Macquarie Power & Infrastructure Income Fund Announces Second Quarter Results
TORONTO, ONTARIO (August 8, 2007) –
- Continuing strong performance from Cardinal and Leisureworld
- Newly acquired assets operating well
- Significant capacity for continuing growth
Macquarie Power & Infrastructure Income Fund (TSX: MPT.UN; MPT. DB – “MPT” or the “Fund”), which invests in essential infrastructure assets in North America, today announced continuing strong performance in the second quarter ended June 30, 2007. The results reflect four days of contribution from the assets acquired from Clean Power Income Fund (“CPIF”) effective June 27, 2007. The Fund’s Management’s Discussion and Analysis and unaudited financial statements are available on the Fund’s website at www.macquarie.com/mpt
or on SEDAR at www.sedar.com
“During the quarter, Cardinal and Leisureworld once again generated predictable cash flow and stable distributions to the Fund’s unitholders,” said Mr. Gregory Smith, President and Chief Executive Officer of the Fund. “We also significantly increased the size and value of the Fund, adding wind, hydro and biomass power assets that diversify our portfolio by fuel source and geography. These new assets are operating well and will further enhance the Fund’s long-term cash flow stability.”
Revenue for the quarter ended June 30, 2007 was $21.6 million compared with $16.3 million in the same period last year, reflecting higher power prices, which were impacted by a 2.9% increase in the Direct Customer Rate (“DCR”), and a 25% increase in the production of electricity due to less scheduled maintenance time compared with 2006. The Fund’s newly acquired assets contributed revenue of $442,000.
Income from operations1 for the Fund was $2.4 million for the quarter compared with a loss of $1.3 million for the second quarter of 2006, reflecting increased revenue partially offset by an increase in operating costs primarily due to increased gas requirements which was offset by a reduction in scheduled maintenance costs.
The Fund’s distributable cash2 was $7.3 million ($0.237 per unit) compared with $6.3 million ($0.210 per unit) in same quarter last year, reflecting increased electricity production and the continuing impact of electricity rate increases under Cardinal’s PPA. Declared distributions to unitholders for the quarter were $9.5 million ($0.257 per unit) compared with $7.5 million in the same period last year ($0.250 per unit), representing a payout ratio of 129% (2006 – 119%). The higher payout ratio reflects the Fund’s payment of distributions on the MPT units issued in connection with the Fund’s acquisition of CPIF that were outstanding on the distribution record date of June 29, 2007. Distributions to unitholders are paid from cash flows from operations and unrestricted cash balances.
1 Income from operations refers to income before net interest, share of losses from long-term investments, unrealized gains (losses) on swap contracts and on embedded derivatives in gas purchase contracts.
2 Distributable cash is cash flows from operating activities after removing changes in working capital and reflecting the impacts of releases from maintenance reserves, allocations to major maintenance and capital expenditure reserves and distributions from Leisureworld.
The future income tax expense in the second quarter includes a one-time charge of $44.0 million in relation to Bill C-52 that was passed into law on June 22, 2007. Under this law, flow-through entities, including publicly-listed Canadian trusts and partnerships, such as the Fund, will be taxed in a manner similar to corporations in 2011. This non-cash charge represents the tax effect of the difference in the tax and accounting values of the Fund’s assets and does not affect distributable cash. Since the Fund was not taxable in prior years, this non-cash charge was not previously recorded.
As at June 30, 2007, the Fund had working capital of $33.0 million, an uncommitted cash balance of $22.8 million and fully funded general, major maintenance and capital expenditure reserve accounts.
Operational Performance: Power Infrastructure
During the quarter, Cardinal’s plant availability was 95.7% (2006 – 77.4%) and capacity was 93.7% (2006 – 75.0%). Electricity sales amounted to 304,000 MWh compared with 243,000 MWh in the second quarter last year.
During the quarter, the Erie Shores Wind Farm operated at an availability of 97.3% and achieved a capacity factor of 23.7%. Erie Shores Wind Farm produced 51,301 MWh of electricity during the quarter.
The Fund receives semi-annual interest payments each March and September on its subordinated wind loan receivable. Receipt of these interest payments is not anticipated to be affected by any expected variances in production. In the second quarter, total production from the six U.S. wind facilities decreased slightly to 91% of production from the same period last year due to lower wind speeds at Foote Creek III, Foote Creek IV and Big Spring. Total production at the U.S. wind facilities was 61,065 MWh compared with 67,439 MWh.
The Sechelt, Hluey Lakes, Wawatay and Dryden hydro facilities operated at a weighted average availability of 99.4% (2006 - 99.1%). Production was 55,095 MWh compared with 60,383 MWh in the second quarter of 2006, primarily reflecting continued low water flows at Dryden caused by the extremely dry conditions that have affected production since 2006. Precipitation levels at Wawatay began to recover during the quarter but remained below average long-term levels. Production at Sechelt decreased 4% from the same quarter in 2006.
During the quarter, Whitecourt operated at an availability of 94.5% (2006 – 95.3%) and achieved a capacity of 94.0% (2006 – 95.3%), reflecting an unplanned two-day outage due to tube leak repairs and the refurbishment of the induced draft fan, which was offset slightly by a shorter planned maintenance shutdown of three days instead of four days in 2006. Production was 47,813 MWh compared with 49,883 MWh in the same period last year, which reflects the lower availability and slightly lower capacity.
Chapais operated at 92.8% availability (2006 – 84.7%), reflecting a shortened spring maintenance shutdown from 10 days in 2006 to five and a half days in 2007 as well as fewer unplanned outages. Production was 53,607 MWh for the quarter compared with 49,895 MWh in the same period last year.
Operational Performance: Social Infrastructure
The Fund owns an indirect 45% interest in Leisureworld Senior Care LP (“Leisureworld”), which it accounts for as an equity investment. Leisureworld’s second quarter performance benefited from improved occupancy and greater use of preferred accommodation across the portfolio as well as increased government funding. Average total occupancy for the quarter was 98.1% (2006 – 95.6%), reflecting the ramp up of Brampton Meadows, Brampton Woods, Norfinch and Vaughan homes. Average preferred occupancy was 81.8% in the quarter (2006 – 78.3%).
Mr. Smith continued, “Our outlook for the remainder of fiscal 2007 is favourable, with continuing strong performance expected from Cardinal and Leisureworld along with a positive contribution from our new wind, hydro and biomass assets. At the same time, we have significant financial capacity for continuing growth, including acquisitions that will further diversify our portfolio, complement MPT’s cash flow profile and deliver an attractive, increasing total return to unitholders.”
With the annual maintenance program completed, Cardinal is expected to experience increased cash flow for the balance of the year as a result of higher electricity rates compared with 2006. This will be partially offset by higher gas transportation costs. Cardinal’s maintenance and capital expenditure requirements are fully funded by established reserve accounts.
Leisureworld’s performance is expected to remain strong as occupancy continues to improve and as Leisureworld continues to execute its strategy to optimize preferred accommodation and provide high quality care and services to residents. For 2007, management expects that 18 long-term care (“LTC”) homes will achieve the 97% annual occupancy threshold that is required for full funding. The remaining home may be eligible for funding at its actual occupancy rate plus 3% through a special program for homes located in regions with excess beds resulting from the government’s 1998 initiative to increase the supply of LTC beds in the province. In addition, on July 3, 2007, Leisureworld completed its previously announced sale of Spencer House, which was closed at the time the new home in Orillia opened, realizing one-time net proceeds of $3.0 million.
Leisureworld also expects to benefit from continuing increases in government funding in line with inflation. In April and July, the Ministry of Health and Long-Term Care (MOHLTC) increased funding to the three funding envelopes (nursing and personal care, programs and services, and accommodation, which includes food). On July 30, 2007, the MOHLTC announced a further increase in the daily food allowance effective September 1, 2007, followed by an announcement on July 31, 2007 of the MOHLTC’s 10-year plan to redevelop 35,000 Class B and C homes across Ontario, commencing in 2008. This funding will enable Leisureworld to further enhance the quality and comfort of accommodation available to residents.
The Fund expects its acquisition of CPIF to be accretive to distributions per unit in the first year of combined operations. On an annualized basis, management expects gas cogeneration to account for approximately 49% of the Fund’s distributable cash, wind to account for approximately 17%, hydro, approximately 11% and biomass, approximately 8%, with Leisureworld representing the balance of approximately 15%.
The Fund anticipates maintaining an annual payout ratio of 90% to 95% in 2007, providing unitholders with stability and the potential for growth. Management expects the return of capital portion to be approximately 70% for the 2007 fiscal year, based on current operations and barring any significant external shocks.
Distribution Reinvestment Plan (DRIP)
Eligible unitholders may elect to participate in the Fund’s Distribution Reinvestment Plan. For more information about the DRIP, please visit the Fund’s website at www.macquarie.com/mpt.
Conference Call and Webcast
The Fund will hold a conference call to discuss the second quarter results on Thursday, August 9, 2007 at 8:30 a.m. ET. The conference call will be accessible via webcast (with accompanying slides) through the Fund’s website at www.macquarie.com/mpt and by telephone at 416-641-6126 (Canada) or 1-866-542-4236 (North America). A replay of the call will be available until August 23, 2007 by dialling 416-695-5800 or 1-800-408-3053 and entering the passcode 3228442.
About the Fund
Macquarie Power & Infrastructure Income Fund invests in essential infrastructure assets in North America with an emphasis on power infrastructure. MPT’s strategy is to acquire and actively manage a diverse, high quality portfolio of infrastructure assets to improve their financial performance and provide growing and sustainable distributions to unitholders. MPT’s portfolio includes investments in gas cogeneration, wind, hydro and biomass power generating facilities, totalling 459 MW of installed capacity, and a 45% indirect interest in Leisureworld Senior Care LP, a leading provider of long-term care, or social infrastructure, in Ontario. MPT is managed by a wholly-owned subsidiary of Macquarie Bank Limited and a member of the Macquarie group. Please visit www.macquarie.com/mpt for additional information.
Certain statements in this news release may constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results to be materially different from any future results expressed or implied by such forward-looking statements. Forward-looking statements use such words as “may”, “will”, “anticipate”, “believe”, “expect”, “plan” and other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: risks associated with the Fund’s gas cogeneration, wind, hydro and biomass power generating assets and the power industry generally; risks associated with MPT’s interest in Leisureworld and the long-term care sector; risks associated with the structure of MPT; risks associated with the acquisition of Clean Power Income Fund, including the possibility that the anticipated benefits from the acquisition cannot be fully realized; and risks associated with business, regulatory and economic conditions. The risks and uncertainties described above are not exhaustive and other events and risk factors including risk factors disclosed in MPT’s filings with Canadian securities regulatory authorities could cause actual results to differ materially from the results discussed in the forward-looking statements.
The forward-looking statements contained in this news release are based upon information currently available and what the Fund currently believes are reasonable assumptions. However, the Fund cannot assure investors that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this news release, and the Fund and the Manager assume no obligation to update or revise them to reflect new events or circumstances. The Fund cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.
Non-GAAP Financial Measures
"Income from operations" and "distributable cash" do not have any standardized meaning under Canadian Generally Accepted Accounting Principles (GAAP). Management believes they are useful measures of performance as they provide investors with indications of income from operations and the amount of cash available for distribution to unitholders. The Fund's method of calculating "income from operations" and "distributable cash" may not be comparable to other similarly named calculations.
For further information, please contact:
Chief Financial Officer
Tel: (416) 607 5198
Tel: (416) 649 1325