CitySpring Infrastructure Trust is a business trust. Business trusts are allowed to pay distributions to investors out of operating cash flow. This is unlike companies, which can only pay dividends out of accounting profits. As a result, there are some differences in the financials of CitySpring when compared to a company. These together with salient features of some revenue and expense items are explained as follows:

Net Profit / Net Loss

A business trust is able to make distributions to its unitholders in excess of its net profit after tax or even when it records a loss after tax, so long as the distributions are supported by the operating cashflow.   As such, CitySpring may report continuous quarterly or annual net loss as it is not uncommon for a business trust holding infrastructure assets to show accounting losses due to: 

(i)   structuring to optimise tax efficiency;
(ii)  non-cash depreciation expenses associated with infrastructure assets (which are typically capital intensive); and
(iii) other non-cash items accounted for as expenses in accordance with relevant accounting standards.

The net loss will not affect CitySpring's ability to pay distributions.

Cash Earnings

We measure our performance using cash earnings, instead of accounting profits or losses. Our basis for this is that infrastructure assets tend to show accounting losses due to the fairly large amount of non-cash depreciation expenses associated with infrastructure assets, which are typically capital intensive. Our cash earnings is defined as EBITDA adjusted for non-cash items and lease receivable, less cash interest, cash tax, upfront financing fees and maintenance capital expenditure and before principal repayment of debt and minority interest.  Cash earnings is a better indicator of our performance to our unitholders.

Debt and Gearing

At CitySpring, all of our operating units utilises non-recourse financing that are specifically structured to match the stable and long-term contracted cashflows from its customers.  Generally, our philosophy towards our overall debt structure is to ensure that all of our businesses must have sufficient financial flexibility to meet their capital expenditure and operational needs, and at the same time, service their debt obligations promptly and reliably. This ensures that our capital structure remains optimal in providing us with the flexibility to execute our growth strategies.

As such, our consolidated debt-to-equity ratio at the CitySpring level is not a relevant measure of our indebtedness.

Management Fees

While a business trust is similar to a company as both run and operate business enterprises, the difference is that a business trust, unlike a company, is not a separate legal entity. As a business trust is established under a trust deed, the Trustee-Manager has legal ownership of the underlying assets in the trust and holds such assets on trust for the unitholders of the trust. The Trustee-Manager of a business trust is entitled to fees in return for its services to the business trust.

CitySpring's management fees comprise a base fee and a performance fee. The base fee is payable quarterly and is equal to 1% per annum of the market capitalisation of the units in CitySpring subject to a minimum of S$3.5 million per annum. The performance fee is payable when the total returns on CitySpring units outperform the total returns on MSCI Asia Pacific (excluding Japan) Utilities Index after taking into account any underperformance in prior periods. The performance fee is equal to 20% of the outperformance.

The Trustee-Manager has the option to receive payment of the base fee and the performance fee in cash or by way of issue of new units or a combination of cash and units.

The Trustee-Manager does not receive any fees for acquisitions or divestments made.

Energy Costs

As for SingSpring Trust, its fuel costs consist mainly of the costs of natural gas which in turn are recoverable from the fuel component of the town gas tariffs determined by the Energy Market Authority.  On a long term basis, changes in fuel costs  is expected to have no impact on City Gas Trust as fuel costs are pass through. However, at any point in time, the actual tariff may not exactly match fuel costs as tariff changes are subject to a periodic regulatory process whereas fuel prices changed daily. Short term impact may be evident if there are sharp changes in fuel prices.As for SingSpring Trust, its energy costs for its first three years of commercial operations ending in December 2008 vary with the cost of fuel. To reduce the volatility of its energy exposure, SingSpring Trust has taken the step of contracting energy hedges to cover this exposure.  Its hedge positions are structured according to SingSpring Trust's capacity utilisation and fuel prices in the market.     As for Basslink, energy costs do not form a substantial portion of its operating expenses relative to its other cost drivers.

Taxation

We utilise the tax incentives offered by the Monetary Authority of Singapore for business trusts. One of the tax incentives is the exemption from tax on interest income from qualifying project debt securities. Notes issued by our sub-trusts are eligible as qualifying project debt securities.

The Group recognise deferred income tax asset on carried forward tax losses to the extent there are sufficient estimated future taxable profits and/or taxable temporary differences against which the tax losses can be utilised and the subsidiary is able to satisfy the statutory requirements in their respective countries of incorporation.