Capstone Infrastructure Corporation (TSX:CSE)(TSX:CSE.PR.A)(TSX:CSE.DB.A) ("CSE"
or the "Corporation") today reported financial results for the quarter ended
June 30, 2011. The Management's Discussion and Analysis and unaudited financial
statements for the quarter are available on the Corporation's website at
www.capstoneinfrastructure.com and on SEDAR at www.sedar.com.
"Our power infrastructure portfolio performed well in the second quarter with
higher production overall," said Michael Bernstein, President and Chief
Executive Officer. "Excluding the one-time costs arising from the
internalization of management, Adjusted EBITDA and Adjusted FFO increased by
23.3% and 39.7%, respectively. This performance reflects the stability and
quality of our businesses. During the second quarter, the Amherstburg Solar Park
achieved commercial operations and we also received our first distribution from
Varmevarden, the district heating business in Sweden. In addition, we completed
a preferred share issuance, raising gross proceeds of $75 million. Our portfolio
has a solid foundation and we are well capitalized to pursue growth
opportunities across a range of core infrastructure categories."
Financial Overview
(in millions of Canadian dollars or on a per share basis unless otherwise
noted)
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Quarter Six Months
ended June 30 Variance ended June 30 Variance
2011 2010 2011 2010
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Revenue 37.0 35.5 4.3% 83.9 79.6 5.4%
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Cash flows from
operating activities (8.4) 7.4 (213.4%) 5.8 21.2 (72.9%)
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Adjusted
EBITDA(1)excluding
internalization
costs(2) 12.0 9.8 23.3% 30.5 29.7 3.0%
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FFO(1)excluding
internalization
costs(2) 7.7 5.1 50.9% 23.1 22.3 3.8%
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AFFO(1)excluding
internalization
costs(2) 5.0 3.5 39.7% 18.8 18.7 0.5%
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AFFO(1)per share
excluding
internalization
costs(2) 0.081 0.072 12.5% 0.308 0.375 (17.9%)
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Dividends per share 0.165 0.165 - 0.33 0.33 -
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Payout
ratio(1)excluding
internalization
costs(2) 203.7% 214.4% 5.0% 107.6% 82.4% (30.6%)
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Electricity
production (MWh) 440,710 437,254 0.8% 938,926 927,210 1.3%
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1. "Adjusted EBITDA", "Funds From Operations", "Adjusted Funds from
Operations", "Adjusted Funds from Operations per Share" and "Payout
Ratio. These measures 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 page 5 of Management's Discussion and Analysis with
reconciliation to IFRS measures provided on pages 12 to 13.
2. During the quarter, the Corporation reported $18.6 million in one-time
costs related to the internalization of management on April 15, 2011.
For the year-to-date period, these one-time costs amounted to $19.2
million.
Key Drivers of Quarterly Financial Results
Higher revenue
Total revenue increased by $1.5 million, or 4.3%, in the quarter over the same
period last year, reflecting higher electricity rates at the Cardinal gas
cogeneration facility ("Cardinal") and higher power production at the hydro
power facilities. These drivers were partially offset by slightly lower
production from Erie Shores Wind Farm ("Erie Shores") and decreased production
at Cardinal and the Whitecourt biomass facility ("Whitecourt") largely due to
planned maintenance outages at both facilities completed in seven days in April
and May, respectively. For the year-to-date period, total revenue increased by
$4.3 million, or 5.4%, over the first six months of 2010. Total electricity
production in the quarter increased by 0.8% from the prior period. For the
year-to-date period, total electricity production increased by 1.3% over 2010.
First distribution from district heating investment
During the quarter, the Corporation received a distribution of $1.7 million in
the form of interest income from Varmevarden, the Swedish district heating
business in which it owns a 33.3% equity interest.
Higher administrative expenses
Administrative expenses in the quarter increased by $18.2 million, or 526%, over
2010, including $18.6 million of internalization costs, which included the
termination payment to Macquarie Group Limited, certain one-time payments to
staff, and professional fees. For the year-to-date period, administrative
expenses increased by $20.3 million, or 304%, over the first six months of 2010.
Excluding the one-time internalization costs, administrative expenses in the
quarter decreased by 3.4% and increased by 25.4% in the year-to-date period from
the respective periods of 2010. The year-to-date increase primarily reflected
increased business development expenses, which, under IFRS, are expensed as they
are incurred.
Higher operating expenses
Operating expenses in the quarter increased by $843,000, or 3.7%, primarily due
to a 12.8% increase in fuel expenses at Cardinal, which reflected increased fuel
prices as well as a higher TransCanada Pipelines Limited ("TCPL") gas
transportation toll of $2.24 per gigajoule ("GJ"), effective March 1, 2011,
compared with $1.64 per GJ in 2010. Year-to-date operating expenses were $1.7
million, or 3.6%, higher than last year, mostly due to a 9.5% increase in fuel
and gas transportation expenses.
Financial Position
As at June 30, 2011, the Corporation's unrestricted cash and cash equivalents
totalled $109.4 million (December 31, 2010 - $131.4 million), including the net
proceeds from the issue of preferred shares on June 30, 2011. The Corporation
remained conservatively leveraged relative to the low risk profile and long life
of its assets, with a debt to capitalization(3) ratio of 39.3% as at June 30,
2011 (December 31, 2010 - 37.9%).
Fiscal 2011 Outlook
An outlook for each of the Corporation's assets is provided on pages 23 to 28 of
the second quarter report.
The Corporation expects continuing strong operational performance from its
businesses in 2011. Excluding the impact of one-time internalization costs,
Adjusted EBITDA and FFO are expected to be higher than in 2010. This outlook is
based on performance in the year to date and assumes the following factors:
-- Continuing stable performance from Cardinal and Whitecourt;
-- Continuation of more normal wind patterns and water flows;
(3)The fair value of shareholders' equity reflected the Corporation's market
capitalization as at June 30, 2011 based on a share price of $7.82 (December
31, 2010 - $8.22) and shares outstanding of 61,951,153 (December 31, 2010 -
56,352,461 share). Shares outstanding include Class B exchangeable units of
MPT LTC Holding LP, a subsidiary of Capstone, of which there were 3,249,390
outstanding at December 31, 2010, which were classified as a liability on
the interim consolidated statements of financial position. Fair value of the
preferred shares issued on June 30, 2011 is based on a share price of $24.19
and total shares outstanding of 3,000,000.
-- The partial year cash flow from Amherstburg Solar Park and Varmevarden;
and
-- That TCPL tolls continue at the current level for the balance of 2011.
Including the one-time impact of the internalization costs, the Corporation
currently expects its fiscal 2011 Adjusted EBITDA to be approximately $40
million compared with $55.0 million in fiscal 2010. Excluding the impact of the
internalization costs, Adjusted EBITDA is expected to be approximately $60
million in fiscal 2011. Excluding the internalization costs, the Corporation
expects its 2011 payout ratio, which is based on AFFO, to be in the range of
120% compared with previous guidance of 110 - 120%, reflecting the impact of the
preferred share issuance on June 30, 2011.
For 2012, the Corporation currently expects Adjusted EBITDA to be approximately
$80 million, reflecting the full-year contribution from the Amherstburg Solar
Park and Varmevarden as well as a return to 2010 TCPL rates. The Corporation
currently expects to achieve a payout ratio in 2012 of approximately 85% to 90%.
As the Corporation executes its growth strategy, which could include development
projects or businesses with a strong growth profile, its payout ratio may
fluctuate in any given year.
Based on the Corporation's current portfolio and outlook and barring any
significant unexpected events, the Corporation's dividend policy of $0.66 per
share on an annualized basis is expected to be sustainable through 2014.
New Dividend Reinvestment Plan
The Corporation also today announced a new dividend reinvestment plan ("DRIP")
that will become effective with the dividend that will be declared in August and
payable in September. Eligible holders of the Corporation's common shares (the
"Shares") may elect to participate in the DRIP, which provides shareholders with
the opportunity to invest the cash dividends paid on the Shares to purchase
additional Shares without incurring brokerage commissions, service charges or
brokerage fees. The Shares acquired under the DRIP will, at the discretion of
the Corporation, either be purchased on the open market ("Market Purchases")
through the Toronto Stock Exchange ("TSX") and/or any alternative market or
issued by the Corporation from Treasury ("Treasury Purchases"). Accordingly, the
DRIP provides an effective means by which the Corporation may retain and
reinvest dividends by issuing additional equity.
In the case of Treasury Purchases, the price of Shares purchased under the DRIP
will be the average of the daily volume weighted average price of Shares traded
on the TSX for the five trading days immediately preceding the applicable Share
dividend payment date less a discount, if any, of up to 5% at the Corporation's
election. In the case of Market Purchases, the price of Shares purchased under
the DRIP will be the average weighted cost of all Shares so purchased for the
DRIP participants at prevailing market prices, excluding any brokerage
commissions which will be paid by the Corporation. The Shares will be purchased
over a period of five trading days following the Share dividend payment date.
The Shares of the Corporation purchased under the DRIP are not registered under
the United States Securities Act of 1933, as amended. As a result, participation
in the DRIP cannot be accepted from any person who is, or who the Corporation
has reason to believe is, a resident of the United States. Shareholders resident
outside Canada, in countries other than the United States, are eligible to
participate in the DRIP unless the laws of their countries of residence prohibit
their participation.
Shareholders who were enrolled in the Corporation's prior DRIP are automatically
enrolled in the new plan. More information about the DRIP and how to enrol is
available on the Corporation's website at the following location:
http://www.capstoneinfrastructure.com/InvestorCentre/StockInformation/DRIP.aspx.
Conference Call and Webcast
Management will hold a conference call (with accompanying slides) to discuss
second quarter results on Monday, August 15, 2011 at 8:30 a.m. ET. The event
will be accessible via webcast through the Corporation's website with
accompanying slides at www.capstoneinfrastructure.com and by telephone. 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 29, 2011. 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#.
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
through a combination of stable dividends 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, and a 33.3% interest in a district
heating business in Sweden. Please visit www.capstoneinfrastructure.com for more
information.
Notice to Readers
Certain of the statements contained in this news release are forward-looking and
reflect management's expectations regarding the Corporation's future growth,
results of operations, performance and business based on information currently
available to the Corporation. Forward-looking statements 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 may
not be appropriate for other purposes. These statements use forward-looking
words, such as "anticipate", "continue", "could", "expect", "may", "will",
"estimate", "believe" or other similar words. These statements are subject to
significant 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, accordingly, should not be read as guarantees of future
performance or results. The forward-looking statements in this news release are
based on information currently available and what the Corporation currently
believes are reasonable assumptions, including the material assumptions for each
of the Corporation's assets set out in its fiscal 2010 Annual Report under the
heading "Asset Performance" as updated in subsequently filed Quarterly Financial
Reports of the Corporation and other filings made by the Corporation with the
Canadian securities regulatory authorities (such documents are available on the
Canadian Securities Administrators' System for Electronic Document Analysis and
Retrieval ("SEDAR") at www.sedar.com). Other material factors or assumptions
that were applied in formulating the forward-looking statements contained herein
include the assumption 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, and that there will be
no unplanned material changes to the Corporation's facilities, equipment or
contractual arrangements.
Although the Corporation believes that it has a reasonable basis for the
expectations reflected in these forward-looking statements, actual results may
differ from those suggested by the forward-looking statements for various
reasons, including risks related to: power infrastructure (operational
performance; power purchase agreements; fuel costs and supply; contract
performance; development risk; technology risk; default under credit agreements;
land tenure and related rights; regulatory regime and permits; environmental,
health and safety; climate change and the environment; and force majeure) and
the Corporation (tax-related risks; variability and payment of dividends, which
are not guaranteed; geographic concentration and non-diversification; insurance;
environmental, health and safety regime; availability of financing; shareholder
dilution; and the unpredictability and volatility of the common share price of
the Corporation). There are also a number of risks related to the Corporation's
investment in Varmevarden, the district heating business in Sweden, including:
fuel costs and availability; industrial and residential contracts; geographic
concentration; regulatory environment; environmental, health and safety;
reliance on key personnel; labour relations; assumption of liabilities; minority
interest; and foreign exchange. There is also a risk that Varmevarden may not
achieve expected results.
For a more comprehensive description of these and other possible risks, please
see the Corporation's Annual Information Form dated March 24, 2011 for the year
ended December 31, 2010 as updated in subsequently filed Quarterly Financial
Reports and other filings made by the Corporation with the Canadian securities
regulatory authorities. These filings are available on SEDAR. 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. These forward-looking
statements reflect current expectations of the Corporation as at the date of
this news release and speak only as at the date of this news release. Except as
may be required by law, the Corporation does not undertake any obligation to
publicly update or revise any forward-looking statements.
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