Capstone Infrastructure Corporation Reports Strong Second Quarter 2013 Performance
Quarterly and year-to-date revenue increased by 9.0% and 5.5%, respectively, due to increased production from the power segment and a higher regulated water rate at Bristol Water
Quarterly Adjusted EBITDA increased by 15.7%, mostly due to higher production in the power segment and a higher dividend from Värmevärden while year-to-date Adjusted EBITDA declined by 0.9%, reflecting the Corporation's lower ownership interest in Bristol Water
Quarterly and year-to-date AFFO increased by 143.2% and 21.7%, respectively, reflecting higher Adjusted EBITDA, lower maintenance expenses at Cardinal and a higher dividend from Värmevärden
Subsequent to quarter end, announced acquisition of Renewable Energy Developers Inc., which is expected to enhance Capstone's scope, scale and long-term value for shareholders
TORONTO, ONTARIO (August 12, 2013) – Capstone Infrastructure Corporation (TSX: CSE; CSE.DB.A; CSE.PR.A – the “Corporation”) today reported unaudited results for the second quarter of fiscal 2013 ended June 30, 2013. The Corporation’s Management’s Discussion and Analysis and unaudited consolidated financial statements are available at www.capstoneinfrastructure.com and on SEDAR at www.sedar.com. All amounts are in Canadian dollars.
“We achieved strong overall business performance in the quarter, reflecting the quality of our businesses and sound operations across our portfolio," said Michael Bernstein, President and Chief Executive Officer. "Adjusted EBITDA and AFFO were both higher than in 2012 primarily due to increased power production at Cardinal and Erie Shores, lower maintenance costs at Cardinal, and a higher dividend from Värmevärden. During the quarter, we continued to work toward a new contract for Cardinal and focused on identifying ways to maximize the value of our businesses, including investing in a software tool at Erie Shores to help boost the facility's annual energy production and working with Bristol Water to advance its capital expenditure program. As we build value at our existing businesses, we are also continuing to pursue acquisition opportunities, most recently reaching an agreement to acquire Renewable Energy Developers Inc., an established developer and owner of wind power projects across Canada. Once completed, we expect this transaction to contribute to long-term cash flow growth for Capstone and our shareholders."
Revenue increased by 9.0%, or $7.7 million, over the same quarter in 2012, and by 5.5%, or $9.8 million, on a year-to-date basis. The increase was mostly due to higher power generation at Cardinal and Erie Shores and to increased revenue at Bristol Water arising from a higher regulated water rate, which increases annually.
Total expenses increased by 6.9%, or $3.5 million, in the second quarter, and by 5.0%, or $5.1 million, in the first six months of the year. The variance reflected higher operating expenses, primarily due to higher fuel costs at Cardinal, increased project development costs mostly related to the planned acquisition of Renewable Energy Developers Inc. ("ReD"), and higher operations and maintenance fees at Bristol Water. These factors were partially offset by lower administrative expenses, which declined by 30.9%, or $1.1 million, in the quarter and by 18.7%, or $1.1 million, in the first six months of 2013.
Adjusted EBITDA increased by 15.7%, or $4.3 million, in the quarter, reflecting higher power production and a higher dividend from Värmevärden. Adjusted EBITDA for the first six months of the year declined by 0.9%, or $0.6 million, primarily reflecting the Corporation's lower interest in Bristol Water effective May 10, 2012 and lower electricity production in the first quarter of 2013.
AFFO increased by 143.2%, or $5.3 million, in the quarter and by 21.7%, or $4.0 million, in the year-to-date period, reflecting lower maintenance expenses at Cardinal, the higher dividend from Värmevärden, lower administrative expenses and the repayment of the Corporation's senior credit facility in the second quarter of 2012.
Financial Performance Highlights by Segment
Revenue increased by 15.1%, or $6.1 million, in the quarter and by 6.2%, or $5.6 million, in the year-to-date period, primarily reflecting increased power production at Cardinal and Erie Shores due to fewer maintenance outages and improved wind conditions, respectively. In addition, Whitecourt benefited from higher power pool prices. These drivers were partially offset by lower power production at the hydro power facilities and Amherstburg as a result of unfavourable water and sunlight conditions, respectively, in both the quarter and year-to-date period. However, total power production of 482.2 gigawatt hours (“GWh”) in the three months ended June 30, 2013 exceeded the average long-term production of 450.2 GWh for the second quarter of the year.
Adjusted EBITDA increased by 27.6%, or $4.4 million, in the quarter and by 7.9%, or $3.2 million in the first six months of the year, primarily reflecting higher power production and significantly lower maintenance costs at Cardinal. AFFO increased by 164.6%, or $6.6 million, in the quarter and by 17.3%, or $3.9 million, in the first six months of the year.
The Corporation initially acquired a 70% interest in Bristol Water on October 5, 2011 and subsequently sold a 20% indirect interest in the business on May 10, 2012.
Revenue increased by 3.6%, or $1.6 million, in the quarter and by 4.8%, or $4.2 million, in the year-to-date period. Bristol Water's Adjusted EBITDA contribution to the Corporation declined by 14.7%, or $2.0 million, in the quarter and by 18.8%, or $5.1 million, in the year-to-date period, reflecting the Corporation's reduced interest in the business. Adjusted EBITDA before non-controlling interest declined by 0.2%, or $36.0 thousand, in the quarter and increased by 3.5%, or $1.5 million, in the first six months of the year, reflecting revenue growth partially offset by increased operating expenses.
Bristol Water paid dividends of $1.5 million and $3.1 million to the Corporation in the quarter and year-to-date periods, respectively, reflecting the Corporation's lower ownership interest compared with the same periods last year and the change in dividend frequency from semi-annually to quarterly.
During the quarter ended June 30, 2013, Bristol Water made $38 million in capital expenditures, thereby reducing its capital expenditure shortfall by 11%, as part of its approximately $460 million capital program for the current five-year asset management plan ("AMP5"), which concludes in March 2015. As at June 30, 2013, Bristol Water had cumulative capital expenditures of $299 million over the AMP5 period, which was $34 million lower than the regulatory plan but consistent with management's expectations. Bristol Water expects to achieve its planned cumulative capital expenditures by the end of the AMP5 period.
During the second quarter of 2013, the dividend paid by Värmevärden to the Corporation increased by 215.8%, or $2.1 million, as Värmevärden distributed excess cash rising arising in part from strong prior year performance. Värmevärden paid interest income of $0.7 million in the quarter and $1.4 million in the year-to-date period compared with $0.7 million and $2.0 million, respectively, in 2012. The variance in the six-month period reflected the lower balance outstanding on the shareholder loan receivable as a result of the return of approximately $50 million in capital from Värmevärden in March 2012.
As at June 30, 2013, the Corporation had cash and cash equivalents of $49.5 million, including $26.7 million from the power segment and $9.1 million from Bristol Water. Bristol Water has an additional $83.1 million in credit capacity to support its capital expenditure program.
Approximately $27.8 million of the Corporation’s total cash and cash equivalents is available for general corporate purposes. As at June 30, 2013, the Corporation’s debt to capitalization ratio was 64.0%.
On July 3, 2013, the Corporation entered into a definitive agreement to acquire 100% of the issued and outstanding shares of ReD by issuing common shares of Capstone pursuant to a plan of arrangement (the “Transaction”). Under the terms of the Transaction, shareholders of ReD will receive 0.26 of a Capstone common share and $0.001 in cash for each share of ReD. Closing of the Transaction is subject to the approval of both Capstone and ReD shareholders and consents from certain third parties.
The Corporation expects continuing stable performance from its power generation and utilities businesses. With the completion of the acquisition of ReD (the "Transaction"), in fiscal 2013 the Corporation expects to deliver Adjusted EBITDA of approximately $115 million to $125 million, reflecting the partial year contribution from ReD's operating wind power facilities offset by higher administration expenses as well as transaction-related costs and assuming the Transaction is completed by the end of the third quarter of 2013. Other assumptions underlying the Corporation's 2013 outlook include:
Holding a 50% interest in Bristol Water for the full year following a partial sale of the Corporation's previous 70% interest in May 2012;
A lower average effective gas transportation rate in 2013 of $1.95 per gigajoule ("GJ") compared with $2.24 per GJ in 2012; and
Increased business development activity compared with 2012, which is expected to result in higher corporate costs.
A detailed outlook for the Corporation's power, utilities and corporate segments is available on pages 14 to 18 of the quarterly report. The Corporation's strategic priorities for 2013 include:
Securing a new power purchase agreement ("PPA") for Cardinal.
During the quarter, the Corporation held regular meetings with the Ontario Power Authority that focused on a long-term solution for Cardinal, which will enable the Corporation to proceed with its plans to reconfigure and expand the facility, rather than on extending the existing PPA.
Maximizing the performance of its existing businesses.
The Corporation continues to focus on further enhancing the operational performance of its businesses, which includes preventive maintenance, detailed planning for capital expenditures that boost value, and finding ways to increase cash flow such as the sale of RECs by Whitecourt and the investment in WindBOOST at Erie Shores, a software tool that is expected to result in a 1% to 3% increase in annual energy output.
Pursuing new investment opportunities.
With the addition of ReD, the Corporation will be a larger infrastructure company with power generation facilities across Canada totaling approximately net 465 MW of installed capacity and an attractive pipeline of contracted development opportunities in Nova Scotia, Ontario, Saskatchewan and Quebec representing net 79 MW of capacity. In addition, the Corporation expects the Transaction to bolster its ability to successfully source, pursue and execute earlier-stage power opportunities.
The Corporation primarily concentrates its business development efforts on Canada, the United States, the United Kingdom, Western Europe and Australia, including operating infrastructure businesses and development opportunities that offer an appropriate risk-adjusted rate of return.
The Board of Directors today declared a quarterly dividend of $0.075 per common share on the Corporation's outstanding common shares for the quarter ending September 30, 2013. The dividend will be payable on October 31, 2013 to shareholders of record at the close of business on September 30, 2013.
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, 2013 to shareholders of record at the close of business on October 15, 2013. The dividend on the Preferred Shares covers the period from August 1, 2013 to October 31, 2013.
In respect of the Corporation’s October 31, 2013 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, 2013 to holders of record on September 30, 2013 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 13, 2013 at 8:30 a.m. EDT 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 27, 2013. 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.