Capstone Infrastructure Corporation Announces Second Quarter Results

TORONTO, ONTARIO--(Marketwire - Aug. 12, 2011) - 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 Värmevärden, 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)

	Quarter ended June 30				Variance		Six Months ended June 30				Variance
	2011		2010				2011		2010
Revenue	37.0		35.5		4.3	%	83.9		79.6		5.4	%
Cash flows from operating activities	(8.4	)	7.4		(213.4	%)	5.8		21.2		(72.9	%)
Adjusted EBITDA1 excluding internalization costs2	12.0		9.8		23.3	%	30.5		29.7		3.0	%
FFO1 excluding internalization costs2	7.7		5.1		50.9	%	23.1		22.3		3.8	%
AFFO1 excluding internalization costs2	5.0		3.5		39.7	%	18.8		18.7		0.5	%
AFFO1 per share excluding internalization costs2	0.081		0.072		12.5	%	0.308		0.375		(17.9	%)
Dividends per share	0.165		0.165		-		0.33		0.33		-
Payout ratio1 excluding internalization costs2	203.7	%	214.4	%	5.0	%	107.6	%	82.4	%	(30.6	%)
Electricity production (MWh)	440,710		437,254		0.8	%	938,926		927,210		1.3	%

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 Värmevärden, 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 capitalization³ 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;

3The 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 Värmevärden; 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 Värmevärden 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 Värmevärden, 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 Värmevärden 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.