow this business further in Spain. Moving forward, we continue to put a huge amount of effort into our people to remain an employer of choice, and drive leadership and innovation in the organization.
If there's one message that we are driving in both businesses, it's that customers drive value. How do we start putting on more of a customer-centric hat? How do we keep on adding value to our customers for the betterment of our centers, our tenants, et cetera? That is really a very key focus area of ours going forward. Obviously, that feeds directly into our tenants, making the spaces even more profitable and successful for them. I think our excellent relationships with our tenants can really now go to an even higher level. There's been tremendous interaction during the COVID crisis. I think that has bought us a lot of goodwill, and I think our tenants see us as partners to help grow the businesses symbiotically. Our balance sheet remains strong.
Operationally, we continue to focus on delivering great results, filling up vacant space, and meeting all of our operating metrics. ESG, as you have heard, is something that we see as a core competence going forward or something rather that we need to develop into a core competence and will be investing accordingly in that area. Then, as always, we are looking, actively looking for growth opportunities in South Africa and Spain, be they individual asset purchases, expansions of existing assets, or where appropriate, corporate activity, but all staying very tightly focused in our core retail expertise. In terms of prospects, for the year ahead, I think the upbeat nature and the confidence that you're hearing from us really comes from saying we've navigated some extremely difficult waters in the past 2 years.
We've done that exceptionally well. We believe that the business, the management team, the assets, is very well positioned to deal with whatever challenges may lie on the horizon. There are many challenges that we need to be cognizant of. Obviously, the impact of the war in Ukraine, supply chain issues, inflation fears, rising interest rates. Really, our business model has been proven to be resilient, sustainable, and well-positioned to deal with that potential volatility going forward. Our balance sheet remains strong. We are well hedged. 75% of our interest-bearing debt is hedged, which means that as we move into a rising interest rate environment, we don't expect it to have any material impact on our earnings or guidance that we are putting forward. What are we expecting then for the year?
Well, assuming a ZAR/EUR exchange rate of 16.80 for the year, we expect, and maintaining a similar payout ratio, we'd expect to grow FFO per share and dividend per share between 5%-7% for the year to end March 2023. That would equate to a dividend of between ZAR 1.11 and ZAR 1.13 per share, and that will be paid back to normal with an interim and a final dividend. Perhaps just to end off with why Vukile. What is the investment case of Vukile? I'm gonna leave you to read the detail on your own. When we go through this, our specialist retail model is really working. I think that is going to become more and more of a differentiator going forward.
Our portfolio is a high-quality portfolio, well diversified across geography, across region, and across high-quality tenants, providing the best and strongest covenants in South Africa and in Spain. Our balance sheet metrics remain strong. We are very active in managing our interest rate and foreign currency hedging. Our constant investment in our assets through our CapEx program means that the portfolio is well set up for long-term sustainability. Our active asset management strategy is working. That is the core. That is who we are about. We continue to uphold the highest standards of good governance. Really that will be extended now into the ESG environment and want to make sure that we are acknowledged as an employer of choice with high ethical standards. We continue to drive customer centricity and innovation and put that very much at the center of our DNA going forward.
All in all, what does that translate to for all of our shareholders and our stakeholders? Strong income and growth prospects. We believe that we have a stable NAV with meaningful upside potential over the next five years, and very high quality cash flows, resulting in a competitive dividend yield with a conservative tax-efficient payout ratio. With that, I thank you for your attendance and very happy to open up to questions.
Thank you. The first question comes from Miguel Medina from Armanext. There have been reports in the media about some shopping mall assets coming up for sale in Spain. Two questions: Any interest from your side on those assets? Any read-across in terms of valuation of your current portfolio?
Thanks. Miguel, yes. There are some assets, and we're starting to see increased activity in the Spanish portfolio. Sorry, in the Spanish market. We are seeing some good activity in the retail parks and I think at yields that are quite tight, probably tighter than what we see in our portfolio. That augurs well for our valuations. We are starting to see some increased transaction interest in shopping centers, again at yields that are attractive, and would seem to support our valuations in our portfolio overall. Are we interested? We're always interested in growing, finding the right assets, but it's about the right asset at the right price and making sure we can fund whatever deals are out there.
We obviously always have the opportunity to buy more shares of LAR on the screen. We have been doing that. It becomes very difficult for an individual asset to compete with an 11% or so FFO yield. Yes, we've probably got about half a billion EUR of deals in our pipeline that are being actively evaluated. At this stage, nothing that we believe we can close on. Finally, to say that the valuations we're seeing in the market are certainly supporting our portfolio valuations overall.
Thank you, Laurence. He did have some follow-on questions, but I think you have addressed them.
Yeah.
We have a question from Tshepo Shabalala from Ashburton Investments. How do you track the customer journey in the mall?
Tshepo, we have an investment in a company called Fetch Analytics. We also have Wi-Fi in the malls. Obviously, whatever we do operates within the law in terms of POPI Act and in terms of international regulation as well. Outside mall really is tracking cell phones anonymously to track the movement of people to pick up the patterns of movement. Inside the mall, we have an opt-in database system where people opt into our database in order to receive free Wi-Fi, and that allows us to interact with them in the mall. Really it's an investment in those two technologies that allow us to really do that. We have a team in-house that really then consolidates that data together to come up with the insights which you've just seen in the presentation from Itumeleng and from Alfonso.
A big focus area for us, but it's really all technology-based on those two systems.
Thank you, Laurence. The next set of questions comes from Yesh Pillay of Anchor Stockbrokers. He has asked, with regards to the FY 22 ECL, what tenant categories does the ZAR 24 million relate to? That's the first question. The second question: What was the cost related to the termination of cross-currency interest rate swaps? The third question: What is the strategy thinking of holding a small exposure in offices in SA?
Can I work backwards, yes, you had an answer then. The strategy of the 2% in offices, it isn't a strategy. We will exit those offices and the industrial in due course. It's a question of when the time is right, it's really just a remnant holding, excuse me, that will be exited at the right time. I'd say, really, you know, don't worry about that, it's not core, and we are going to exit. Laurence, would you pick up the question on the cross-currency issue?
We had 4 cross currencies at the outset. We settled 2 last year, the net settlement amount for the first 2 that we settled was ZAR 235 million. We had 2 remaining, which we are settling this month, the net settlement amount of those is ZAR 119 million. I mean, if we look back over the course of having those cross currencies in place, they actually were, they worked well for Vukile, the net amount was positive, materially positive, even after the 2 settlement amounts that I mentioned.
I must confess, I'm not sure that I understand the first question, the EUR 22 million ECL.
Yeah.
Is that the investment in your?
That's the-.
Coles and guest project?
Yes. No, that's ECL's expected credit loss on tenant arrears. The majority of that would be in the South African portfolio. It would be primarily on SMEs and government tenants. In the government tenants, I think it's primarily the post office.
Is that right, too?
Yeah. The ECL in Castellana is very, very small.
Thank you, Laurence. The next question comes from Louis Kruger of 36ONE Asset Management in regards to Laurence. How do you feel about the management agreement? If they deploy their cash, their LTV would increase above 40%. Are you comfortable with this? Their dividends were not covered by income last year. Do you agree that they should pay over 100% of FFO?
I think the management agreement has been restructured. I think the current terms of management agreement are significantly more investor-friendly than what they were historically. We believe that it's fine. External management agreements are a lot less frowned upon overseas than they are in South Africa. It's not seen as a major anomaly. We are, however, very happy that the terms have been agreed. In fact, that was one of the catalysts for us deciding to pursue an investment. We just felt that there's now a far greater alignment of interests. Also remember that the Grupo Lar organization, which is the asset manager, has owned about 11% of Lar España.
We feel that there is a very strong alignment between their interests and ours and all other shareholders because of that shareholding interest. We don't believe that the management agreement is a poison pill. We don't feel that that's the case, and we feel that the alignment really comes from the shareholding. With regards to the deployment of cash, you're entirely correct. Obviously, the net LTV that they report is subtracting the cash. We think that if they were to deploy even EUR 100 million of that cash, you know, the LTV would be at a very comfortable level. The interest cover ratios are very comfortable, and it drives a much better sustainable earnings picture. We don't think it's a good idea for them to be sitting on that cash. Notwithstanding that, the LTV will increase.
We still think that the headroom to covenant levels, the cash cover is sufficiently strong and will improve significantly if one were to actually deploy that. You know, if you're deploying EUR 200 million at, call it, a yield of 67%, that's EUR 12 million-14 million additional million of euros that come in. Think what that does to your interest cover ratio. We think it is absolutely the right thing for them to do. Payout ratio, I think, is about less than 100%. We're comfortable with where it is. They believe that that is important in order to get investor buy-in. For us as investors, we are very happy with that payout ratio coming through.
Thank you, Laurence. Next question is from Mweishö Nene at SBG Securities. He says, "Solid results. Alfonso, I think you said that Colliers were conservative on the evaluations. As someone who lives in SA without on-the-ground data, please explain what assumptions were considered conservative.
Well, thank you, Mweishö . Well, all of them, really, because what we're seeing is not only us saying that they are being conservative, this is very much our auditors as well, that compared to other clients, they are saying that our Colliers assumptions in our valuations are being conservative. I'm talking about the discount rates that they are using. I'm talking about the rental growth rates or even the CPI rates that they are using going forward in the discounted cash flows. The most important one is the exit deals, that now we have proof that with the latest transactions that we've seen in the market, our exit deals are still higher than those that are closing to these dates.
That's why we are very much convinced that our valuations are still on the conservative side of the line.
Thank you, Alfonso. Another question from Mweaaurenceaurenc , and he apologizes if it was covered prior. What caused the changes in group interest cover ratios between 1H 2022 and FY 2022?
As we mentioned in the presentation, there was quite a bit higher FFO earned in the first half than in the second half, and there were some items that caused those differences in FFO in the first half versus the second half. As a consequence of that, the interest cover ratio in the first half was slightly higher. I think it was above 4, and it settled at 3.4 for at year-end, which is still very healthy and way north of our interest cover ratio covenant level.
Thank you, Laurence. The next question is from Nick Reha, Signal Asset Management. Fairtree appears to be very cheap. Why are you selling, given the high yield the stock is trading on? Can you not do a book build for the remaining shares?
Nick, I assume you're talking about our Fairvest stake there. Just to clarify, there has been very large volume in Fairvest in the last few weeks. We are not sellers. We think it is too cheap at these levels, especially being pregnant with a dividend. You know, I think we are open to various strategies as and when we would deploy the money. You know, when we sold that initial ZAR 500 million, that was to redeploy into Lar España. We felt that, yes, it might be a little bit cheaper. We had a great opportunity at a point in time that has got real long-term benefit for us, and that is why we sold that initial ZAR 500 million. And that money found its way into the Lar España investment.
Going forward, as I said, it's about the right price and the right time. We certainly are not, you know, desperate to bomb out those shares. If we get a price that makes sense, and we have the right opportunity to redeploy into, then yes, we would be prepared to sell out of those shares.
Thank you, Laurence. Steve Janson from Coronation Fund Managers congratulates you on a solid operating result. He has also asked if you can clarify what the EUR 42 million of accrued dividends from Spain relates to.
Yeah. What is being referred to there is the ZAR 42 million that is in the non-IFRS adjustments at the bottom of the simplified income statement. Actually, not all of that relates to Castellana. About, I would say ZAR 60 million relates to Castellana, which is Vukile's share of the profit on sale of the Castellana Connecta assets. Given that that's not in Castellana's IFRS accounts, we have to bring that into our FFO as a non-IFRS adjustment. I think that was about ZAR 60 million. We have to reduce that by the non-IFRS adjustment that we have on Fairvest and Arrowhead dividends. In the IFRS income statement, Fairvest and Arrowhead dividends are treated pretty much on a cash basis, which is we recognize them when they are declared, whereas in FFO, we recognize them on an accrual basis.
We match time with time, so we have to do an adjustment. That's what that ZAR 42 million relates to.
Thank you, Laurence.
Yeah.
We have a question from Steven Mankis of Momentum Securities. He also says congratulations on results and the quality of the presentation. For Alfonso, some examples of your tracking of habits of customers and practical changes you have made as a result. He's asked if you could give some of those. He's also asked, why is the Spanish economy outperforming in Europe?
We have just implemented the system. We are very much now doing the tracking. Proper decisions on changing the retail mix that they haven't taken place yet. We are seeing very much a lot of other new trends on the consumer behavior that we didn't see before. Now that will be coming as an extra information for us to be for us to be more aware of what's happening at our asset levels. On the Spanish economy, why are we outperforming? It's just that normally we do. We outperform or underperform in the lower part of the curve.
It's very much related to tourism that at the end of the day, it's our economy is very much based on it. With this large rebound of the tourism coming back to Spain, we are seeing that the service sector is increasing much more than in the rest of Europe. That's one of the reasons why we are outperforming economies in the Western Europe or other countries.
Thank you, Alfonso. There don't appear to be any more questions.
Great. Thank you very much. Once again, thank you for your participation, and have a good day.