Capstone Infrastructure Corporation Reports 129% Increase in Adjusted EBITDA for Second Quarter 2012 Highlights: *Achieved 132% increase in quarterly revenue and 129% increase in quarterly Adjusted EBITDA (excluding internalization costs) due to expanded portfolio and high availability across power assets *Quarterly AFFO (excluding internalization costs) down over 2011 mostly reflecting impact of maintenance outage at Cardinal and higher overall debt service costs *Sale of 20% of Bristol Water delivers attractive return on investment while enabling capital to be redeployed toward debt reduction *Successfully refinanced all debt maturing in 2012 *Established new dividend policy that provides stable cash flow for investors Business Wire TORONTO -- August 13, 2012 Capstone Infrastructure Corporation (TSX: CSE; CSE.DB.A; CSE.PR.A – the “Corporation”) today reported unaudited results for the quarter ended June 30, 2012. The Corporation’s Management’s Discussion and Analysis and the unaudited consolidated financial statements are available at www.capstoneinfrastructure.com and on SEDAR at www.sedar.com. All amounts are in Canadian dollars. “Capstone’s portfolio is operationally sound with second quarter and year-to-date results primarily reflecting the contributions from our newest businesses along with strong performance from Whitecourt and the hydro power facilities and good wind conditions in the first quarter of the year. These drivers were partially offset by the impact of planned major maintenance work at Cardinal, lower production at Erie Shores in the second quarter and higher debt service costs,” said Michael Bernstein, President and Chief Executive Officer. “Over the past few months, we have made considerable progress on our strategic priorities, including addressing our refinancing requirements and providing clarity to investors on our dividend policy, and are continuing to work towards a new contract for Cardinal. Compared with a year ago, Capstone’s portfolio is stronger, lower risk and anchored by long-term businesses that generate steady cash flow and are growing in value, which helps to support the stability and potential future growth of our dividend. We have also renewed our financial flexibility for growth, and are seeking opportunities to expand our portfolio across core infrastructure categories.” Financial Review In millions of Quarter Ended Six Months Canadian dollars Variance Ended or on a per Jun 30 Jun 30 Variance share (%) (%) basis unless 2012 2011 2012 2011 otherwise noted Revenue 85.8 37.0 131.8 178.0 83.9 112.1 Net income (0.6) (30.4) 98.0 15.6 11.0 42.1 Adjusted EBITDA^1,2 excluding 27.6 12.0 129.3 64.9 30.5 112.5 internalization costs^3 AFFO^1 excluding internalization 3.7 4.7 (21.5) 18.6 18.8 (1.2) costs^3,4 AFFO^1 per share excluding 0.049 0.076 (35.5) 0.249 0.309 (19.4) internalization costs^3,4 Dividends per 0.135 0.165 (18.2) 0.300 0.330 (9.1) share Payout ratio^1 excluding 276.0% 216.3% - 121.0% 107.4% - internalization costs^3 ^1"Adjusted EBITDA", “Adjusted Funds from Operations”, “Adjusted Funds from Operations per Share” and “Payout Ratio” are non-GAAP financial measures and do not have any standardized meaning prescribed by International Financial Reporting Standards (“IFRS”).As a result, these measures may not be comparable to similar measures presented by other issuers.Definitions of each measure are provided on pages 6 and 7of Management’s Discussion and Analysis with reconciliation to IRFS measures provided on page 7. ^2While Bristol Water’s revenue and expenses are fully consolidated into Capstone’s financial results, its Adjusted EBITDA was adjusted to reflect Capstone’s 70% ownership interest between January1, 2012 and May 9, 2012 and subsequently reduced to 50% to reflect Capstone’s sale of a 20% interest to ITOCHU Corporation on May 10, 2012. ^3In the second quarter and first six months of 2011, Capstone recorded $18.6 million and $19.2 million, respectively, in costs related to the internalization of management. ^4Consolidated AFFO includes dividends received from Bristol Water, which is more reflective of the cash flow available to Capstone from the operating activities of Bristol Water. The Corporation’s financial results for the second quarter and first six months of 2012 primarily reflected greater than expected contributions from Bristol Water, Värmevärden and Amherstburg Solar Park (“Amherstburg”), which were offset mostly by lower production at the Cardinal gas cogeneration facility (“Cardinal”) due to scheduled maintenance and higher ambient temperatures. In addition, Erie Shores Wind Farm (“Erie Shores”) experienced lower production during the second quarter as a result of poor wind conditions compared to last year. These drivers culminated in a 132%, or $48.8 million, increase in consolidated revenue for the quarter, and a 112%, or $94.1 million, increase for the year-to-date period, each compared to the prior year’s results. Total expenses in the second quarter increased by 88.0%, or $23.6 million, over the same period last year, excluding the costs related to the management internalization that occurred in April 2011. For the first six months of the year, total expenses increased by 82.0%, or $45.7 million, over the same period last year (excluding internalization costs). Higher costs were primarily attributable to Bristol Water, which incurred $22.5 million and $44.9 million in costs in the quarter and year-to-date period, respectively. Adjusted EBITDA in the second quarter and first six months of 2012 increased by 129%, or $15.6 million, and 113%, or $34.4 million, respectively, over the same periods in 2011 (excluding internalization costs). Higher Adjusted EBITDA primarily reflected the contribution from Bristol Water and Amherstburg as well as the distribution from Värmevärden in the second quarter of the year. Adjusted Funds from Operations (“AFFO”) in the second quarter decreased by 21.5%, or $1.0 million, and by 1.2%, or $220,000, in the year-to-date period. The variance primarily reflected scheduled repayment of debt principal at Erie Shores and the hydro power facilities, which increased by 215% and 184% in the quarter and six-month period, respectively, as this debt was largely non-amortizing in the second quarter of 2011. The variance in year-over-year AFFO additionally reflected lower revenue and higher costs at Cardinal related to planned maintenance and lower revenue at Erie Shores. Higher corporate costs were also a factor as administrative expenses increased primarily due to professional fees, and the Corporation paid dividends on its preferred shares, which were issued on June 30, 2011. These factors were only partially offset by the contribution from Bristol Water, Värmevärden and Amherstburg. Financial Performance Highlights by Segment Power Infrastructure: In millions of Quarter Ended Variance Canadian dollars Variance Six Months Ended unless otherwise Jun 30 (%) Jun 30 (%) noted 2012 2011 2012 2011 Power generated 424.2 440.9 (3.8) 940.5 939.1 0.1 (GWh) Revenue 40.1 37.0 8.3 90.8 83.9 8.1 Adjusted EBITDA 15.9 12.8 24.6 40.5 35.2 15.1 AFFO 4.0 7.3 (45.0) 22.8 25.8 (11.6) Revenue in the second quarter was 8.3%, or $3.1 million, higher than in 2011 and 8.1%, or $6.8 million, higher in the first six months of the year compared to the same period last year, primarily reflecting the contribution from Amherstburg. Other positive drivers in 2012 included higher year-over-year production and the sale of approximately $600,000 in renewable energy credits (“RECs”) at the Whitecourt biomass facility (“Whitecourt”), and strong performance from Erie Shores in the first quarter of 2012 and from the hydro power facilities in the second quarter of the year. Availability across the power portfolio, with the exception of Cardinal, was higher than in the prior year periods. These drivers were partially offset by lower power production at Cardinal, which was primarily the result of an approximately 15-day planned maintenance outage in the second quarter compared with a six-day planned maintenance outage in the same period last year. Higher ambient temperatures experienced during the quarter also impacted Cardinal’s ability to reach peak production levels. Adjusted EBITDA for the quarter increased by 24.6%, or $3.1 million, over the same quarter last year and by 15.1%, or $5.3 million, in the first half of the year over 2011, reflecting the contribution from Amherstburg partially offset by lower Adjusted EBITDA at Cardinal due to the outage as well as higher fuel and fuel transportation costs in the first quarter of 2012. AFFO declined by 45%, or $3.3 million, and by 11.6%, or $3.0 million, in the quarter and year-to-date periods, respectively, from 2011. The variance reflected lower revenue and higher maintenance capital expenditures at Cardinal as well as higher debt service expenses. Utilities: Water In millions of Canadian dollars unless Quarter Ended Six Months Ended otherwise noted Jun 30 Jun 30 2012 2011 2012 2011 Water supplied (megalitres) 21,359 - 41,122 - Revenue 45.7 - 87.2 - Adjusted EBITDA 13.7 - 27.3 - AFFO 4.9 - 4.9 - The Corporation’s interest in Bristol Water was acquired on October 5, 2011 and so there are no comparative results available for the second quarter and first six months of 2011. On May 10, 2012, the Corporation sold an interest representing 20% of Bristol Water to ITOCHU Corporation, achieving an attractive return on investment while enabling capital to be redeployed toward debt reduction and improving balance sheet flexibility. In the second quarter and year-to-date period for 2012, Bristol Water represented approximately 53.3%, or $45.7 million, and approximately 49.0%, or $87.2 million, respectively, of the Corporation’s revenue. Revenue at Bristol Water in the quarter and year-to-date periods was in line with expectations, reflecting higher retail price indexation of revenue. In the quarter and year-to-date periods, Bristol Water represented approximately 49.6%, or $13.7 million, and approximately 42.1%, or $27.3 million, respectively, of the Corporation’s Adjusted EBITDA, which was higher than expected due to a variety of factors, including lower maintenance capital expenditure and lower water treatment costs. During the quarter, Bristol Water paid a dividend to the Corporation in the amount of $4.9 million. District Heating In millions of Canadian dollars Quarter Ended Variance Six Months Ended Variance unless otherwise noted Jun 30 (%) Jun 30 (%) 2012 2011 2012 2011 Heat production 209 267 (21.7) 602 267^1 (125.5) (GWh) Interest income 0.7 1.7 (61.3) 2.0 1.7 18.5 Adjusted EBITDA and 1.6 1.7 (3.3) 2.9 1.7 76.6 AFFO ^1 Only three months of activity from the date of acquisition are included in the six months ended June 30, 2011. During the second quarter of 2012, Värmevärden paid its first dividend to the Corporation in the amount of $1.0 million in addition to $654,000 of interest income compared with $1.7 million of interest income in the second quarter last year. Interest income in the quarter declined as the balance outstanding on the shareholder loan receivable was reduced in March 2012 as a result of the Corporation repatriating approximately $50 million of capital. Financial Position As at June 30, 2012, the Corporation had cash and cash equivalents of $64.3 million, including $15.5 million from the power segment and $43.2 million from Bristol Water, which, along with $40.3 million held in short-term investments at Bristol Water, will be used to support its capital investment program. Approximately $11.2 million of the Corporation’s total cash and cash equivalents, including $5.6 million from the power segment and $5.6 million at the corporate level, is available for general corporate purposes and for the payment of dividends to shareholders. As at June 30, 2012, the Corporation’s debt to capitalization ratio was 62.9%, reflecting a 5.2% increase in the common share price since December 31, 2011 and the repayment of $112.5 million in debt. In addition, following the sale of a 20% interest in Bristol Water in May 2012, consolidated debt was reduced by $100.2 million to reflect Capstone’s new proportionate share. Financing Update Following the recapitalizations of Värmevärden and the hydro power facilities and the sale of a 20% interest in Bristol Water, all proceeds of which were used to pay debt maturing in 2012, the Corporation has approximately $12.3 million in debt outstanding under its CPC-Cardinal facility, which matures on September 28, 2012. The Corporation has secured a commitment from a Canadian chartered bank for a new credit facility in the amount of up to $27.3 million comprising a $12.3 million term loan to be used to repay the outstanding balance on the CPC-Cardinal facility and a $15 million revolving facility. The new credit facility will mature on June 30, 2014. Financial close is expected to occur in the third quarter of 2012. Outlook^1 The Corporation continues to expect stable operational performance from its portfolio in 2012. The Corporation’s outlook for each of its business segments is provided in its second quarter report on pages 9 to 19. Adjusted EBITDA in 2012 is currently expected to be approximately $110 to $120 million based on the Corporation’s current portfolio and assumptions. The Corporation’s remaining strategic priorities for 2012 include: Securing a new PPA for Cardinal. The Corporation continues to negotiate with the Ontario Power Authority (“OPA”) to achieve a fair outcome on Cardinal that recognizes the value of the facility and its industrial, economic, social and community importance. While there can be no assurances, the Corporation is striving to complete a new contract in 2012. Maximizing the performance of its existing businesses. The Corporation continues to identify and pursue opportunities to improve the operational performance, availability and cash flow of the power infrastructure businesses, including the sale of RECs by Whitecourt. Continuing to evaluate new investment opportunities. With a stronger balance sheet, the Corporation intends to resume the evaluation and pursuit of new growth opportunities in the second half of 2012 in order to continue to build value for shareholders. Dividend Declarations The Board of Directors today declared a quarterly dividend of $0.075 per common share for the quarter ending September 30, 2012 on the Corporation’s outstanding common shares. The dividend will be payable on October 31, 2012 to shareholders of record at the close of business on September 28, 2012. The Board of Directors also declared a dividend on its Cumulative 5-Year Rate Reset Preferred Shares, Series A (the “Preferred Shares”) of $0.3125 per Preferred Share to be paid on or about October 31, 2012 to shareholders of record at the close of business on October 12, 2012. The dividend on the Preferred Shares covers the period from August 1, 2012 to October 31, 2012. In respect of the Corporation’s October 31, 2012 common share dividend payment, the Corporation will issue common shares in connection with the reinvestment of dividends to shareholder enrolled in the Corporation’s Dividend Reinvestment Plan. The price of common shares purchased with reinvested dividends will be the previous five-day volume weighted average trading share price on the Toronto Stock Exchange, less a 5% discount. The dividends paid by the Corporation on its common shares and the Preferred Shares are designated “eligible” dividends for purposes of the Income Tax Act (Canada). An enhanced dividend tax credit applies to eligible dividends paid to Canadian residents. A distribution of $0.075 per unit will also be paid on October 31, 2012 to holders of record on September 28, 2012 of Class B Exchangeable Units of MPT LTC Holding LP, which is a subsidiary entity of the Corporation. Dividend Reinvestment Plan Learn more about the Corporation’s Dividend Reinvestment Plan (“DRIP”) at http://www.capstoneinfrastructure.com/InvestorCentre/StockInformation/DRIP.aspx. Q2 Conference Call and Webcast The Corporation will hold a conference call and webcast (with accompanying slides) on Tuesday, August 14, 2012 at 8:30 a.m. ET to discuss second quarter results. To listen to the call from Canada or the United States, dial 1-800-319-4610. If calling from elsewhere, dial +1-604-638-5340. A replay of the call will be available until August 28, 2012. For the replay, from Canada or the United States, dial 1-800-319-6413 and enter the code 1385#. From elsewhere, dial +1-604-638-9010 and enter the code 1385#. The event will be webcast live with an accompanying slide presentation on the Corporation’s website at www.capstoneinfrastructure.com. About Capstone Infrastructure Corporation Capstone Infrastructure Corporation’s mission is to build and responsibly manage a high quality portfolio of infrastructure businesses in Canada and internationally in order to deliver a superior total return to shareholders by providing reliable income and capital appreciation. The Corporation’s portfolio currently includes investments in gas cogeneration, wind, hydro, biomass and solar power generating facilities, representing approximately 370 MW of installed capacity, a 33.3% interest in a district heating business in Sweden, and a 50% interest in a regulated water utility in the United Kingdom. Please visit www.capstoneinfrastructure.com for more information. Notice to Readers Certain of the statements contained within this document are forward-looking and reflect management’s expectations regarding the future growth, results of operations, performance and business of Capstone Infrastructure Corporation (the “Corporation”) based on information currently available to the Corporation. Forward-looking statements and financial outlook are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and readers are cautioned that such statements and financial outlook may not be appropriate for other purposes. These statements and financial outlook use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “estimate”, “plan”, “believe” or other similar words. These statements and financial outlook are subject to known and unknown risks and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and financial outlook and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements and financial outlook within this document are based on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions set out in the management’s discussion and analysis of the results of operations and the financial condition of the Corporation (“MD&A”) for the year ended December 31, 2011 under the heading “Results of Operations”, as updated in subsequently filed interim MD&A of the Corporation (such documents are available under the Corporation’s profile on www.sedar.com). Other material factors or assumptions that were applied in formulating the forward-looking statements and financial outlook contained herein include or relate to the following: that the business and economic conditions affecting the Corporation’s operations will continue substantially in their current state, including, with respect to industry conditions, general levels of economic activity, regulations, weather, taxes and interest rates; the contribution from the UK water utility (“Bristol Water”) reflecting the Corporation’s reduced ownership interest as at May 10, 2012; a TransCanada Pipelines (“TCPL”) gas transportation toll of approximately $2.24 per gigajoule in 2012; no material changes in the level of gas mitigation revenue earned by the Cardinal facility; that there will be no unplanned material changes to the Corporation’s facilities, equipment or contractual arrangements, no unforeseen changes in the legislative, regulatory and operating framework for the Corporation’s businesses, no delays in obtaining required approvals, no unforeseen changes in rate orders or rate structures for the Corporation’s power infrastructure facilities, Swedish district heating business (“Värmevärden”) or Bristol Water, no unfavourable changes in environmental regulation and no significant event occurring outside the ordinary course of business; the refinancing of the Corporation’s Capstone Power Corporation-Cardinal Power credit facility; that there will be no further amendments by the Ontario government to the regulations governing the mechanism for calculating the Global Adjustment (which affects the calculation of the price escalators under each power purchase agreement (a “PPA”) for the Cardinal facility and the hydro power facilities located in Ontario); the accounting treatment for Bristol Water’s business under International Financial Reporting Standards, particularly with respect to accounting for maintenance capital expenditures; no material changes to the amount and timing of capital expenditures by Bristol Water; no material changes to the Swedish Krona to Canadian dollar exchange rate; no material changes to the UK pound sterling to Canadian dollar exchange rate; and that Bristol Water will operate and perform in a manner consistent with the regulatory assumptions underlying its current asset management plan, including, among others: real and inflationary increases in Bristol Water’s revenue, Bristol Water’s expenses increasing in line with inflation, and capital investment, leakage, customer service standards and asset serviceability targets being achieved. Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forward-looking statements and financial outlook, actual results may differ from those suggested by the forward-looking statements and financial outlook for various reasons, including risks related to: variability and payments of dividends on the Corporation’s common shares, which are not guaranteed; volatile market price for the Corporation’s securities; availability of debt and equity financing; default under credit agreements; credit risk, prior ranking indebtedness and absence of covenant protection for holders of the Corporation’s convertible debentures; dependence on subsidiaries and investees; acquisitions; geographic concentration and non-diversification; foreign exchange risk; reliance on key personnel; insurance; shareholder dilution; derivatives risks; changes in legislation and administrative policy; competition; private companies and illiquid securities; operational performance; PPAs; fuel costs and supply; contract performance; Amherstburg Solar Park technology risk; land tenure and related rights; environmental, health and safety regime; regulatory regime and permits; force majeure; influence of the UK water regulator (“Ofwat”) price determinations; failure of Bristol Water to deliver capital investment programs; failure of Bristol Water to deliver water leakage target; Ofwat’s introduction of the Service Incentive Mechanism and the serviceability assessment; economic environment, inflation and capital market conditions; pension plan obligations; operational risks; competition; default under Bristol Water’s artesian loans, bonds, debentures and credit facility; seasonality and climate change; labour relations; special administration; general risks inherent in the district heating sector; industrial and residential contracts; default under Värmevärden’s bonds; and minority interest. Further information regarding these risk factors is contained in the Corporation’s Annual Information Form (which is available under the Corporation’s profile on www.sedar.com). The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to differ materially from the results and events discussed in the forward-looking statements and financial outlook. The forward-looking statements and financial outlook within this document reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements or financial outlook. ^1See Notice to Readers Contact: Capstone Infrastructure Corporation Sarah Borg-Olivier Senior Vice President, Communications Tel: (416) 649-1325 Email: firstname.lastname@example.org
Capstone Infrastructure Corporation Reports 129% Increase in Adjusted EBITDA for Second Quarter 2012
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