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Capstone Infrastructure Corporation Reports 129% Increase in Adjusted EBITDA for Second Quarter 2012



  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: sborg-olivier@capstoneinfrastructure.com
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