News Release

Capstone Infrastructure Corporation Reports First Quarter 2012 Results

Highlights:

·       - 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

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 page 6 of Management’s Discussion and Analysis with reconciliation to IRFS measures provided on page 7.

2 - While Bristol Water’s revenue and expenses are fully consolidated into Capstone’s financial results, Capstone’s Adjusted EBITDA and AFFO for the first quarter of 2012 only include its 70% economic interest in Bristol Water.

3-In the first quarter of 2011, Capstone recorded $635,000 in costs related to the internalization of management.

4- Includes one-time adjustments related to the corporate conversion.
 

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

Power Infrastructure:

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.

Utilities:

Water


5 - Adjusted EBITDA reflects Capstone’s 70% economic interest in Bristol Water while Bristol Water’s revenue and expenses are fully consolidated into Capstone’s financial results.

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.

District Heating

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.    

 

Financial Position

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%.

Outlook

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

6 - The material factors or assumptions that were applied in formulating the forward-looking statements and the 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; a full year of contribution from the Amherstburg Solar Park, Swedish district heating business (“Värmevärden”) and UK water utility (“Bristol Water”) adjusted for the reduced ownership interest as of May 10, 2012; a TransCanada Pipelines (“TCPL”) gas transportation toll of approximately $2.24 per gigajoule in 2012; 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, 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 and the project financing of the Corporation’s hydro power facilities (that potentially include amortization profiles); 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; the amount and timing of capital expenditures by Bristol Water; the Swedish Krona to Canadian dollar exchange rate; 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.

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 the 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 the financial outlook may not be appropriate for other purposes. These statements and the financial outlook use forward-looking words, such as “anticipate”, “continue”, “could”, “expect”, “may”, “will”, “estimate”, “plan”, “believe” or other similar words, and include, among other things, statements found in “Financial Position”, “New Common Share Dividend Policy” and “Outlook”: These statements and the 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 the financial outlook and, accordingly, should not be read as guarantees of future performance or results. The forward-looking statements and the financial 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 the 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; a full year of contribution from the Amherstburg Solar Park, Swedish district heating business (“Värmevärden”) and UK water utility (“Bristol Water”) adjusted for the reduced ownership interest as of May 10, 2012; a TransCanada Pipelines (“TCPL”) gas transportation toll of approximately $2.24 per gigajoule in 2012; 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, 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 and the project financing of the Corporation’s hydro power facilities (that could include amortization profiles); 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; the amount and timing of capital expenditures by Bristol Water; the Swedish Krona to Canadian dollar exchange rate; 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 the financial outlook, actual results may differ from those suggested by the forward-looking statements and the 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 Bonds; and minority interest.  Further information regarding these risk factors is contained in the Corporation’s Annual Information Form dated March 21, 2012 (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 the financial outlook. The forward-looking statements and the 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 and the financial outlook. 

 

For further information, please contact:

Aaron Boles
Vice President, Communications and Investor Relations
Tel: (416) 649-1325
Email: aboles@capstoneinfra.com