Right. Good morning, everyone, and welcome to our new offices here at 80 Charlotte Street. As usual, I'll take you through our half-year highlights, and then Will Hobman will take you through the financial results. I'll finish with a review of our resilient portfolio performance and the reassuring results from the scenario testing that we undertook across our portfolio ahead of what is set to be a challenging year for the economy, consumers, and our occupiers. We had a good first half, continuing to demonstrate operational performance and financial resilience as evidenced by good leasing performance and normalization of rent collection, maintained high occupancy, and sustained retention rates.
These operational metrics contributed to a 77% increase in underlying funds from operations to GBP 13.6 million, allowing us to declare an interim fully covered dividend of three and a half pence per share, which represents a 6% increase on our last declared dividend. Occupational markets have held up well in our first half, where we have seen active demand for space, we were pleased to deliver another period of leasing terms ahead of ERV. The wider capital markets have been impacted by the rapid increase in interest rates. That said, our portfolio valuation has been far more insulated as we have one of the highest yield spreads to the 10-year gilt. It should be noted that in the preceding period to this economic downturn, retail suffered accelerated capital declines, whereas other sectors had accelerated capital growth.
As a result, our portfolio valuation was broadly stable at just minus 1.3%, with 80% of the decline coming from our regeneration portfolio, which was impacted by higher development costs. Even with that modest valuation decline, our LTV ended the period lower at 33.8%, which provides us with significant investment capacity and optionality with an increased cash position of GBP 95 million. This means our balance sheet is in great shape as we have no drawn debt maturity to 2028, and all of our interest costs are fixed. We're tracking well against our decarbonization targets. The key to that is having quality governance and management, and this is an area that we do well in, as recognized by GRESB and EPRA.
High inflation and rising interest rates have been impacting consumer spending and will continue to do so as we move into 2023. For NewRiver, notwithstanding these challenges, we see reasons to be reassured about our market positioning. The recently announced tax increases and reductions in public spending means that consumers will have difficult choices to make. You can see this in the data on the chart where the growth rate of non-essential spending has been falling by contrast to essential spending, and we expect that trend to continue. Our essential spend-led portfolio is therefore well positioned to cater to and benefit from this. When evaluating the U.K. consumer, the following should be carefully considered: elevated U.K. consumer savings, rising wage growth, low unemployment, and the government's energy support package, plus inflation-linked pension increases and Universal Credit.
Much of the consumer's net worth is linked to the value of their house, and even though house prices could fall next year by around 10%, Savills forecast that house prices for the period 2023 - 2027 will increase on average by 6.2%. Retailers are facing similar pressures, and you can see the impact of high inflation in the retail sales data, where sales by value have been increasing, but volume is down. The significant increase in retail sales to the online channel during the COVID period has been unwinding as shoppers return to stores. In a high-cost environment, omnichannel retailers are better placed to control online costs by utilizing their physical store networks, which is why click and collect has been rapidly increasing and will continue to do so.
Online retailers who are perhaps more vulnerable are struggling to cope with rising costs, especially given their lower operating margins. When evaluating retailers, over the last 3- 4 years, we've seen significant restructuring and retailer failure. In addition, most retailers have been working hard to right-size and reduce costs. As we move into a challenging 2023, I would argue that store-based and omni-channel retailers are generally fitter, leaner, and more agile to navigate through what will be a difficult year. One of the expected tailwinds for retailers next year is reduced business rates. We were pleased that the government last week listened to the industry and announced a freezing of the UBR, and for those rate payers receiving a reduction in their business rate, the benefit will be received immediately, unlike the old system where it was spread over time.
In addition, the government announced new rateable values for all non-domestic properties, and you can see the real estate sector results here. For NewRiver, our current estimated reduction is 19%, which will be great news for our occupiers and will support the sustainability of our future rental cash flows. Within the wider capital markets, we've seen a decline in capital values, driven predominantly by the recalibration of property yields to the increase in gilt rates. For retail, where capital values have already been rebased over the last 3-4 years, the impact of yield expansion has been less pronounced as current retail yields provide a premium to the 10-year gilt. On the right-hand chart, you can clearly see how the higher rates of inflation that are driving higher interest rates has impacted the MSCI capital returns over the last three months compared to the last 12 months.
The sectors with the largest decline in capital values from June to September are those sectors where the property yield relative to the 10-year gilt did not provide a sufficient risk premium. Forecasting future capital returns is always a challenge, given the number of external variables and influences that impact the real estate capital markets. That said, we believe that NewRiver's valuations should be more resilient in 2023, given that our current portfolio equivalent yield is 550 basis points higher than the 10-year gilt. We have consistently expressed our confidence in the underlying resilience of our portfolio. Even through the significant disruption of COVID across all operating metrics, our portfolio has been remarkably resilient, and the first half of FY23 has been no exception.
As an example of our re-resilience, from April 2020 through to September 2022, we have undertaken long-term leasing transactions that secured GBP 30 million of annual rent, equating to just -0.2% compound annual growth rate over the weighted average lease term of those previous leases of 9.8 years. Given the extent of disruption within the retail sector over the last five years, from the growth of online retailing and COVID, our leasing performance over the last two and a half years really demonstrates the underlying resilience in our rental cash flows. Now, we believe our portfolio positioning, focused on essential goods and services where a physical store is vital to our occupiers, is the reason that we have consistently delivered high occupancy, high retention, and strong leasing performance over the last two and a half years.
Of course, it also helps that we have a market-leading asset management platform that has delivered excellent rent collection numbers and secured excellent leasing terms. Moving now to our valuation performance, which overall was broadly stable at just minus 1.3%. Our core shopping centers and retail parks delivered capital growth of 0.2% and 0.5% respectively, reflecting stable like-for-like movements in both equivalent yield and ERVs. Reassuringly, we've now had three financial reporting periods of stable valuations in our core shopping centers and retail parks. The only part of our portfolio that has been impacted by high inflation and rising interest rates was in our regeneration portfolio, which accounted for 80% of the modest GBP 8 million of total portfolio decline.
This was a result of an increase in estimated construction costs, an increase in assumed development finance costs, and a pullback in the residential forward funding market. Our workout portfolio, which only accounts for 14% of our total assets, recorded -2.5% of capital decline, a material improvement from the first half of FY2022 and the second half of FY2022. We've always held the view that income returns over the long term are the key driver of total returns. Given our high portfolio yield of 8.7%, you can see the importance of that income return in our total return outperformance relative to the MSCI.
Over the last 5 years, our retail parks have delivered a total return outperformance of 380 basis points, and our shopping centers a massive 740 basis points. This consistent outperformance is due to our portfolio positioning and our laser focus on income returns. We will provide a detailed report on our ESG performance at our full year results. In the first half of FY2023, we were pleased that our progress was recognized by GRESB with an improvement in our overall rating, which included a maximum rating for social and governance. The quality of our governance was also recognized by EPRA, where we retained our Gold Award status, which means that EPRA recognizes the excellence in the transparency and comparability of our environmental, social, and governance disclosures.
Achieving net zero within the retail sector very much relies upon mutual action by real estate owners and occupiers. The energy our occupiers consume in our assets accounts for almost 90% of total carbon emissions. These are emission over which we have limited control, but we continue to develop our engagement activities to support alignment between our climate ambitions and those of our occupiers. We were pleased to report that 57% of our lettable area is occupied by retailers that have already set emission reduction targets. With that, I will now hand over to Will, who will take you through the financials.
Thanks, Alan. Good morning, everyone. It's my pleasure to be taking you through our first half results today, starting with the financial highlights. We've made a strong start to the year, delivering continued improvement in UFFO, which increased to GBP 13.6 million during the first half, from GBP 12.8 million in the second half of the prior year, and GBP 7.7 million in the first half of the prior year, which is the retail comp stripping out the contribution from Hawthorn prior to its disposal. Because our dividend policy is linked to UFFO, this has led to an improvement in our fully covered dividend, which has increased to 3.5 pence per share, up from 3.3 pence per share in the second half of last year.
We've seen a resilient valuation performance, despite disruption in the investment and credit markets, leading to a stable NTA per share of GBP 1.32, which compares to GBP 1.34 at the full year and GBP 1.31 a year ago. This valuation performance, together with our fully covered dividend, means LTV now stands at 33.8% compared to 34.1% at the full year and 39.4% a year ago. Interest cover, which is another key debt metric, has also improved to 3.9x , trending upwards from 2.7x a year ago and 3.5x at the full year.
Benefiting from continued income recovery and a reduction in gross debt on which costs are fixed, which along with the fact that we have no refinancing requirement until 2028 and access to GBP 220 million of total liquidity, including GBP 95 million of cash in the bank, means that we ended the half as we started it, in a strong financial position. I'll have more on the balance sheet later on, but first, I'd like to look at UFFO. This time, alongside the usual UFFO statement, I've included a bridge from the first half of last year, which shows clearly that once adjusting for the contribution from the pubs in the prior year, retail UFFO has improved significantly half on half, from GBP 7.7 million to GBP 13.6 million, and that all component parts of UFFO have contributed to the increase.
I'll have more on net property income, which has improved despite the disposals we completed in the second half of last year in a moment. Before that, I'd like to walk you through the other drivers of the UFFO improvement, starting with other income, which you can see added GBP 1.4 million. This relates entirely to the settlement of an income disruption insurance claim relating to our car park income during the first COVID lockdown between March and June 2020. You can see that our work on cost reduction, both admin and finance costs, added GBP 4 million. With admin costs reflecting the impact of our cost saving initiatives, not least the relocation of our head office, which we completed during the first half, and with finance costs benefiting from the debt restructuring exercise completed last year.
Next, NPI, which has increased from GBP 25.2 million in the first half of last year to GBP 25.7 million this half. That's despite a GBP 2.2 million reduction due to the GBP 70 million of disposals completed in the second half of last year. Like-for-like income was up by GBP 0.6 million, a modest increase, but significant in representing return to growth after the declines we've seen in recent years. Importantly, like-for-like growth was strongest in our core shopping center and retail park assets, which we see as forming the backbone of our portfolio over the long term. Rent collection rates have improved, and we've continued to collect historical rental arrears, which means we've seen a period on period reduction in rent and service charge provisions for the second successive year post-COVID, adding GBP 1 million during the half.
Car park and commercialization, which improved half on half last year, and again in the first half of this year, recovering a further GBP 1.1 million of income, and now back up to 80% of pre-pandemic levels. I'd like to present a bridge which compares our retail NPI immediately prior to the pandemic, so the half-year ended September 2019, with the first half we're reporting today. I've included this slide because I think it's useful to look at how our income has been impacted over the last few years, not least by COVID. To highlight the resilience of our income and show how much of the disruption we've recovered so far. You can see that after adjusting for retail disposals over the last three years, we start in September 2019 with GBP 30.3 million of retail NPI.
The buckets we've labeled as HY21 reduction. That's pre-COVID like-for-like decline of GBP 2.2 million and COVID NPI impact, principally on rent collection and car park and commercialization income. Recovery and regrowth in the two years that have followed, which encapsulates NPI recovery, i.e., the progress we've made in recovering the impact shown in the previous two bars. The gradual return to normalized levels of rent and service charge provisioning versus the elevated levels seen during the pandemic. The gradual return of car park and commercialization income. Like-for-like NRI, which is stable taking HY22 and HY23 together, but as I've just shown you on the previous slide, trended positively in HY23. Lastly, the increase in RAM fees, which doesn't reflect the operating partner mandate we announced last week, which means that our asset management fee income will increase going forward.
In summary, our income was disrupted during FY2021, but we've made good re-progress in recovering that impact over the last two years. We feel that underlying income is not only resilient at this point, but growing as we look forward. Lastly, before moving on to the dividend, I'd like to break UFFO per share down into its constituent elements to look at the status and direction of travel of each. Starting with income, which as I've just shown, was rebased during COVID and which is now recovering. Admin costs, which have already reduced and where we've targeted further savings. Finally, finance costs, which have also reduced, and very importantly in this environment, are fixed for the next 5 and a half years. All of which means our UFFO is rebuilding, which flows directly into our dividend.
Under our dividend policy, we pay dividends twice per annum, announced within our half and full year results, based on 80% of the UFFO reported for the most recently completed six-month period. Today we've declared a first half dividend of GBP 3.5 pence per share, which compares to the GBP 4.1 pence declared during the first half of the prior year, half of which related to the pub business prior to its disposal. More recently, the GBP 3.3 pence declared at the full year, which was our first dividend as a retail-only business. Moving on to the balance sheet, starting with an overview of key balance sheet and debt metrics. I'll have more detail on individual metrics in the coming slides.
This slide shows clearly the strength of our position today and how that position has improved over the last 6 and 12 months following the sale of the pub business and subsequent debt reduction completed last year. This position is supported by our cost of debt, which is fixed at 3.5%. Given we have no maturity on drawn debt until 2028, that will remain the case for the next five and a half years. All this, and very importantly, our balance sheet remains fully unsecured. Next, net assets. As you can see from the slide, NTA per share reduced modestly from GBP 1.34 to GBP 1.32 during the HY, but remains ahead of the position a year ago of GBP 1.31, which is shown on the left-hand side of the slide.
The key reasons for the movement in the first half were the UFFO we retained after the payment of dividends, which added GBP 0.011, offset by the modest 1.3% portfolio valuation decline. This translates to a total account return in the first half of 1%, and a total account return of 6.4% since September 2021, i.e., in our 12 months as a retail-only business. I've also included a memo below the NTA bridge, which shows how LTV has changed during the first half. You can see it's reduced slightly from 34.1%- 33.8%, and the drivers are the same as NTA, with a reduction due to retained UFFO offset by the impact of the modest valuation decline.
Next, onto our financial policies, which form a key part of our approach to financial risk management. You can see clearly here we have material headroom across all of our policies, and that our position has improved during the first half, particularly interest cover, which has increased from 2.7x a year ago to 3.9x today. The key drivers of this improvement are the actions we completed during FY2022, which can be seen on the slide, being the disposal of the pubs and the subsequent debt reduction alongside the continued recovery of our retail income. It's worth noting that our policy is set at 2x , and the covenant on our drawn debt is set at 1.5x , meaning we have substantial and growing headroom against both of these benchmarks.
If we look at the two components of interest cover, we see this will continue to be an area of strength for us. With income still recovering post-COVID, and our low interest costs on drawn debt fixed until 2028. Next, onto capital allocation. To remind you, at the full year, with LTV at 34%, we said that we would not rush to redeploy to our 40% guidance level. In the near term, we intended to keep some headroom and to operate with a higher cash holding given the uncertain macroeconomic outlook. Looking back at the events of the last 6 months, we believe that this was the right call.
Revisiting this position now with an LTV at a similar level to the full year, while we feel confident in the strength of NewRiver's position and the resilience of our underlying cash flows in this environment, given the macro outlook is arguably even more uncertain today, we do not believe that now is the time to reduce headroom. We see no reason to change the near term guidance we issued at the full year. We will continue to review this position as we make progress on our planned disposal program, which has been challenging in the first half due to the impact of disruption in the capital markets on liquidity. As we learn more about the potential impact of market disruption on valuations.
Right now, we want to keep maximum optionality and flexibility, so we intend to keep headroom to the 40% level in the near term. Lastly from me, I'd like to expand on the key areas we expect to contribute to UFFO growth looking ahead. You can see on the left-hand side of the slide that we take the GBP 13.6 million of UFFO we've reported today and adjust it to remove the GBP 1.4 million of COVID disruption insurance received in the first half, which related to FY2021. We annualize this, giving us GBP 24.4 million as a start point, which compares to the annualized start point when we presented this slide six months ago of GBP 17.6 million.
With the increase, because we've been successful in crystallizing the growth from the right-hand side of the slide into our annualized start point. As you can see from the dashed box in the middle of the slide, which shows the progress we've made in capturing this growth in the first half. We add in the savings identified at our capital markets event in September 2021, which we've not yet unlocked, highlighted as number one on the slide. That's principally the further admin cost savings we've targeted on top of the GBP 1 million of savings unlocked over the last year, which will be more challenging given the inflationary environment we're now in, but which will remain an area of focus for us. COVID impact, which is a measure of our success in recovering the income disruption we experienced during FY2021.
We made good progress during FY2022, and this is continued in the first half of FY2023, which means that the remaining impact to recover now stands at GBP 4.2 million, down from GBP 6.6 million at the full year. We're confident we can make further inroads as we look ahead. Where we can't recover all of the lost income, we are actively expanding other revenue streams, such as our capital partnerships, where we've had success very recently in signing a new and exciting operational management agreement with a leading real estate investor. Finally, number three , surplus capital deployment. As I've just communicated, we will not rush to redeploy to the 40% LTV level in the near term.
We've included an illustrative GBP 64 million of acquisitions here at a 7% yield to give an indication of the optionality we have available to us. In the meantime, we're making a return on our surplus capital by placing it on deposit, we're currently generating a blended interest rate of around 3%. Thank you all for listening, I'd now like to hand you back to Alan.
Thanks, Will. I'm now gonna take you through an update on progress across our resilient portfolio and our outlook for the short and medium term. Starting with core shopping centers. Our core shopping centers represent 34% of our portfolio. Given the current economic uncertainty, these assets located in the heart of their town centers continue to play an important role in providing essential goods and services to their local communities. Given the affordability of rents for our occupiers, our core shopping center portfolio has been highly resilient, as demonstrated in our operating metrics, even during the highly disruptive COVID period. Over the last two and a half years, our occupancy has been consistently high, and retention rate for those leases subject to expiry or break clause has also been high, and leasing terms versus ERV have been consistently positive.
This resilience is also reflected in our retail park portfolio, which represents 27% of our assets, which has had another good period of delivering strong operating metrics across our 15 conveniently located assets. We continue to see strong occupational demand for our retail parks, which demonstrates the attraction of these assets in terms of location, rental affordability, catchment, click-and-collect hubs, and in turn, retailer profitability. As a result, we are nearly fully let at 97% and reassuringly, our retention rate is very high, reflecting the strong occupational demand that has been increasing over the last few years. Our regeneration portfolio is where we are seeking to deliver capital growth through redeveloping surplus retail space, principally for residential. Across our three projects, we are working on the delivery of 1,700 residential units, providing a mix of build to sell, build to rent, and affordable units.
Our recent regeneration valuation has been impacted by a combination of higher construction costs, an increase in development cost financing, and a recent pullback in the residential forward funding market. These are not projects we would ever develop out ourselves. Instead, we can create value by securing planning consents, and then we have a number of options, including selling to specialist residential developers, such as we successfully did with our regeneration assets in Cowley and in Penge in the previous financial year. Our three projects are at different stages in the development cycle, with consent secured at Burgess Hill and where we are finalizing key anchor lettings prior to selling the residential site. At Grays, we are close to completing the pre-planning process, which will then facilitate a major application in 2023.
Finally, in Bexleyheath, we are making good progress with our master plan with positive engagement with the council. Whilst we continue to progress our development plans for our regeneration assets, we receive an ongoing income return of circa 6%. Moving now to our workout portfolio, which represents only 14% of our assets and where we are seeking to exit through a combination of disposals and implementation of turnaround strategies to deliver long-term rental and capital sustainability. The recent disruption in the capital markets has impacted liquidity levels, we're currently under offer on GBP 20 million of assets, with the remaining GBP 21.5 million to be sold in our next five year next financial year.
We're well advanced with completing the turnaround strategies for three of our assets by the end of FY2023, with the remaining two assets to be completed in FY2024. Our current estimate is that our workout portfolio will equate to around 8% of our total portfolio by the end of FY2023, and we will complete a full exit during the course of FY2024. In the meantime, we benefit from attractive income returns and capital values that have moved to a broadly stabilized position. Our capital partnerships allow us to leverage our market-leading asset management platform and enhance our returns in a capital-light way through asset management income as well as potential financial promotes.
Post-period end, we were appointed by a leading real estate investor to asset manage a retail portfolio comprising 16 retail parks and one shopping center for a term of three years, which is a really strong endorsement of our platform. Our capital partnership with Bravo is performing well, and given the recent disruption in the capital markets, this JV is well-placed to capitalize on attractive opportunities that are likely to arise next year. We have a great relationship with Canterbury City Council, and we were pleased that our mandate was extended to include their new leisure development and our appointment as development manager for their planned city center redevelopment. Our strategic partnerships are a clear validation of our strong asset management capability and are likely to be an important source of new capital-light revenue in the coming years.
The last time we disclosed our scenario testing was during the initial phase of the pandemic in 2020, as we wanted to evaluate the likely financial impact from the closure of non-essential stores and the rental moratorium. The results of that scenario testing showed that our balance sheet was capable of managing our way through COVID without requiring any additional capital from our shareholders. Ultimately, our assessment at that time was proven correct. Today, both the OBR and the Bank of England are forecasting a lengthy, albeit shallow, recession. The resilience of NewRiver's rental cash flows is underpinned by affordable rents and low occupational costs. Given the downward pressure on retailers' margins as a result of material increases in cost and revenue pressures, we have assessed the rental affordability over the next three years.
We've worked with independent retail research consultant, JDM Retail, to model a P&L for each occupier in our portfolio that forecasts turnover and costs, including costs of goods, staffing, utilities, and business rates revaluation savings. Assuming the desired net margin, i.e., profitability, of the occupier is to be maintained, the output is the total affordable occupational cost ratio, AOCR, on a unit-by-unit basis. This has been completed on a base, downside, and upside case, with each scenario given a probability weighting, and we have primarily weighted on the base and the downside for the analysis. Based on our current rents, the modeling implies that our portfolio is trading at an affordable level with significant headroom, therefore suggests occupiers could afford increased rents. However, our expectation is that future retailer costs peak in 2023, with the cost of living crisis having an impact on lower consumer spending.
As expected, maintaining the retailer's existing net margin, the affordability falls 120 basis points below the current occupational cost ratio in 2023, but returns in 2024 with positive headroom building in 2025, supported by cost stabilization, the benefit of business rate reductions, and some modest sales growth. We focused on 2023 leasing events, when retailers' margins will be under the most pressure, and the results show that even though affordability falls in 2023, for those retailers subject to lease renewal, their affordability is still higher than what they actually pay. What is also really encouraging is that by 2025, the headroom between what occupiers can pay versus what they actually pay widens to 240 basis points, this should support the potential for us to deliver future rental growth.
To assess the risk of our future rental cash flows, we engaged Income Analytics, part-owned by MSCI and Savills, to quantify the probability and impact of tenant failure. In order to provide a more scientific measure of risk, Income Analytics has developed a set of proprietary risk metrics and analytics that allow users to look at the projected probability of failure for 1- 10 years into the future. They do this by using 15 years of historic global company data from Dun & Bradstreet, whose database covers over 500 million companies across 200 countries. The output, which is weighted by rent, shows that our retail portfolio has a projected probability of failure in the next 24 months of just 0.9%, which on a loss given default probability framework, shows the potential impact to the portfolio value is just -0.6%.
Over five years, which is broadly aligned with our weighted average lease expiry profile, the projected probability of failure is just 2.1%. To put our income security into context, you can see on this slide how our projected probability of failure rate compares to MSCI offices and industrial. Although industrial and offices have a modestly lower failure rate, our higher equivalent yield more than compensates. Taking account of both rental affordability and our projected failure rate, the analysis indicates that our rental cash flows should be resilient. Whilst it's been a turbulent few months, and the short-term outlook is clouded with uncertainty, we're very happy with how we are positioned today.
We have a strong balance sheet, high levels of occupancy across both our retail parks and core shopping centers, and are making good progress in either exiting or repositioning our workout portfolio. Although the macroeconomic outlook is uncertain, our battle-hardened NewRiver team, together with our strengthened balance sheet and highly resilient portfolio, is well positioned for a recessionary environment. Indeed, we look to the future with confidence.
Thank you. I think we're now gonna move to Q&A. We'll start with questions from the floor, followed by webcast questions. There are gonna be some roving microphones. For the benefit of those that are dialing in, those in the room, could you please just introduce yourself before asking your question from the floor?
Morning, gents. Thank you very much for the presentation. John Mozley from Liberum. I've got three questions for you, two on tenants, and then one on capital values. On the tenants, I wanted to ask about business rates, looking at it from the tenant point of view as to the savings that they would be making roughly in terms of their own P&Ls. My second question is, obviously, there was a story about one of your top 10 tenants in the press over the weekend, and I just wanted to check what your thoughts were about that. My final question is on the. The value falls are all in the region and work out parts of the business.
I just wanted to ask, did you think that that process is now pretty much finished, and had we got to capital values there where there is very little downside left?
Let me just try to remember the first question.
The first one was business rates.
Business rates
from the perspective of tenants.
Yeah. I mean, well, look, I mean, I think business rates are really gonna be helpful. It's something that the industry lobbied both the British Retail Consortium and the British Property Federation. It was good that the government listened to end the cap on downward transitional relief. You saw the slide. There are clearly winners and losers. Industrial, which is up 27%. Retail as a whole is -10%, and our portfolio overall was about 19% reductions. And that's gonna be very helpful and supportive for retailers because they're gonna get the benefit of that immediately. With regards to our tenants, I think you're referring to Wilko. Yeah, I mean, our team are, you know, have a regular contact with Wilko.
We're obviously pleased to see that they raised a sufficient amount of capital through a sale and leaseback of GBP 48 million. You know, what they're telling us is that they're not gonna be doing a CVA. Clearly, it's a tough time for retailers as a whole. That's one of the reasons why, you know, we're strong believers of not having an overexposure to any single tenant. I think our maximum exposure is B&M, which is probably around about 2.5% of rent. You know, we're very confident. You know, doing the rental affordability and our income security analysis is really telling us that, you know, we have a very resilient portfolio. Over the last 2.5 years, you can see that in our operating metrics.
We know next year is gonna be a tough year, but our research and data is telling us that our resilience should carry us through next year. With regards to valuations, as I mentioned, you know, retail has been more insulated. It's a sector that has had very significant valuation decline over the last three to four years. I think the MSCI U.K. Shopping Center benchmark is down 45% over three years. We've not been completely immune to that, albeit we've massively outperformed. We think workout is at almost at a stabilized position. If you think that the first half of the previous financial year was down 18%, followed by an 8% write-down, and now it's about 2.5%. We think we've reached that stabilized position.
The rental cash flows in our workout portfolio will benefit because that part of our portfolio has seen the biggest reduction in business rates, around 30% reduction. That's gonna be helpful around sustainability of cash flows. In terms of our region portfolio, well, we have been impacted by high inflation, which is feeding through to higher construction costs. There are signs that the pressure around construction costs from supplies and labor is starting to ease, there is an anticipation that costs could be lower in the future. Of course, you know, we have that opportunity for some of that decline to be reversed. A lot of our development activity is around providing residential.
You know, the sector still has that structural imbalance between the demand for residential and the supply. That still remains. That's why Savills are saying that over the 2023 period to 2027, house prices are set to go up about 6%. Rental values are set to increase and forecast over the same period of around 18%, and quite a significant part of our residential product is built to rent. I think we're, you know, we're confident around that part of our portfolio as well, John.
Thank you.
Izzy.
Hello. Michael Prew from Jefferies. In your build-out of your UFFO, your bar chart, your ladder, could you give sort of range of sort of earnings dilution we should expect from forward sales? Obviously, you're active in capital recycling. As you move, hopefully increase onto the front foot in terms of capital management, is there any scope of share buybacks on these discounts?
Well, I think in terms of capital allocation, a buyback is, you know, one of our options, and it's something that, you know, we monitor closely, as a management team and the board, Mike. I think it's really just a question, you know, for us it's timing. The full year we felt that given the macroeconomic uncertainty, the right thing to do was to be operating with a higher cash holding. We still believe that is the right position. I think, balance sheet strength and optionality are the two key things. The great thing is that our balance sheet is in great shape, and we have that optionality with given that we have GBP 95 million of cash on deposit.
Of course, one of the benefits of rising interest rates is we're starting to earn a decent cash return on that cash, which is gonna be, you know, helpful as well going forward. Will, do you wanna add anything?
I'd just say in terms of earning dilution from disposals, I think what we're saying really is that we wanna keep headroom to our LTV guidance at 40%. By that, I mean that anything we sell from this point effectively we're in a position to redeploy. I think the dilution would really be a timing dilution rather than a permanent dilution.
Yeah.
Thank you.
Sir?
Thank you. Andrew Saunders, Shore Capital. You talked about cost inflation in the regeneration portfolio in the first half with the construction and financing cost. Can you give us an idea of the sort of quantum of that that's baked into the valuation assumptions? What would be the expectations for second half going forward? Have we seen the worst of it or more to come?
Well, we have got appropriate levels of, you know, construction cost inflation within our appraisals and indeed, you know, the current market rate in terms of development financing. With regards to the future, I mean, it's really always very challenging trying to predict the future. You know, we are really at the stage where we're trying to secure planning consents, master planning. We're not on site in any of our regeneration projects, and nor would we develop them out ourselves. I think we're in a, you know, good place around that.
As I said, you know, indications that we're receiving from the construction industry is that things are starting to ease up a little bit, and hopefully that will feed through, and we can start to see a little bit of reversal of the decline we experienced in the first half. Okay, I think questions from the floor. Lucy, do we have any questions on the webcast?
There are a couple of questions, but they've been asked on the floor already, so ones that haven't been asked already. This is from Guillaume Langley. Given your asset management platform, how much more capacity do you have for additional earnings on third-party asset management?
Yeah. I mean, I think, you know, one of the big advantages we have in terms of U.K. Retail real estate, there's I can't think of any platform quite like NewRiver. You know, the capability we have, the quality of our team and the experience and our knowledge, deep, deep knowledge of the market. There's a lot of U.K. retail real estate that could be managed better, more efficiently, wiser, and I think it's a great opportunity for us. You know, we have a very successful joint venture with Bravo. You know, securing this new mandate, I think is a fantastic endorsement of our capabilities.
I think, and we believe that capital partnerships is gonna be a very important component of our business, going forward. That will really add value to the platform, which obviously is currently not recognized, given the sort of current market value of the business, but I'm sure that will come through in time.
The target level of fee income that we gave out a couple of years ago is GBP 3 million-GBP 5 million, wasn't it? Asset management fee income.
Yeah. We're ahead of that target. You know, we're ahead in terms of achieving that five year target. I think there's, you know, there's a lot more potential there for us. Any other questions, Lucy?
There's one question in from Marcus Fairmatch. Page, slide seven shows equivalent yields, but not initial yields. Initial yields for core and retail parks, please? Did the valuation use a 10% fall in house prices as you mentioned in the value of the regeneration assets?
Was Marcus' question is that did he want to know what the initial yields were?
Yeah.
Yeah, I mean, our net initial yield on our retail parks, I think was the question from Marcus, is that right?
Yeah.
Yeah.
Was 6.6%.
Okay. Thank you.
On, I think on core shopping centers, Alan, it was 9.5%.
9.5. Yeah.
Okay. I think that concludes the questions from the webcast.
Okay. Well, thank you. I think we're gonna bring proceedings to a close, and thank you, all of you, for joining us this morning. Will and I are gonna be around for a while, so we can have some follow-up conversations. If you haven't been to our offices, we're at the back of the building in the cheap seats on Whitfield Street. Lovely space, do come in and have a look at our new flexible working space, which has been a huge success for us since we moved in in June. If you've got some time, do come around and see our new office. Thank you very much.
This presentation has now ended.