Capstone Infrastructure Corporation Reports First Quarter 2012 Results
· - Achieved 96.4% increase in revenue due to expanded portfolio
· - Achieved 101.6% increase in Adjusted EBITDA over Q1 2011 (excluding internalization costs), reflecting strong contributions from Bristol Water, Värmevärden and Amherstburg Solar Park and increased power production at Erie Shores and Whitecourt
· - Successfully executing 2012 refinancing plan, thereby strengthening balance sheet
· - Expect to establish new dividend policy in the second quarter of 2012
TORONTO, ONTARIO (May 14, 2012) – Capstone Infrastructure Corporation (TSX: CSE; CSE.DB.A; CSE.PR.A – the “Corporation”) today reported unaudited results for the first quarter of 2012 ended March 31, 2012. The Corporation’s Management’s Discussion and Analysis and the unaudited consolidated financial statements are available on the Corporation’s website at www.capstoneinfrastructure.com and on SEDAR at www.sedar.com. All amounts are in Canadian dollars.
“We are pleased with the continuing sound performance of our portfolio in line with or ahead of expectations and the progress we have made in addressing our strategic priorities, including executing our refinancing plan,” said Michael Bernstein, President and Chief Executive Officer. “With the sale of a 20% interest in Bristol Water, we have significantly reduced our 2012 refinancing requirements and strengthened our balance sheet while realizing an attractive return on our investment that clearly validates the value of Bristol Water. We expect to complete our refinancing initiatives during the month of May, including recapitalizing our hydro power facilities and establishing a new corporate credit facility with existing lenders, both of which are currently at an advanced stage. In addition, we are gaining improved clarity on the range of outcomes at the Cardinal facility as we continue to work towards concluding a new contract. We expect to determine our new dividend policy upon the completion of our refinancing initiatives and continue to adhere to the philosophy that a majority of the total return we deliver to our shareholders will be in the form of dividend income.”
First Quarter Financial Highlights
The Corporation has revised its definition of Adjusted Funds from Operations (“AFFO”) from Bristol Water following the sale of 20% of its interest to ITOCHU Corporation (“ITOCHU”) to reflect only the cash dividends received from Bristol Water, which typically occurs in the second and fourth quarters of the year. This revision has been applied to the AFFO measure for the first quarter of 2012 and prior periods and is intended to increase the clarity of the Corporation’s non-GAAP measures. Further information is available on pages 6 and 7 of the Corporation’s first quarter report. Bristol Water continues to generate a significant amount of cash, much of which will be reinvested in the business.
The Corporation’s financial results for the first quarter of 2012 primarily reflected contributions from Bristol Water, Värmevärden and Amherstburg Solar Park (“Amherstburg”) as well as increased power production at Erie Shores Wind Farm (“Erie Shores”) and the Whitecourt biomass power facility (“Whitecourt”). Whitecourt also benefited from the sale of renewable energy credits (“RECs”). These drivers resulted in a 96.4%, or $45.2 million, increase in consolidated revenue for the quarter.
Total expenses increased by 76.4%, or $22.0 million, excluding internalization costs incurred in the first quarter of 2011. Expenses at the Corporation’s operating businesses increased by 96.8%, or $24.0 million, reflecting $22.5 million of expenses at Bristol Water and a 6.0%, or $1.5 million, increase at the power businesses mostly due to higher gas prices and TransCanada Pipelines Limited (“TCPL”) gas transportation tolls at the Cardinal gas cogeneration facility (“Cardinal”). These increases were partially offset by a $2.6 million, or 54.1%, decrease in corporate administrative expenses primarily attributable to less business development activity and the termination of third-party management fees in April 2011. In addition, in the first quarter of 2011 the Corporation reported non-recurring costs related to the corporate conversion, internalization and manager fees.
Adjusted EBITDA in the first quarter of 2012 increased by 101.6%, or $18.8 million, over the first quarter of 2011 excluding internalization costs, primarily reflecting the contribution from Bristol Water. Adjusted Funds from Operations (“AFFO”) increased by 5.6%, or $796,000, over the first quarter of 2011 excluding internalization costs. The increase primarily reflected $1.4 million of interest income received from Värmevärden during the quarter and contributions from Erie Shores and Whitecourt, which was partially offset by increased costs and a smaller direct customer rate (“DCR”) adjustment at Cardinal in the first quarter of 2012 compared with the same period last year.
First Quarter Financial Performance Highlights by Segment
Total power produced in the first quarter of 2012 increased by 3.8%, or 19 gigawatt hours (“GWh”), due to the start of operations at Amherstburg and higher production at Erie Shores and Whitecourt than in the first quarter of 2011. Revenue increased by 7.9%, or $3.7 million, primarily reflecting the contribution from Amherstburg, higher production at Erie Shores and increased production as well as the sale of RECs at Whitecourt. These increases were partially offset by lower production at the hydro power facilities and by a smaller DCR adjustment at Cardinal. The increase in revenue was partially offset by increased operating expenses, mostly at Cardinal, resulting in a 9.7%, or $2.2 million, increase in Adjusted EBITDA and a 1.6%, or $295,000, increase in AFFO over the same period last year.
As Bristol Water was acquired on October 5, 2011, there are no comparative results available for the first quarter of fiscal 2011. Bristol Water has significantly diversified the Corporation’s portfolio by asset category and geographic location. In the first quarter, Bristol Water represented approximately 45%, or $41.5 million, of the Corporation’s first quarter revenue and approximately 36.3%, or $13.6 million, of its Adjusted EBITDA. Revenue at Bristol Water was less than expected due to lower water consumption by metered customers in response to initiatives by Bristol Water to encourage water conservation while drought conditions persist in the United Kingdom. The contribution to the Corporation’s Adjusted EBITDA was higher than expected due to lower than anticipated capital expenditure and fewer burst pipes as a result of warmer than expected weather. Bristol Water did not contribute to the Corporation’s AFFO in the first quarter of 2012 as dividends are anticipated to be received from this business in the second and fourth quarters of the year.
As Värmevärden was acquired on March 31, 2011, there are no comparative results for the first quarter of 2011. During the first quarter of 2012, the Corporation received $1.4 million in the form of interest payments from Värmevärden.
Completion of Refinancing Initiatives
During the quarter and subsequent to March 31, 2012, the Corporation completed a range of refinancing initiatives to fully repay the $78 million that was outstanding on the senior credit facility and approximately $39 million of the $119 million outstanding on the CPC-Cardinal credit facility due on June 29, 2012 These initiatives included a bond refinancing and subsequent repatriation of approximately $49.5 million from Värmevärden and the sale of a minority position in Bristol Water, representing 20% of the company, for net proceeds of approximately $68 million.
With the successful conclusion of these initiatives, the Corporation has significantly reduced its near-term refinancing risk, gained a new international partner in ITOCHU, and retained a controlling 50% interest in Bristol Water, which is a stable, regulated business with an attractive growth profile. The Corporation expects to address the remaining approximately $80 million in debt maturing in 2012 through a recapitalization of its hydro power facilities and the establishment of a new corporate credit facility with its existing lenders.
As at March 31, 2012, the Corporation had cash and cash equivalents of $45.0 million, including $20.9 million from the power segment and $18.4 million from Bristol Water, which, along with $89.5 million held in short-term investments, will be used to support its capital investment program. Approximately $16.0 million of the Corporation’s total cash and cash equivalents, including $10.4 million from the power segment and $5.6 million at corporate, is available for general purposes and dividends to shareholders. As at March 31, 2012, the Corporation’s debt to capitalization ratio was 68.3%, reflecting an 8.9% increase in the common share price since December 31, 2011 and the repayment of $45.5 million of the senior credit facility during the quarter. Following the repayment of an additional $68 million in debt and the sale of 20% of the Corporation’s interest in Bristol Water subsequent to quarter end, the Corporation’s pro forma debt to capitalization ratio is approximately 62.6%.
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 first quarter report on pages 11 to 16. Adjusted EBITDA in 2012 is currently expected to be approximately $110 - $120 million based on the Corporation’s current portfolio and assumptions and reflecting the Corporation’s reduced interest in Bristol Water.6
“While Capstone has faced some challenges over the past two quarters, our businesses are running well and our portfolio is sound operationally,” added Mr. Bernstein. “We are addressing our refinancing requirements, working to conclude a new contract for Cardinal and remain committed to providing certainty to investors on our dividend in the weeks ahead. We believe our strategy of portfolio diversification across infrastructure categories is the right path for us to pursue and that our efforts will bear fruit for our shareholders in the years ahead in the form of steady dividends and capital appreciation.”
The Corporation’s strategic priorities for 2012 include:
Completing its refinancing initiatives.
The Corporation expects to complete the recapitalization of its hydro power facilities and establish a new corporate credit facility with existing lenders in May. Both of these initiatives are at a significantly advanced stage. In the interim, the Corporation has secured an extension on the CPC-Cardinal credit facility, which will now mature on September 28, 2012.
Securing a new PPA for Cardinal.
The Corporation continues to negotiate with the Ontario Power Authority to achieve a fair outcome on Cardinal that recognizes the value of the facility and its industrial, economic, social and community importance.
Establishing a new dividend level.
With greater clarity on Cardinal’s future cash flow profile and the refinancing of 2012 debt maturities, the Corporation expects to establish a new dividend policy prior to the end of the second quarter that will reflect management’s view on the Corporation’s post-2014 cash flow profile. The Corporation’s goal is that the new dividend level will be sustainable over the long term with the potential for growth.
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 additional renewable energy credits at Whitecourt.
Continuing to evaluate new investment opportunities. With a stronger balance sheet, ,in the second half of 2012 the Corporation expects to resume the evaluation and pursuit of new growth opportunities to build value for shareholders, seeking primarily to expand its existing power and utilities platforms.
Q1 Conference Call and Webcast
The Corporation will hold a conference call and webcast (with accompanying slides) on Tuesday, May 15, 2012 at 8:30 a.m. ET to discuss first 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 May 29, 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.
Dividend Reinvestment Plan
Learn more about the Corporation’s Dividend Reinvestment Plan (“DRIP”) at http://www.capstoneinfrastructure.com/InvestorCentre/StockInformation/DRIP.aspx.
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.
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