So What About 8.5% Prospective Yield?

CitySpring Q4 DPU 6.7% higher than forecast

CITYSPRING Infrastructure Trust has beaten projections with its performance for the fourth quarter ended March 31, 2008.

It has declared a distribution per unit (DPU) of 1.6 cents for Q4 FY2008, 6.7 per cent or 0.1 cent above the projected DPU provided at the time of its IPO in February 2007.

Cash earnings of $20.35 million were also 90 per cent higher than projected, CitySpring said. It defined cash earnings as the aggregate of profit before income tax adjusted for non-cash income and expenses and lease receivable repayment, after deduction of capital expenditure and before principal repayment of debt incurred for the period.

From Jan 5, 2007 to March 31, 2008, cash income was $69.2 million against projection of $49.7 million, while DPU for the period was 7.08 cents compared with a forecast 6.78 cents.

According to trust manager CitySpring Infrastructure Management, the trust’s initial assets – City Gas Trust and SingSpring Trust – performed better than projected during the last quarter of the financial year.

For example, City Gas posted higher cash earnings of $4.53 million, up from the projected $1 million, while SingSpring reported cash income of $2.9 million, up from the $1.55 million forecast.

‘The healthy performance by City Gas was underpinned by increased town gas sales. SingSpring Trust continued to meet the desalinated water production requirements of the Public Utilities Board during the quarter,’ the trust manager said in a statement.

As for its Australian subsidiary Basslink, Q4 cash income dipped to $5 million from a forecast $6.18 million, due to an unplanned outage and lower risk sharing payments.

However, Basslink has been fully available since the outage on Dec 31 last year, and CitySpring expects the facility fee deduction of A$1.1 million in Q4 FY2008 to be recovered in the current year.

Basslink is the electricity interconnector linking Tasmania to mainland Australia, which CitySpring bought for A$1.175 billion (S$1.54 billion) last year.

Part of the funds came from a bridge loan, which CitySpring said will be refinanced through a $370 million three-year term loan from DBS Bank.

CitySpring Infrastructure Management CEO Au Yeung Fai said in a statement: ‘Taking a loan at the CitySpring level will enable us to further optimise our capital structure, and shows our commitment to enhance unitholder value.’

Distributions after the completion of the refinancing, which will include Basslink’s cashflows, will be raised to 7 cents for the year ending March 31, 2009.

At a briefing, CFO Tong Yew Heng said the infrastructure outlook in Singapore and elsewhere remains positive, and the firm is actively reviewing a number of investment opportunities.

Some 49 per cent of the possible deals are from China and Hong Kong, while 35 per cent are from South-east Asia. In sector terms, toll roads/tunnel take up 32 per cent, while power accounts for 28 per cent. The rest is taken up by ports, water, logistics and others.

Mr Tong commented that CitySpring is ‘in intensive talks with some parties . . . and we will be disappointed if we don’t announce something in the next 12 months’.

Unique infrastructure assets bear a closer look

High dividend yields. CitySpring Infrastructure Trust (CitySpring) is a listed business trust. Business trusts are able to pay distributions out of operating cash flows consisting of both accounting profits and non-cash charges such as depreciation. Consequently, the trust is able to offer a high dividend yield of 8.8%, based on its most recent quarterly payout.

Strong asset portfolio. What differentiates CitySpring from other listed trusts is its unique portfolio of infrastructure assets. It came to the market in February 2007 with two local assets – City Gas and SingSpring. City Gas is Singapore’s only producer and retailer of piped town gas. SingSpring is Singapore’s only supplier of desalinated water to the Public Utilities Board. It is considered a key diversifier as part of the government’s “four taps approach” for Singapore’s water sources. After its IPO, CitySpring has gone on to acquire Basslink, an electricity interconnector in Australia.

Features unique to infrastructure assets. These assets essentially operate as regulated monopolies with regulated tariffs (City Gas) or longterm contracts and concessions (SingSpring and Basslink). SingSpring and Basslink enjoy a revenue model distinctive to infrastructure assets: as both are considered key strategic assets, they are compensated by availability – not by utilization. Such a revenue model is untouched by industry cycles unlike say, shipping trusts or REITs, making cash flows truly stable and predictable over the long haul.

A key risk is a changing regulatory landscape. For instance, it is expected that City Gas’ domain will be restructured and liberalized over seven to nine years. Nevertheless, CitySpring believes that steep economies of scale in the residential segment and a 600,000 strong customer base will make City Gas a formidable incumbent.

Basslink acquisition DPU accretive, but not yet. CitySpring’s S$1.5b Basslink acquisition was intended to be 75% debt and 25% equity funded with trust parent Temasek initially providing an S$370m equity bridge facility. We note that Basslink currently does not contribute to the trust’s distributions – its contribution was originally supposed to kick off after the planned equity issue took place. Given current market conditions, it seems most likely CitySpring will instead resort to more debt funding for now. If the equity issue is indeed shelved, it is unclear when Basslink will start being accretive to the trust’s DPU and by how much. CitySpring is currently trading at S$0.725, a 10% discount to its NAV and a 19% discount to its IPO price. We do not have a rating on this stock.

CitySpring’s Q3 DPU of 1.6cents beats projections

CITYSPRING Infrastructure Trust has beaten projections with its performance in its third financial quarter ended Dec 31, 2007.

It has declared a distribution per unit (DPU) of 1.6 cents for Q3 FY2008, 6.7 per cent or 0.1 cent above the projected DPU provided at the time of its IPO in February 2007.

Cash earnings of $20.5 million were also 92 per cent higher than projection, CitySpring said. It defined cash earnings as the aggregate of profit before income tax adjusted for non-cash income and expenses and lease receivable repayment, after deduction of capital expenditure and before principal repayment of debt.

‘The creditable financial performance came on the back of $97.0 million in revenue for the quarter, underpinned by robust contribution from City Gas Trust, SingSpring Trust (the initial assets) and Basslink,’ CitySpring Infrastructure Management Pte Ltd, the manager of the trust, said in a statement.

All three assets in the CitySpring portfolio turned in healthy performances during the quarter. City Gas Trust registered better than projected results, benefiting from an increase in gas tariffs which took effect on Nov 1, 2007. City Gas Trust has further raised its gas tariffs by 7.6 per cent from Feb 1, 2008, against the backdrop of higher fuel costs.

SingSpring Trust maintained its average dispatch volume of desalinated water to the Public Utilities Board during the period. It expects to remain a leading supplier of desalinated water in Singapore.

Basslink achieved total cumulative availability of 98.8 per cent for the full calendar year in 2007. It expects to achieve at least 97 per cent in availability for 2008. Basslink is the electricity interconnector linking Tasmania to mainland Australia.

Said CEO of CitySpring Infrastructure Management Fai Au Yeung: ‘We are continuing to actively identify initiatives that will enhance the value of our portfolio assets and improve cash earnings as well as returns.’

‘At the same time, we remain focused on seeking quality projects, across the region, which generate long-term, regular and predictable cashflows to further enhance our asset portfolio. There is a healthy flow of potential acquisition opportunities which is keeping the trustee manager busy. We are not facing any issues with regard to raising debt to fund these opportunities.’