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Capstone Infrastructure Corporation Reports Third Quarter Results
Highlights:
• Achieved 110% increase in quarterly revenue and 84.7% increase in quarterly Adjusted EBITDA (excluding internalization costs) primarily due to Bristol Water
• Strong overall performance from portfolio partially offset by poor hydrology and wind conditions
• Variance in quarterly and year-to-date AFFO (excluding internalization costs) partly reflected impact of higher debt amortization and preferred share costs, which were lower in 2011
• Successfully refinanced all debt maturing in 2012
TORONTO, ONTARIO (November 13, 2012) –
Capstone Infrastructure Corporation (TSX: CSE; CSE.DB.A; CSE.PR.A – the “Corporation”) today reported unaudited results for the three and nine months ended September 30, 2012. 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.
“Overall, our portfolio is operationally sound and our power and utilities businesses are continuing to perform in line with expectations," said Michael Bernstein, President and Chief Executive Officer. "Since the start of 2012, we have taken a number of steps to strengthen our foundation for continuing growth, including refinancing all debt maturing in 2012 and establishing a new dividend policy that offers stable income for shareholders. We are also continuing to work towards a new contract for Cardinal following the expiry of its current power purchase agreement at the end of 2014. Overall, we have a strong, diversified portfolio that represents a solid platform from which to grow."
Financial Review
The Corporation's financial results for the third quarter and first nine months of 2012 primarily reflected the contribution from Bristol Water, which was partially offset by lower production at the Corporation's power facilities due to poor hydrology in Ontario in the third quarter, scheduled outages for maintenance work, and lower production at Erie Shores Wind Farm. In addition, the third quarter is typically the Corporation's seasonally lowest period of the year due to wind and water patterns, the impact of warmer weather on Cardinal's production and the timing of dividends from Bristol Water, which are paid in the second and fourth quarters of the year. These drivers culminated in a 110%, or $44.6 million, increase in consolidated revenue for the quarter, and a 112%, or $138.7 million, increase for the year-to-date period over the comparable periods in 2011.
Total expenses in the third quarter increased by 73.5%, or $21.3 million, over the same period last year, excluding the costs related to the management internalization that occurred in April 2011. For the first nine months of the year, total expenses increased by 79.1%, or $67.0 million, over the same period last year (excluding internalization costs). Higher costs were primarily attributable to Bristol Water, which incurred $23.5 million and $68.5 million in costs in the quarter and year-to-date period, respectively.
Adjusted EBITDA in the third quarter and first nine months of 2012 increased by 84.7%, or $11.3 million, and 104%, or $45.7 million, respectively, over the same periods in 2011 (excluding internalization costs), primarily reflecting the contribution from Bristol Water and lower corporate administrative expenses. During the quarter, these drivers were partially offset by lower interest income from Värmevärden and lower revenue from the power segment attributable to poor hydrology at the Wawatay and Dryden hydro power facilities in Ontario and lower gas sales at Cardinal. For the year-to-date period, the increase in Adjusted EBITDA also reflected the contribution from the Amherstburg Solar Park, which commenced operations on June 30, 2011, and interest income and dividends received from Värmevärden in the first six months of the year.
Adjusted Funds from Operations (“AFFO”) in the third quarter decreased by 43.3%, or $2.6 million, and by 11.3%, or $2.8 million, in the year-to-date period. The variance partly reflected the impact of amortizing debt, which was lower in 2011, and the payment of dividends, including applicable taxes, on the Corporation’s preferred shares, which were issued on June 30, 2011. These factors alone had a $1.7 million impact on AFFO in the third quarter and a $9.1 million impact on AFFO in the first nine months of the year.
Financial Performance Highlights by Segment
Power Infrastructure:
Revenue in the third quarter was 2.4%, or $1.0 million, lower than in 2011 and 4.7%, or $5.9 million, higher in the first nine months of the year compared to the same period last year. Third quarter revenue reflected lower production and revenue at the Wawatay and Dryden hydro power facilities due to poor hydrology, lower gas sales at Cardinal following the expiry of the gas hedge in 2011 and outages for scheduled maintenance compared with the same period last year. These drivers were partially offset by higher revenue at Amherstburg due to increased availability and sunnier conditions. Revenue in the nine-month period primarily reflected the contribution from Amherstburg and higher production at Erie Shores in the first quarter of 2012. In addition, the Whitecourt biomass facility sold approximately $0.2 million and $0.8 million in renewable energy credits (“RECs”) in the quarter and year-to-date periods, respectively, some of which were related to historical production.
Adjusted EBITDA for the quarter decreased by 7.1%, or $1.2 million, over the same quarter last year and increased by 8.1%, or $4.2 million, in the first nine months of the year over 2011. The quarterly variance primarily reflected the lower revenue from the hydro power facilities and Cardinal while the year-to-date variance primarily reflected the contribution of Amherstburg, which commenced operations on June 30, 2011, in the first six months of 2012. AFFO declined by 29.7%, or $2.6 million, and by 16.0%, or $5.6 million, in the quarter and year-to-date periods, respectively, from 2011, reflecting lower revenue, higher maintenance capital expenditures and higher debt service expenses.
Utilities:
Water
The Corporation’s interest in Bristol Water was acquired on October 5, 2011 and so there are no comparative results available for the third quarter and first nine months of 2011. On May 10, 2012, the Corporation sold an interest representing 20% of Bristol Water to a subsidiary of ITOCHU Corporation.
In the third quarter and year-to-date period for 2012, Bristol Water represented approximately 53.6%, or $45.6 million, and approximately 50.5%, or $132.8 million, respectively, of the Corporation’s revenue. Revenue at Bristol Water in the quarter and year-to-date periods reflected higher rainfall and cooler temperatures than usual in the Bristol region, which reduced metered consumption of water.
In the quarter and year-to-date periods, Bristol Water represented approximately 45.1%, or $11.1 million, and approximately 42.9%, or $38.4 million, respectively, of the Corporation’s Adjusted EBITDA.
District Heating
During the third quarter of 2012, Värmevärden paid $0.7 million of interest income to the Corporation compared with $1.7 million of interest income in the third quarter last year. Interest income in the quarter declined from the prior year period because the Corporation repatriated approximately $50 million of capital in March 2012, thereby reducing the balance outstanding on the shareholder loan receivable.
Financial Position
As at September 30, 2012, the Corporation had cash and cash equivalents of $56.9 million, including $14.4 million from the power segment and $40.7 million from Bristol Water, which, along with $111.1 million added in credit capacity during the quarter, will be used to support Bristol Water's capital investment program. Approximately $10.3 million of the Corporation’s total cash and cash equivalents, including $8.5 million from the power segment and $1.8 million at the corporate level, is available for general corporate purposes. As at September 30, 2012, the Corporation’s debt to capitalization ratio was 60.3%, reflecting a 16.3% increase in the common share price since December 31, 2011 and a $220.8 million decrease in the fair value of debt due to the repayment of $112.4 million in debt related to the acquisition of Bristol Water and a $105.6 million adjustment to reflect Capstone's 50% proportionate share of Bristol Water's debt.
Outlook1
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 interim financial report on pages 15 to 18. 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 balances value for Ontario ratepayers, value for Cardinal’s industrial partner and value for the Corporation’s shareholders. While the Corporation is striving to complete a new contract in 2012 and remains in negotiations with the OPA, the current political situation in Ontario could affect the timing and terms of a new contract.
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 has resumed the evaluation and pursuit of new growth opportunities 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 December 31, 2012 on the Corporation’s outstanding common shares. The dividend will be payable on January 31, 2013 to shareholders of record at the close of business on December 31, 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 January 31, 2013 to shareholders of record at the close of business on January 15, 2013. The dividend on the Preferred Shares covers the period from November 1, 2012 to January 31, 2013.
In respect of the Corporation’s January 31, 2013 common share dividend payment, the Corporation will issue common shares in connection with the reinvestment of dividends to shareholders 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 January 31, 2013 to holders of record on December 31, 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.
Q3 Conference Call and Webcast
The Corporation will hold a conference call and webcast (with accompanying slides) on Wednesday, November 14, 2012 at 8:30 a.m. ET to discuss third 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 November 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.