CitySpring continues to deliver respectable cash earnings in Q4 ended Mar ’09 ($21.83 mln vs $20.35 mln a year ago), thereby enabling it to pay 1.75 cents per unit (costing $8.575 mln), bringing the total distribution for the latest fiscal year to 7 cents, which on 54 cents, means 13% yield.

The high yield, with the unit price stuck within the 48.5 - 54-cent range since mid October ’08, in turn reflects continued investors perception of CitySpring’s high gearing (borrowings, largely payable after one year, totaled $1,557 mln vs Unit-holders Funds of $135.8 mln), even though management has reiterated that this traditional ratio is not a “relevant measure of the company’s indebtedness.

And this is in turn because all of CitySpring’s operating units (City Gas, City Spring and Basslink in Australia) utilize non-recourse financing specifically structured to match the stable and long term contracted cash flows from their customers”. We are upgrading CitySpring to BUY.