Ladies and gentlemen.
Good morning, everyone.
Thank you. Thank you for standing by. Welcome to the Ingenia Communities Group first-half 2018 results presentation. At this time, all participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. At which time, if you wish to queue for a question, you will need to press zero followed by one on your telephone. Please note that this conference is being recorded today, Tuesday 20th of February, 2018. I would now like to hand the conference over to your speaker today, Mr. Simon Owen, Chief Executive Officer and Managing Director. Thank you, sir. Please go ahead.
Good morning, everyone. It's great to be here. I'm really excited to be presenting Ingenia's results today. Not only are we reporting some really good numbers. Our organic growth and development runway is incredibly strong. We are in the early phase of what should be an extended period of compelling earnings growth for security holders in the years ahead. Before we go into the details, I would like to make a few introductory comments about our business, the sector, and what the next few years have ahead for us. Ingenia presently has over 7,000 income-yielding homes, cabins, and sites. This number continues to grow every week as we settle new homes or add new tourism and rental cabins in our existing communities. Every week, we collect more than AUD 1.5 million in rent, with a significant component of that underpinned by government-based payments.
We are now in a phase of accelerated growth as we build out our development pipeline in key capital city and coastal markets. Over the next three years, we intend to launch nine new or expansion projects, including another three later this year. These are all either on balance sheet or secured via an option. What continues to set Ingenia apart is that we have already locked in our growth for the next three years. All approvals are already in place for the 2019 financial year. We are busy working on 2020, and we've never been in this position before. Next year, we are on track to be the biggest developer of land lease communities in Australia and one of the top few owners and operators. This is a market that we only entered in 2013. Our business is underpinned by the continuing aging of the population.
Every day, some 700 Australians turn 65. That's 700 people every day. This will continue for the next 30 years. Active retirees and downsizers are rapidly embracing the transparency and empowerment of the land lease model. This is a housing solution with a genuine and meaningful cash-out from selling the family home and moving into a vibrant and engaging community. This is a model which dominates both seniors and affordable housing in the U.S. but remains at its infancy in Australia. This is a model with unrivaled opportunity in Australia, particularly given our high global median house prices. Where Ingenia not only is a clear market leader but has the largest project pipeline of all of our peers in Australia. I want to quickly touch on our first greenfields project, Latitude One.
You can readily see how fast this project is progressing as per the cover page of this presentation. There are presently 38 homes under construction. Our building contractor has stepped up production to commence two new homes per week every week. Last Friday, there were 43 tradesmen on site building these homes. First settlements remain on track for late April or early May. The response from the local Port Stephens and Newcastle market has been really encouraging. The first stage of 48 homes is now fully sold out. Prices achieved range from AUD 359,000 to AUD 599,000, with an average to date of AUD 475,000. We are currently negotiating on our first home above AUD 600,000. The development template we have created for Latitude One has been rolled out across our next greenfields project, Plantations at Coffs Harbour, where civil works are scheduled to commence next month.
Finally, Ingenia has a strong balance sheet and robust capital position. We are absolutely determined to self-fund the build-out of our pipeline. We will reinvest development profits into future growth projects and are continuing to progress non-core and regional asset sales. Our acquisition program over the past six months has been stepped back a notch. I'm now going to turn to the presentation. Joining me on the call today is Scott Noble, our CFO, and Nikki Fisher, our Chief Operating Officer. There are 10 pages I want to touch on today before opening the call up to Q&A. Let's start on page three, which are the key highlights. Our EBIT is up 41% on the prior year to 18, sorry, to AUD 19.3 million. We now have over 7,000 income-producing sites across Ingenia Gardens, Ingenia Lifestyle, and Ingenia Holidays.
Our development pipeline, secured on balance sheet or via option, now consists of over 2,840 homes. Of which some 60% are already build-ready with all approvals in place. The operating margin in our Lifestyle and Holidays business is up 600 basis points to over 36.4%. This is particularly pleasing as it demonstrates the leverage and scalability of our operating platform. I've touched on lots of positive news, but there are always a few areas where we can do better. In recent months, we have made considerable progress on recycling capital from the divestment of non-core, regional, and subscale assets to self-fund the build-out of our development pipeline. We have plenty of other non-core assets which we're committed to sell. In the first half, we experienced some sales weakness in our Brisbane Lifestyle community, particularly Bethania, which had been tracking well below expectation.
In recent months, we have changed and increased our sales team and invested in additional marketing. Pleasingly, this project is now trending back towards target. As we rapidly ramp up the number of settlements occurring every month, we are working very hard to ensure that the customer journey is a truly positive experience and that new residents become proud advocates for Ingenia. We have made considerable progress on this over the past 12 months, but this remains a key work stream. If we can now turn to page six, I'm going to hand over to Scott to walk through the financials and capital management.
Thank you, Simon. Thank you, everyone, for joining the call. We are very pleased with the group's first half result, which sets a strong platform to meet our full-year guidance provided at the AGM in November. Running through our key financial results. Revenue has increased AUD 11.5 million to AUD 76.9 million, a 17.6% increase on the prior period. EBIT has increased 40.9% on the prior period to AUD 19.3 million, driven by the impact of new acquisitions in the second half of FY 2017 and the improved performance of the Lifestyle and Holidays business. Underlying profit increased 37.7% on prior period to AUD 14.6 million, driven by a AUD 5.6 million increase in EBIT, offset by an increase in non-cash tax expense. Pleasingly, underlying earnings per share increased 18.3% to AUD 0.071 per share, with statutory EPS of AUD 0.0830, up 93%.
The group's operating cash flow increased on the prior period, driven by the strong recurring rental returns from our Lifestyle and Ingenia Gardens portfolios. Operating cash flow was impacted by the increased inventory spend as we build up to deliver on the strong settlement pipeline in the second half. Directors have declared an interim distribution of AUD 0.0510 per security. This remains consistent with the prior period as we reinvest profits into our development pipeline. Turning to slide seven. The group delivered on a strong growth in EBIT. Lifestyle and Holidays EBIT increased 76% to AUD 13.2 million. The largest impact of this increase was the contribution from our new acquisitions. This was supplemented by a strong performance of our existing villages, which delivered both rental growth and improved margins, and the investment in new rental and tourism cabins across the portfolio, which provided incremental rental growth.
Development EBIT was up 7.7% with 90 turnkey settlements, an increase of 10% on the prior period. Average new home development margin was up 6% on the prior period to AUD 113,000. Corporate costs were slightly lower than prior period, with lower business development costs being incurred and scale benefits emerging. Turning to capital management on slide eight. At 31 December, our gearing was 28% and LVR 35%, compared to a covenant of 50%. We had a weighted average debt maturity of 3.3 years. The all-in cost of debt was 3.9%. We were 40% hedged, and we continue to receive very strong support from our lenders. Post 31 December, we've divested two non-core assets with a further sale contracted and expected to complete in March. These sales will deliver AUD 17 million in proceeds to further invest in our development pipeline. Turning to slide nine, the net asset value slide.
This shows the composition of the group's net asset value of AUD 2.53 per security. The slide highlights the high level of investment in our Lifestyle and Holidays portfolio, which didn't exist prior to 2013. It also highlights the embedded value in the group's development pipeline, which will continue to create value as it's built out and settled.
Scott, I think the two key takeouts for me on that slide is firstly, that with Ingenia Lifestyle and Holidays, the average cap rate on that portfolio at the moment is 8.44%. As recently as two weeks ago, we've seen transactions happen in the low to mid-sixes, so I think there's significant support for our valuations there. Then secondly, the value attributed to our development pipeline is really at cost. Over the last four years, we've put together the biggest pipeline of development sites of any land lease operator in the country, and I think as we build that out over the next five years, that's going to create significant value capture for our security holders, which I don't think is really reflected in the current valuation.
Thanks, Simon. Turning now to slide 10, in relation to valuation and cap rates, we've certainly revalued 23 assets. Over the last six months, we've seen the average capitalization rate of the Lifestyle and Holidays portfolio sharpening by approximately 22 basis points across the portfolio. Unfortunately, we continue to see external valuations track behind recent transactions in the market. As such, we continue to see upside in our portfolio that's not yet been captured. Ingenia Gardens cap rates have remained largely stable, reflecting the lack of recent market transactions in this high yield, stable cash flow business. The average cap rate at December was 9.97%. Thank you. I'm going to hand back to Simon to run through the remaining slides.
Thanks, Scott. I'm going to move on to slide 13 now, which I think really gives you great visibility on our future earnings growth. For Ingenia, it's really important to note that our portfolio composition is now largely complete, and for us as a business, the next three to five years is really on execution. As we continue to grow, the development profit on building out an extra 50 to 100 homes per annum should add between AUD 5 million-AUD 10 million to earnings per annum. Once we build out our pipeline, the rents on an additional 2,840 homes would be in excess of AUD 24 million per annum to recurrent revenue. Adding in another 100 new rental cabins across Chambers, Durack, and Sheldon will add a further AUD 1.6 million in incremental rent.
Finally, adding another 180 or 170 plus tourism cabins across our holidays portfolio will add in around another AUD 6 million per annum to incremental rent. I think there's great visibility on where Ingenia's future earnings growth is going to come from. Moving on to page 16, which is our key lifestyle and holiday segment. Portfolio EBIT was AUD 13.2 million for the period, up 76% on one year ago. I think it's especially pleasing is that our margin over the past 12 months has expanded by nearly 600 basis points to 36.4%. Like for like income, i.e., from those communities owned by Ingenia for a minimum of 12 months, is up 7% on the prior period. These are some really strong numbers which demonstrate the scale benefits now being delivered across the business, but with plenty more to come.
We continue to reinvest in our lifestyle and holidays business, and in addition to new home sales, we've also added in quite a few new rental cabins and tourist cabins, and we're typically achieving a 20% return on capital on this investment. I'm now going to move on to slide 17, which is our Ingenia Holidays business. This is a game where we're really enhancing returns through active management. Like for like, i.e., same store revenue growth, is up 6% over the past 12 months, and we now have a unique database of over 165,000 members who we communicate with on a regular basis. Our strategy here at Holidays is about owning the customer. It's about controlling the sales channel where possible and focusing on yield optimization and length of stay rather than chasing the market for rate.
Our holidays business is a compelling and complementary opportunity with significant attractive earnings upside. I'll now touch briefly on Ingenia Gardens, which is on page 19. Ingenia Gardens remains a core part of our platform, and we collect over half a million dollars in rent every week, most of which is government-funded or supported. Occupancy remains firm across the portfolio, and our care strategy, which was initially trialed and rolled out in our Ingenia Gardens business, is now being implemented across a majority of our lifestyle communities. I think this is a great demonstration of how we leverage our significant operating capabilities across our lifestyle, holidays, and rental communities. I'm now going to move on to page 20, which introduces development. Put simply, we are selling more homes at expanding margins every year.
As at 31 December, we had 187 deposits or contracts in place, which is up nearly 90% on the prior comparative period. This gives us great visibility to the next six months settlements. Above-ground development profit, as at mid-February, is presently tracking at slightly over AUD 114,000, and we remain confident that this will push through AUD 115,000 per home once new higher-margin projects, such as Latitude One, come online in the fourth quarter. The EBIT development margin expanded 70 basis points over the past 12 months, I would expect this to grow significantly in the second half as homes presently deposited or contracted now settle. Over the past six months, we have procured additional development approvals for another 429 homes, including Hervey Bay and our Bethania expansion project. This puts us in the great position of having all approvals in place to support 350-plus settlements next financial year.
Touching on slide 21, I would like to share with you our pathway to hit guidance for settlement of 260 to 280 new homes in the current year. As of last Friday, we have settled 117 new homes. Over the balance of the year, we have another 45 homes contracted where we've got a confirmed move-in date, and this is across our existing communities in markets such as Chambers Pines in Brisbane and Lara in Melbourne. Across our three Quarter Four projects, being Latitude One, Lake Conjola, and The Grange, we have a further 72 homes contracted or deposited. These are committed buyers, many of whom have already sold their homes in anticipation of moving into their chosen Ingenia community. This leaves us with a further 26 homes to settle by 30 June.
These 26 further homes are settled or are offset by 90 deposits that we're currently sitting on, over and above what I've previously spoken about. I think the key risk on the downside would be either unforeseen delays at our three fourth quarter projects, and I've been to all of those projects in the last 10 days, and they are all tracking to plan, or a broader slowdown in the residential market. Upside risk would be settling a higher number of the 90 homes presently deposited than we've outlined above. Moving on to slide 22, which continues to remain my personal favorite in the whole deck. There's no other lifestyle community operator that has a pipeline offering anywhere near this quality or breadth of projects. A majority of these projects have been sourced where we've got the DA internally, and that's added considerable value.
Over the next few years, we're launching an additional nine new or expansion projects. We're focusing more intently on the Victorian greenfields market, and we presently have several projects down there under offer. Our success at Lara, which is our best-performing lifestyle project across the group, has given us the confidence to accelerate plans for Victoria, and we already have boots on the ground down in that market. Our strategy over the past year has been, where possible, to acquire the land adjoining existing communities. To date, we own or have option land adjoining Chambers Pines, Bethania, Avina, and Latitude One, and we're currently negotiating the acquisition of expansion land adjoining a further two communities. Our experience is that when you're acquiring the land next to an existing community, that it typically provides for very low risk and highly profitable development.
On pages 24 to 27, we show you the current projects at our Latitude One, Grange, and Conjola lifestyle communities. I'm not going to step through each of these, but I do believe that this should give you the confidence that we're well on track to drive not only near-term development profits, but longer-term annuity income. I'll now touch briefly on page 28, which is the market landscape. What we're seeing out there is that housing affordability remains a front-page issue across Australia. Combined with an aging population, there's very strong and growing demand from prospective residents. There's limited supply, and there's very strong tailwinds behind our business. I would certainly say that the competition is stepping up, and there are new competitors coming into the market.
We've been busy executing our strategy and constructing our portfolio over the past five years, and the next five years is really about execution. The key risk for our business would be a downturn in the housing market. This would likely require either rising unemployment or rising interest rates, and we don't see any near-term risks to either of those. We spend a lot of time conducting research, and we are continuing to evolve and improve our product and our service offering. The customer and their families are very informed and prepared when we're talking to them about moving into one of our communities. Finally, on page 29, which is our outlook. Our absolute number one priority in the business remains on improving the performance of our existing assets, and I do believe we've made considerable progress on that front over the last 12 months.
Recycling capital from non-core and select regional communities also remains a key focus over the next 12 months. In terms of guidance, we remain confident in our ability to hit 260 to 280 settlements this year, and over 350 settlements in 2019. Our earnings guidance remains unchanged, with earnings per security of at least AUD 0.156 per share and EBIT of between AUD 45 million and AUD 47 million. Again, this is subject to no material change in market conditions. On closing, I think this is another very strong result for Ingenia that demonstrates we're delivering on strategy and investing in our platform to become the clear market leader in our segment. I'll now hand over for Q&A.
Thank you very much. Ladies and gentlemen, we will now begin the question-and-answer session. If you wish to queue for a question, please press zero followed by one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press zero, then two. Your first question comes from the line of Michael Pitt of Goldman Sachs. Your line is open. Please ask your question.
Morning, Simon and team. It's Michael Pitt from Goldman's here. Just the operating margin, 600 basis points up. Could you comment a bit about that in terms of the momentum you'd expect going forward for that and how much of it was due to mix? You mentioned the acquisitions contributing. I just want to sort of break it out and get a feel for where that's going over the next little while.
Yeah, Michael, I'm glad you're from Goldman's. I was wondering why someone from PWC would be asking the question.
Yeah, haven't switched.
Yeah, look, I think the key reason the margin expansion is so strong has really been that we've integrated Cairns Coconut. We're getting real scale through our development platform. There hasn't really been a significant increase in our non-site-based employee numbers. That's really been the key driver. We've had some very strong growth in same-store site rentals and same-store tourism income, that's been a key contributor. Looking forward over the next 12 months, I'm not sure whether we're going to be able to repeat 600 basis points every 12 months, but I do think that we'll definitely be able to push that into the low to mid-40s.
Okay. I think there was a little bit of other income there on the operations side, AUD 2.2 of other property income. Could you just remind us what that is?
I would say that that's probably, we own a service station up at Paducah. We also are the freehold. We own the freehold for a pub and a cafe up on the New South Wales mid-north coast.
Yeah. I'll just probably add to that, Simon, if that's okay. We've got some catering income in there, Michael. Some utility recoveries, and some ancillary lifestyle income where we do sell tourism services and take a commission.
No, that wouldn't have contributed on the profit line that much. That's not the driver of what's helped you on the margin. It's obviously.
No
the rental income.
Absolutely.
Yeah. Just on the 187 deposited and contracted, could you give us a split over how many deposited versus contracted? I think you might have actually already done that, though, on that other slide. I'm just interested in the fall-over rate you're seeing on deposits.
On that slide, we gave you how many homes are contracted, and that's where we've got a committed settlement date. That's across our non-fourth quarter projects. Across Latitude One, Lake Conjola and The Grange, there'd probably be another 20-25 contracted homes. In terms of the fall-over rate from deposits, it does vary by project. Normally, in the earlier stages of a project, the fall-over rate may be somewhere around 15%. Once the project becomes more mature, a project like Lara, once someone has deposited, the fall-over rate would be no less than 5%.
Okay. Just finally on divestments, any update there on other non-core assets, how they're going in terms of divestments that haven't already been announced as potentially completing?
Yeah. There's six counterparties, qualified counterparties that we're dealing with across approximately 10 non-core or regional assets at the moment. Over the next few months, we would expect to announce further divestments. We're continuing to make progress on that front.
Great. Thank you.
Thank you, Michael, and I do apologize for your company name. Your next question comes from the line of Steven Lam from CLSA. Your line is open. Please ask your question.
Hi, Simon and team. I've got a few question. Just on the new competitors coming into market, who are they and what are they doing? Is it just Hometown America or is it others that are entering the market?
Yeah. Steven, on appendix seven, we sort of set out the competitor landscape, and for the first time, we've had to put it on two pages because we ran out of space.
Okay, great. I'll just refer to that.
Yeah, Hometown certainly active out there. We actually divested a couple of our smaller assets to them in recent months. You've got the first Chinese developer, Boyuan, to list on the ASX. They're certainly very active in the market, and those two groups would be driving the price at the moment. There's also some smaller groups out there that are actively looking to consolidate caravan parks. We've really stepped back from that market at the moment, where the only acquisitions we're really doing at the moment is acquiring the adjacent land to existing communities or optioning up land in new growth areas. I think the last sizable transaction we saw of a mature land-lease community was at a cap rate of 6.4%. That's our calculation. It's very hard to create value at that sort of level.
We think building out, focusing on our development pipeline where we can comfortably achieve an unlevered IRR of over 20%, that's a better space for us to invest in at this point in time.
Thank you. Just on the 90 extra deposits that you have, how much of those relate to settlements which can potentially occur in FY18, or are most of them actually FY19 settlements?
Look, I would say, at least two-thirds of those are people who are interested in settling before 30 June. We probably wouldn't have enough stock that if every one of those people wanted to settle before 30 June, I doubt we would have enough new homes available for them to move in. I guess we not only want to make sure that we close the year very strongly, but we also have a very strong foundation for the first quarter of FY19. I'd be confident talking to our sales team that a majority of those 90 deposits are going to settle at some point. It's just how many fall into the third and fourth quarter of this financial year, and how many are in the first quarter of next financial year.
Where we sit at the moment, I'm very confident that we're well on track to hit our guidance of 260-280 new home settlements.
Okay, thank you. You mentioned the corporate cost was lower, but what's the run rate, given your comment earlier about greater investment in Bethania because you had to invest a bit more in the sales and marketing team?
Yeah, those costs don't sit inside our corporate costs. They'll be within the development profit and loss, and development EBIT.
And-
Sorry.
Sorry, go on, Simon.
I was going to say, so to Scott's point, so on page 20 where we break out the development EBIT, you can see that was AUD 4.2 million for the six months, so it's only up AUD 300,000 on the prior comparative period. We've incurred quite a bit of sales and marketing costs to get that 187 deposits in place. We opened up a retail shop at Salamander Bay to support the launch of Latitude One. We've recently opened up a retail shop in Coffs Harbour to support the launch of our Plantations project, and we're in the process of fitting out a shop up in Hervey Bay to support the launch of that project later this year. I guess we've front-loaded some sales and marketing costs in order to ensure the successful execution of those projects.
The fact that before we've even got a display home ready at Latitude One, we've fully deposited the entire stage 1 at prices well in excess of where our initial feasibility supports that investment in getting the sales and marketing right.
Whilst you mentioned Hervey Bay, I noticed that on the bubble chart, your favorite slide, some of the timing development moves around a bit, also the Hervey Bay prices seem to have increased a fair bit versus the AGM chart. Can you just talk a little bit around that, both the movement in timing and the price changes?
In terms of the timing for Hervey Bay, we have pushed that back a little bit because we're endeavoring to secure some land adjacent to that project, which combined with we want to change the entry road into the project. We've got 3 projects basically launching between now and 30 June, we've got Plantations where we break ground in March, we've already got around 20 people who are desperate to deposit on homes there. It's probably just as much as anything, internal bandwidth that we don't want to be launching too many new projects in quick succession. We want to get each one right then move on to the next one. That's probably driven the slight delay in Hervey Bay. We do have an approval in place, a DA for 200 new homes, we could start that project straight away.
Secondly, in terms of the price point, again, we're working on the DA. We do think that having a slab on ground product and a slightly larger garage which could support a recreational vehicle will be able to add significant value in terms of the sales price achieved for that project. I would say it's a good pickup, it's probably as much as anything, it's just internal bandwidth, at the moment, we're heavily focused on getting Plantations right, then we'll move our focus on to Hervey Bay.
Okay, thank you. Just on your CapEx outlook, what's that like for 12 to 18 months? Has there been much change given any sort of potential changes with the settlement profile that you're expecting with the projects being moved around?
I'll answer that one if that's okay. In terms of development spend, look, we incurred about AUD 22 million of development CapEx in the first half. We're expecting, certainly through the second half of the year, maybe a little moderate increase on that. In terms of 12 months out, look, it's probably very difficult to say, but I would say, based on the pipeline of projects and certainly finalizing all the feasibilities, we'll probably see the same again. In terms of other CapEx, in the first half, it's probably worth pointing out, we did have quite a significant investment in cabins across our tourist sites and our rental sites. There were 38 new cabins that were put in in the year, in the six months. We won't see that same level in the second half of the year. We should see that come down.
Those 38 that we did put in certainly will be all rental accretive to us almost from day one.
Okay, thank you. Final one from me. Just on the margin expansion. Like to like was 9%, total was only up 6%. Was that because there were some new lower margin communities which were acquired or what's driving that?
Yeah, that's right.
Which were those projects, which were specifically quite a bit lower?
The permanent homes that we have at Cairns Coconut, the rent there is only I think AUD 130 a week, which is well below our weighted average of AUD 164 AUD 162. Just trying to think which other communities that would have been impacted by. Maybe I'll come back offline, Steven, and we can step you through reconciling the difference between those two.
Sure. Thanks so much.
Yeah.
Thank you. As a reminder, if you wish to queue for a question, please press zero followed by one on your telephone and wait for your name to be announced. We have a follow-up question from the line of Michael. Please go ahead, sir.
Yeah. Hi, Simon. Just on the Victoria opportunities, any indication on where you're looking, around the Melbourne area or some of the regional towns?
We're not doing regional, so it's probably picking over the same five growth corridors as James at Lifestyle Communities. Mornington Peninsula, Bellarine, and then down the east, up north, and the northwest. Within those five corridors, we've got two preferred corridors. We've put offers in on around four projects. A couple of those we've been outbid, we do have two offers in place at the moment where we're sort of arm wrestling with the vendors at the moment.
Okay. Any refurbs or flippers in the half?
We bought back quite a few flippers, but we haven't sold a lot. I think Scott's got the exact numbers.
Yeah. We've sold two refurbishments and one renovation, and there was also one annual.
Okay. Just what happened at Bethania, Simon, and how confident are you? You sound confident you got it back on track, but we're just trying to get to the crux of what might have happened up there.
Well, I think it was not just Bethania, but I guess one of our listed peers had some regulatory issues around the deferred management fee model, which I think sort of slowed down, in talking to other operators, slowed down the entire Southeast Queensland market. Beyond that, we kicked a few own goals in that we tried a new sales strategy using external agents, which proved ultimately not to be successful, but it was something that we just wanted to try to see if we could reduce our selling costs. Then it took us a bit longer than I was expecting to find a new salesperson. During probably the first four or five months of this financial year, we lost a bit of momentum at Bethania. Just before Christmas, we've put in place a great new salesperson.
We did a little bit of local TV and media advertising. We spent a lot of time and effort with the existing residents, building their referral network. So, I'm very confident that we'll be looking back to somewhere between three to five settlements per month at Bethania, in the run home to the end of the financial year.
Okay. Last one, just on the balance sheet, obviously you've given us a bit of a guide on CapEx. Obviously, we can see the guidance on the earnings, just wondering where you think, excluding divestments from here, unannounced ones, assuming you get the settlements on the ones that have already been announced, where do you see the borrowings coming out at, drawn debt for the end of the year?
Yeah, I think we'll stay within our sort of target range of the upper end of our target range, probably trending towards 38%.
38%. Cool. All right. Excellent. Cheers. Thank you.
Sorry, that's from an LVR perspective. From a gearing, it'll be low teens.
Sorry, Scott, that was LVR for-
LVR, yeah, we'll be headed to closer to 38, but from a gearing, closer to 31.
31 gearing. Got it. Thank you.
Michael, just to be clear, we are not raising or issuing any new capital to fund development. We're going to build out our pipeline at a pace that the balance sheet enables us to do, and that will be through as we start to step up settlements, we do expect that's going to release a lot of free cash flow. We've got, as I mentioned, around 8-10 assets, non-core and regional, that we're divesting. We're going to fund that development internally, and if that means that in the 2020 financial year, we sort of cap out at 350-400 settlements, then we're very comfortable with that.
Okay. Excluding the divestment of any further assets, are you confident you can still self-fund 350+ next year?
Yes.
Great. Thank you.
Thank you very much, Michael. There are no further questions at this point. Please continue, sir.
Thank you very much for joining in on our call. Donna and Scott and I will be available later today and over the next couple of weeks to catch up with you all, and we're looking forward to a very strong second half for Ingenia. Thank you very much.
Thank you.
Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.