Thank you for standing by and 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 question and answer Please note that this conference is being recorded today, Tuesday 20th 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 and I'm really excited to be presenting Ingenia's results today. Not only are we reporting some really good numbers, but 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 7000 income yielding homes, cabins, and sites, and 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 $1,500,000 in rent, with a significant component of that underpinned by government based payments. 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 9 new or expansion projects, including another 3 later this year. And these are all either on balance sheet or secured by an option.
What continues to set in Junior apart is that we have already locked in our growth for the next 3 years. All approvals are already in place for the 2019 financial year, and 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. And 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 seven hundred people every day. And this will continue for the next 30 years. Active retirees and downsizes 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 serving 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, and 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 1st greenfields project, Latitude 1. We can readily see how fast this project is progressing as per the cover page of this presentation.
There are presently 38 homes under construction, and our building contractor has stepped up production to commence 2 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 Stevens and Newcastle market has been really encouraging and the 1st stage of 48 homes is now fully sold out. Prices achieved range from $359,000 to $599,000, with an average today of $475,000. And we are currently negotiating on our first home above $600,000.
The development template we have created for Latitude 1 has been rolled out across our next greenfields project, plantations at Coff Harbour, where civil works are scheduled to commence next month. And finally, Ingenia has a strong balance sheet and robust capital position and 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 noncore and regional asset sales, and our acquisition program over the past 6 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 Nicky Fisher, our Chief Operating Officer.
There are ten pages I want to touch on today before opening the call up to Q And A. So let's start on Page 3, which are the key highlights. Our EBIT is up 41% on the prior year to 18 sorry, to $19,300,000. We now have over 7000 income producing sites across Ingenio Gardens, bustyle and holidays. As our development pipeline, secured on balance sheet or via ops now consists of over 2840 homes, of which some 60% are already deal ready with all approvals in place.
And the operating margin in our lifestyle and holidays business is up 600 basis points to over 36.4 percent. And 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. But we have plenty of other noncore assets, which we're committed to sell. In the first half, we experienced some sales weakness in our Brisbane lifestyle communities, particularly Lithuania, which had been tracking well below expectation.
In recent months, we have changed and increased our sales team and invested in additional marketing. And pleasingly, this project is now trending back towards target. And as we rapidly ramp up the number of settlements occurring every month, We're working very hard to ensure that the customer journey is a truly positive experience and that new residents become proud advocates for Ingenia. We've made considerable progress on this over the past 12 months, but this remains a key work stream. If we can now turn to Page 6, then I'm going to hand over to Scott to walk through the financials and capital management.
Thank you, Simon, and 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. Looking through our key financial results. Revenues increased $11,500,000 to $76,900,000, a 17.6% increase on the prior period. EBITDA has increased 40.9 percent on the prior period to $19,300,000, 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 $14,600,000, driven by a $5,600,000 increase in EBIT, offset by an increase in noncash tax expense. Pleasingly, underlying earnings per share increased 18.3 percent to $0.071 per share with statutory EPS of $0.083, up 93%. The group's operating cash flow increased on the prior period driven by strong recurring rental returns from our lifestyle and Ingenio Gardens portfolios. Operating cash flow was impacted by the increase of inventory spent as we build up to deliver on strong settlement pipeline in the second half.
Directors have declared an interim distribution of $0.051 per security, This remains consistent with the prior period as we reinvest profits into our development pipeline. Turning to Slide 7. The group delivered on a strong growth in EBIT. Last time holidays EBIT increased 76 percent to $13,200,000. The largest impact of this increase was the contribution from our new acquisitions.
This was supplemented by a strong performance of our existing villages was delivered by its 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 $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 on Slide 8. At 31 December, our gearing was 28% and LBR 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 see very strong from our lenders. Post 31 December, we've divested 2 noncore assets with a further sale contractor and expect to complete in March These sales will deliver $17,000,000 in proceeds to further invest in our development pipeline. Turning to Slide 9. The net asset value slide. This shows the composition of the group's net asset value of $2.53 per security.
The slight highlight a high level of investment in our lifestyle and holidays portfolio, which didn't exist prior to 2013. Also highlights the embedded value in the groups development pipeline, which will continue to create value as it's built out and settled.
Yes. And Scott, I think the 2 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 2 weeks ago, we've seen, transactions happen in the low to mid 6s. So I think, there's significant support for our valuations there. And then secondly, the value attributed to our development pipeline is really at cost.
So over the last 4 years, we 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 5 years, going to create significant value capture for our security holders, which I don't think is really reflected in the current valuation.
Turning now to Slide 10, in relation to valuation and cap rates, we've still revalued 23 assets. Over the last six months, we've seen the average capitalization rate over the last time 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. Ingenior Garden, cap rates have remained largely stable, reflecting the lack of recent market transactions in these high yield stable cash flow business.
The average cap rate at December was 9.97%. Thank you. I'll now 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. Think for Ingenio, it's really important to note that our portfolio composition is now largely complete. And for us as a business, the next 3 to 5 years is really on execution. So as we continue to grow, the development profit on building out an extra 50 to 100 homes per annum should add between $5,000,000 to $10,000,000 to earnings per annum.
Once we build out our pipeline, the rents on an additional 2840 homes would be in excess of $24,000,000 per annum to recurrent revenue. Adding in another 100 new rental cabins across chambers, Durac and Sheldon will add a further $1,600,000 in incremental rent And then finally, adding another 180 or 170 plus tours and cabins across our holidays portfolio will add in around another $6,000,000 per annum to incremental rent. So I think there's great visibility on where Ingenia's future earnings growth is going to come through come from. Moving on to Page 16, which is our key lifestyle and holiday segment. Portfolio EBIT was $13,200,000 for the period, up specially 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 Ingenio for a minimum 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 benefit. But with plenty more to come.
We continue to reinvest in our lifestyle of 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 gain 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 Holiday 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 Ray. Our holiday business is a compelling and complimentary opportunity with significant attractive earnings upside.
I'll now touch briefly on Ingenio Gardens, which is on Page 19. Ingenio Gardens remains a core part of our platform, and we collect over $500,000 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 G And A Gardens business, is now being implemented across the majority of our lifestyle communities. And 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 At that 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 6 months settlements. Aboveground development profit, in as that mid February is presently tracking at slightly over $114,000. And we remain confident that this will push through $115,000 per home once new high margin projects such as Latitude 1 come online in the 4th quarter. The EBIT development margin expanded 70 basis points over the past 12 months, but I would expect this to grow significantly in the second half as homes presently deposited or contracted now settled.
Over the past 6 months, we have procured additional development approvals for another 4 29 homes, including Hardy Bay and our Vassania 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 2 60 to 2 80 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 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 3 quarter 4 projects, being Latitude 1, Lake Conjola and the Grange, we have a further 70 two homes contracted or deposited. These are committed by many of whom have already sold their homes in anticipation of moving into their chosen in January community. This leaves us with a further 26 homes to settle by 3rd June. However, 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 3 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, and it 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.
So over the next few years, we're launching an additional 9 new ore 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. So to date, we own or have option land adjoining Chambers Pines, Bethania, Avina, Latitude 1, and we're currently negotiating the acquisition of expansion land, adjoining a further 2 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 project at our Latitude 1, Grange and controller 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. But I would certainly say that the competition is stepping up, and there are new competitors coming into the market. But we've been busy executing our strategy and constructing our portfolio over the past 5 years, and the next 5 years is really about execution. The key risk for our business would be a downturn in the housing market, but 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're continuing to evolve evolve and improve our products and our serving 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. And 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 $0.156 per share, and EBIT of between $45,000,000 $47,000,000. 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.
And I'll now hand over for Q and
Ladies and gentlemen, we will now begin Your first question comes from the line of Michael Pitt of PWC. Your line is open. Please ask your question.
Morning, Simon and team. It's Michael Pete from Goldman 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 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.
Michael, I'm glad to hear it from, Goldman. I was wondering why someone from PwC would be up. Yes, look, I think the key reason the margin expansion is so strong it's really been that we've integrated Cairns coconut, getting real scale throughout the development platform. And there hasn't really been a significant increase in our non site based employee numbers. So that's been really been the key driver.
We've had some very strong growth in, same store site rentals and same store tourism income. So 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 over 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 operation a 2.2 of other property income. Can you just remind us what that is?
I would say that that's probably we own service station, not that, you have to do so. We also, are the free holes. We own a free hole for a pump. And a cafe up on the New South Wales, Mid North Coast? Yes.
And I'll probably add to that if that's okay. We've got some catering income in there, Michael. So you have 2 of the recoveries, some ancillary lifestyle income where we do sell tourism. Services and take commission.
So no sort of that wouldn't have contributed on the profit line that much. That's not sort of the driver of what's helped you on the margin. It's obviously the rental income. Absolutely. Yes.
Just on the 187 deposited and contracted could give us a split over, which is deposited, how many deposited versus contracted? And 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.
So, on that slide, gave you how many homes are contracted. And that's where we've got a committed settlement date. So that's across our non 4th quarter projects. And then across Latitude, 1 Lake Conjola and the Grange, there'd probably be another 20 to 25 contracted homes. In terms of the fall over rate from deposits, it does vary by projects.
So normally in the earlier stages of a project, the fall over rate, maybe somewhere around 15%. But then once you're, the project becomes more mature, so a project like Lara, when someone has deposited, the fall over rate would be no less than 5%.
Okay. And 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 is potentially completing?
Yes. So there's 6 counterparties, qualified counterparties that we're dealing with. Across some approximately 10 noncore or regional assets at the moment. Over the next few months, we would expect to to announce further divestments. So 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 Lamb from CLSA. Your line is open. Please ask your question.
Hi, Simon and team. I've got a few questions. Just on the new competitors coming into market, so are they and what are they doing? Is it just hometown America or is it others entering the market?
Yes, so on, Stephen, on appendix 7, 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. But yes, I mean, HomeTown certainly no active out there. We actually divested a couple of our smaller assets to them, in recent months. You've got The first Chinese developer, Boi Wang 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, but There's also some smaller, groups out there that are actively looking to consolidate, you know, caravan parks, but But we've really stepped back from that market, at the moment.
We, 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 as a mature land lease community was at a cap rate of 6.4%. That's our calculation. And it's very hard to create value at that sort of level. So we think building out focusing on our development pipeline where we can comfortably achieve an unlevered IRR of over 20%, that's a better, better space for us to invest in at this point in time.
Thank you. And just on the 90 extra deposits that you have, how much of those relate to settlements which are which can potentially occur in FY 2018 or most of them actually FY 2019 settlements?
Look, I would say at least 2 thirds of those are people who are interested in settling before 'thirty two. 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. So 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 FY 'nineteen, but Now I'd be confident talking to our sales team, but a majority of those 90 deposits are going to settle at some point. It's just how many fall into the 3rd fourth quarter of this financial year and how many are in the first quarter of next financial year.
But where we sit at the moment, Now I'm very confident that we're well on track to hit our guidance 260 to 280 new client settlement.
Okay. And you mentioned the corporate cost was lower, but what's the run rate given your comment earlier about greater investment in Buffania? Because you have to invest a bit more into sales and marketing team?
Yes. So those costs are sitting inside our corporate costs. They'll be within the development profit loss. And development of it.
Sorry. You go on some?
I was going to say that to Scott's point, so on page 20, where we break out the development EBIT, you can see that that was $4,200,000 for the 6 months. So it's only up $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 And we opened up a retail shop, at salamander betas to support the launches Latitude 1, we've recently opened up a retail shop in Costa Harbor to support the launch of our Plantations project. And, we're in the process of fitting out a shop up in Harvey Bay to support the launch of that project later this year. So I guess we've front loaded some sales and marketing costs in order to ensure the successful execution of those projects and the fact that, you know, before we've even got, a display home ready at Latitude 1 with fully deposited the entire first stage at prices, well in excess of where we our initial feasibility, supports that, investment in getting sales and marketing right.
And whilst you mentioned Harvey Bay. I noticed that on the bubble chart, your favorite slide, some of the timing development moves around a bit So the Harvey Bay prices seems to have increased a fair bit first, the AGM charts. Can you just talk a little bit around that? But movement in timing and the price changes?
Yes. So in terms of the timing for Harvey 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. So I mean, we've got 3 projects basically launching between now 30 June. And then we've got plantations where we break ground, in March. And we've already got around twenty 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 and then move on to the next one. So that's probably driven the slight delay in Harvey Bay, but we do have an approval in place to D. A. For 200 new homes.
So we could start that project straight away. And then secondly, in terms of the, the price point, again, we're working on the DEA. We do think that having a slab on ground product and a slightly larger garage, which could support a recreational vehicle, we'll be able to add significant value in terms of the sales price achieved for that project. So, I would say it's a good pickup, but it's probably as much as anything. It's just internal bandwidth.
And at the moment, we're heavily focused on getting plantations right, and then we'll move our focus on to Harvey Bay.
Thank you. And 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 our development spend, yes, look, we incurred about $22,000,000 of development CapEx in the first half. We're expecting selling 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, but based on the pipeline of projects and, sort of finalizing all the feasibilities, we'll probably see the same again. In terms of other CapEx, we, yeah, in the first half, it's worth pointing out, we do have, quite a significant investment in cabins across our tourist sites and our rental sites.
So the 38 new cabins that were put in in the year, in the 6 months, we won't see that same level in the second half of the year. So we should see that come down. But those are those 38 that we did put in, certainly will be all they're all rental accretive to us almost from day 1.
Okay. Thank you. And final one from me, just on the margin expansion, so like for 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 that's right.
And which were those projects? Which were specifically quite quite a bit lower?
So the permanent homes that we have at Ken's coconut The rent there is only, I think, $130 a week, which is well below our weighted average of $164.62, just trying to think of each other communities that would have been impacted by. Maybe I'll come back offline Stephen and then we can step you through reconciling the difference between those 2. Thank
We have a follow-up question from the line of Michael. Please go ahead, sir.
Hi, Simon. Just wanted to just on the Victoria opportunities, any indication on where you're looking as around the Melbourne area or some of the regional towns
Well, we're not doing regional. So it's probably picking over the same 5 growth corridors as James at lifestyle communities. So Morning to Peninsula, ballerines, and then down the east, up north and the northwest So we do have within those 5 corridors. We've got 2 preferred corridors. We've put offers in on around 4 projects.
A couple of those. We've been, outbid, but we do have 2 offers in place at the moment where we're sort of arm wrestling with the vendors at the moment.
Okay. And any refurbs or flippers in the half?
We bought back quite a few slippers, but we haven't sold a lot. So I think Scott's got the exact numbers Yes.
So we've sold, 2 refurbishments and one renovation,
and there's also one annual.
Okay. And just, what happened to the Sonya Simon and how confident are you, you seem to be confident you've 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 Nathaniel, 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 and talking to other operators slowed down the entire sort of Southeast Queensland market. Beyond that, we kicked a few owned goals in that we 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 to try to see if we could reduce our selling costs. And then it took us a bit longer than I was expecting to find a new salesperson. So during probably the 1st 4 or 5 months of this financial year, we lost a bit of momentum at the same year, but just before Christmas, we've put in place a great new salesperson. We did a little bit of local TV and media advertising.
And we spent a lot of time and effort with the existing residents, building their referral network. And so I'm very confident that we'll be looking back to somewhere between 3 to 5 settlements per month at the in the run home to the end of the financial year.
Okay. And last one, just on the balance sheet, obviously you've given us a bit of a guide on CapEx. Obviously, we consider guidance on the earnings. But just wondering where you think excluding divestments from here unannounced ones, assuming yet 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?
Yes, I think that we'll sort of we'll see that 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.
So that's from an LBR perspective. From a gearing, it'll be a low 30s.
Sorry, Scott, there was LBR.
LBR will be, yeah, we'll be headed to sort of closer to 38. From a gearing closer to a 31.
31 gearing. Got it. Thank you.
And Michael, just to be clear, we are not raising or issuing any new capital to fund development. So we're going to build out our pipeline at a pace with the balance sheet. Enables us to do. And then 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, John mentioned around 8 to 10 assets, noncore and regional that we're divesting.
So we're going to fund that development internally. If that means that in the 2020 financial year, we sort of out of 350 to 400 settlements, then we're very comfortable with that.
Okay. Excluding the divestment of any further asset, are you confident you can still sell fund 350 plus next year?
Yes, yes.
Great. Thank you.
Thank you very much, Michael. There are no further questions at this point. Please continue, sir.
Well, thank you very much for joining in on our call. Donna and Scott and I will be available later say, 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 Regina. Thank you very much.
Thank you very much. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.