Have You Overlooked CitySpring Infrastructure Trust’s 6.5% Yield?

yield upInterested in a share with a dividend yield of 6.5%? You will be surprised but there are quite a number of investment trusts in Singapore’s share market which are offering such yields or higher.

A few real estate investment trusts which have yields of around 6.5% include Mapletree Industrial Trust (SGX: ME8U), OUE Hospitality Trust (SGX: SK7) and First Real Estate Investment Trust (SGX: AW9U). These are REITs that investors are familiar with and often talk about.

But CitySpring Infrastructure Trust (SGX: A7RU), despite offering a yield of 6.5%, receives much less attention from the investment community.

What’s an infrastructure trust?

An infrastructure trust is a business trust that focuses on investing only in infrastructure-related projects such as wastewater treatment plants, power plants, and even datacenters. CitySpring Infrastructure Trust’s assets certainly fit the bill. The trust owns City Gas, the sole producer and retailer of town gas in Singapore. It also owns SingSpring, which runs a large-scale seawater desalination plant in Singapore. Basslink is another of CitySpring Infrastructure Trust’s assets and it operates high-voltage electricity grids in Australia.

Besides knowing what assets the trust owns, here are three other important things you should know about it.

1. Strong backer

Although CitySpring Infrastructure Trust is relatively tiny with a market capitalisation of just S$750 million, it is sponsored by Temasek, Singapore’s powerful sovereign wealth fund.

With Temasek around, it might be able to act as a backstop to support the trust if it runs into any temporary serious-but-solvable problems. Olam International Ltd (SGX: O32) is one such example of a company which has been the beneficiary of that kind of support.

2. Strong cash flow

The difference between infrastructure assets and other types of businesses might be their ability to generate high cash flow and their low capital expenditure requirements. Although CitySpring Infrastructure Trust has been facing losses in three out of the past four years, the free cash flow generated by its assets has always been sufficient to pay out its distributions to unitholders.

3. Terrible balance sheet

The trust is far from perfect. The most obvious issue with it is its leverage. With an asset base of more than S$1.9 billion, the trust only has equity of S$366 million. That is a leverage ratio of more than 5 and would likely be a concern for any investor.

Foolish Summary

In the investment trust space, there’re a wide variety of assets to choose from. For those with a penchant for infrastructure assets, CitySpring Trust might be one which looks interesting given its high yield, strong sponsor, and ability to generate cash flow. However, the trust’s leverage ratio is one big risk to note for investors and it’s also worth pointing out that the trust has not shown much signs that it will be deleveraging its balance sheet in the future.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn't own any shares of companies mention above