Macquarie Power & Infrastructure Income Fund
TSX : MPT.UN
TSX : MPT.DB

Macquarie Power & Infrastructure Income Fund

November 04, 2009 17:04 ET

Macquarie Power & Infrastructure Income Fund Announces Third Quarter Results and Appointment of New Independent Trustee

TORONTO, ONTARIO--(Marketwire - Nov. 4, 2009) - Macquarie Power & Infrastructure Income Fund (TSX:MPT.UN)(TSX:MPT.DB)("MPT" or the "Fund"), which owns and operates essential infrastructure assets, today reported unaudited results for the third quarter ended September 30, 2009. The Management's Discussion and Analysis and unaudited financial statements are available on the Fund's website at www.macquarie.com/mpt and on SEDAR at www.sedar.com.

The Fund also announced that it has filed revised unaudited interim consolidated financial statements and management discussion and analyses (the "revised financial reports") for the first and second quarters of 2009 with Canadian securities regulatory authorities. The revised reports reflect an adjustment in the Fund's option pricing model that affected the calculation of the fair value of the Fund's embedded derivative asset.

"Overall, our infrastructure businesses operated well during the third quarter, reflecting the stable, contractually defined or regulated markets in which they operate," said Michael Bernstein, the Fund's President and Chief Executive Officer. "Our quarterly payout ratio reflected higher than anticipated management and administrative costs related to our analysis regarding the Fund's corporate conversion, as well as business development expenses as we continued to assess a number of growth opportunities for the Fund."

During the quarter, the Fund announced a new distribution level of $0.055 per unit per month, or $0.66 per unit annually, effective January 2010, as well as its intention, subject to unitholder and other approvals, to convert into a dividend-paying corporation prior to January 1, 2011. The Fund currently expects the new distribution level to result in an average payout ratio of approximately 70% - 75% of distributable cash(1) over a five-year period. For the balance of 2009, the Fund intends to maintain distributions to unitholders at $0.08750 per unit monthly, which, based on management's current outlook, is expected to represent a payout ratio for 2009 of approximately 105%. Distributions to unitholders will be supported by the Fund's general reserve account.

Third Quarter Financial Performance

Revenue for the quarter was $32.7 million compared with $32.4 million in the third quarter of 2008, primarily reflecting stable power production at the Cardinal gas cogeneration ("Cardinal") facility and Erie Shores Wind Farm ("Erie Shores") as well as higher power rates at Cardinal. These drivers were offset by lower production at the Whitecourt biomass ("Whitecourt") facility due to 18 days of outage in July to complete maintenance work. Production at the hydro power facilities was slightly lower than in the same period last year, reflecting dry conditions at the Sechelt hydro power facility, partially offset by strong precipitation at the Wawatay hydro power facilities.

The Fund's distributable cash was $8.3 million ($0.166 per unit) compared with $9.8 million ($0.197 per unit) in 2008. Declared distributions to unitholders were consistent with the third quarter of 2008 at $13.1 million ($0.262 per unit), representing a payout ratio of 158% compared with 133% in the same period last year, which reflected higher management and administrative costs and higher net interest expense as a result of the May 2009 refinancing of the Fund's credit facilities. The payout ratio for the first nine months of 2009 was 117% compared with 105% in the same period last year, reflecting lower revenue and higher expenses in the first nine months of 2009.

Income from operations(2) for the Fund was $2.3 million compared with $4.1 million in the third quarter of 2008. This variance primarily reflected higher operating expenses due to the major maintenance work at Whitecourt, which was partially offset by lower gas transportation costs at Cardinal. Increased management and administrative costs reflected higher business development and consulting costs related to the Fund's planned conversion to a dividend-paying corporation.

Excluding Whitecourt, the Fund's contribution margin(3) for the third quarter of 2009 was $11.4 million compared with $10.2 million in the same period last year, reflecting the strong operational performance of Cardinal, Erie Shores and the hydro power facilities.

Financial Position

As at September 30, 2009, the Fund had positive working capital of $10.6 million and cash on hand of $16.1 million, of which $5.6 million was not designated for general, major maintenance and capital expenditure reserve accounts. The Fund is conservatively leveraged relative to the low risk profile and long life of its assets, with a debt to capital ratio of 47.2%.

Third Quarter Operational Highlights

Total power production was 480,152 MWh compared with 479,348 MWh in the third quarter of 2008.

Cardinal produced 309,786 MWh of electricity (Q3 2008 - 297,301 MWh), reflecting 112 hours of curtailment (Q3 2008 - 448) and cooler ambient temperatures. Cardinal curtails production from time to time during maintenance activities and periods where the spot market price of gas is favourable. During curtailment, the facility continues to produce electricity but at less than capacity. For the quarter, Cardinal achieved an availability of 99.8% (Q3 2008 - 100.0%) and a capacity factor of 99.4% (Q3 2008 - 95.4%).

Erie Shores produced 35,210 MWh (Q3 2008 - 34,679 MWh) of electricity, reflecting a slightly higher average wind speed during the quarter. The facility achieved an overall availability of 95.5% (Q3 2008 - 94.8%) and a capacity factor of 16.1% (Q3 2008 - 16.0%).

The Fund's hydro power facilities produced 35,994 MWh (Q3 2008 - 36,680 MWh) of electricity, primarily as a result of lower water flows at the Sechelt hydro power facility in British Columbia due to dry conditions, which was partially offset by higher production at the Wawatay hydro power facility, the Fund's second largest hydro power facility, located in Ontario, due to greater precipitation. The hydro power facilities achieved a weighted average availability of 97.9% (Q3 2008 - 93.6%) and a capacity factor of 45.7% (Q3 2008 - 46.8%).

Whitecourt produced 41,180 MWh of electricity (Q3 2008 - 53,301 MWh), reflecting 480 hours of outage (Q3 2008 - nil) during the quarter primarily to correct a higher than normal vibration of the turbine and to complete other balance of plant maintenance work. As a result, the facility operated at an availability of 78.5% (Q3 2008 - 100.0%) and achieved a capacity factor of 77.5% (Q2 2008 - 99.8%).

The Chapais biomass facility ("Chapais"), in which the Fund holds a minority preferred equity and debt interest, produced 57,982 MWh (Q3 2008 - 57,387 MWh) of electricity. The facility experienced availability of 98.8% (Q3 2008 - 96.5%), reflecting 27 hours of outage (Q3 2008 - 77), and achieved a capacity factor of 93.8% (Q3 2008 - 92.8%).

The Fund owns an indirect 45% equity interest in Leisureworld Senior Care LP ("Leisureworld"), which the Fund accounts for as an equity investment. In the third quarter, Leisureworld delivered stable performance, achieving a 6.1% increase in revenue over the same period last year, reflecting increases in private accommodation and government funding rates. Average total occupancy in the third quarter was 99.0% (Q3 2008 - 98.7%). The average occupancy of private rooms was 97.0% (Q3 2008 - 93.3%).

Appointment of New Trustee

The Fund is pleased to announce the appointment of Mr. V. James Sardo to its Board of Trustees, effective November 4, 2009.

Mr. Sardo is a seasoned executive with significant operational and corporate governance expertise. He is currently a director of New Flyer Industries Inc.; Hydrogenics Corporation; and Northstar Healthcare Inc. Previous directorships include: Countryside Power Income Fund, where he served as chairman; UE Waterheater Income Fund; and Custom Direct Income Fund. From 2004 to 2005, Mr. Sardo served as interim Chief Executive Officer of Royal Group Technologies. Mr. Sardo was formerly President, Canadian Operations of Moore Corporation Limited and President and Chief Executive Officer of SMK Speedy International Inc. He is also the former Chairman and Chief Executive Officer of Firestone Canada Inc. and the President of Firestone Industrial Products Company. Mr. Sardo is a member of the Institute of Corporate Directors and holds the ICD.D designation.

"We are delighted to welcome Jim to the Fund's Board of Trustees," said Derek Brown, Chairman of the Board of Trustees. "His considerable management and strategic planning experience will be extremely valuable to our team as we work to build MPT into Canada's leading public infrastructure investment vehicle."

Filing of Revised Financial Reports

Revised financial reports for the first and second quarter were filed to provide for an adjustment in the Fund's embedded derivative asset and the related future income tax impact. This restatement results from certain corrections that have been made to the option pricing model that is used to calculate the fair value of the Fund's embedded derivative asset. In January 2009, the Fund amended Cardinal's gas purchase agreement with Husky, which allows for a more favourable profit sharing arrangement on net proceeds from the mitigation of excess gas. The Fund's previous option pricing model did not properly capture the impact of these changes in the first quarter of 2009. Management has determined that the revised model more accurately calculates the fair value of the Fund's embedded derivative asset. As a result of this, the Fund's net income in the first quarter was $2.1 million rather than $7.0 million as previously reported. In the second quarter, the net loss was $1.8 million rather than the $1.9 million as previously reported.

These adjustments had no impact on the Fund's previously reported distributable cash, payout ratio or cash flows from operating, investing and financing activities. No other changes were required in the Fund's previously announced and filed interim financial reports.

Outlook

Mr. Bernstein continued, "Our businesses are fundamentally sound, reflecting the essential nature of the services they provide. We expect our portfolio to continue to support a strong distribution to our investors. At the same time, we are continuing to pursue growth opportunities that will increase the Fund's size, scale and liquidity and enable us to deliver a superior return to our unitholders."

In 2009, Cardinal is expected to generate lower revenue than in 2008, which primarily reflects the hot gas path inspection that required 13 days of outage in April. While Cardinal will continue to experience higher gas transportation costs, the confirmed 2009 rate is below the average 2008 level. As a result of these factors, cash flow from Cardinal will be slightly lower in 2009 compared with 2008.

Erie Shores is expected to generate slightly less electricity than the estimated average annual production of 249,800 MWh, reflecting generally lower wind speed and density in 2009 to date. Erie Shores' production is subject to wind speed and density, which are typically strongest during the fall and winter months.

The hydro power facilities are expected to generate less electricity than the average long-term annual production of 166,360 MWh, which reflects the poor hydrological conditions experienced primarily in the first quarter of 2009. Production at the hydro power facilities is subject to water flows, which are typically strongest during the spring and fall months.

Whitecourt completed its spring outage to repair the turbine vibration on July 18, 2009, requiring 433 hours of outage in the quarter. No further maintenance work is scheduled for the facility in 2009. Management currently expects that the turbine will operate reliably until the next scheduled major maintenance inspection, which occurs every seven years. Whitecourt is expected to achieve an availability of approximately 80% to 83% in 2009 (2008 - 88.4%) and to return to its five-year average availability of approximately 95% in 2010.

Leisureworld is continuing to focus on enhancing the quality of care and accommodation for residents, which contributes to the continuing high occupancy of its homes. In addition, Leisureworld is continuing to attract a growing number of residents to private accommodation, for which Leisureworld receives a regulated premium. Leisureworld's distribution policy will be maintained for fiscal 2009. Effective in January 2010, Leisureworld's annual distribution to the Fund is expected to be $9.5 million compared with $10.4 million currently. This new distribution policy more closely reflects management's outlook for Leisureworld's financial performance in 2010.

Conference Call and Webcast

Management of the Fund will hold a conference call (with accompanying slides) to discuss third quarter results on Thursday, November 5, 2009 at 8:30 a.m. ET. The conference call will be accessible via webcast through the Fund's website with accompanying slides at www.macquarie.com/mpt and by telephone at 416-340-8061 (Canada) or 1-866-225-0198 (North America). A replay of the call will be available until November 19, 2009 by dialling 416-695-5800 or 1-800-408-3053 and entering the passcode 3340311.

Investor Day

The Fund will hold its fourth annual Investor Day on December 2, 2009 commencing at 4 p.m. at the Toronto Board of Trade. For more information, contact investor relations at mpt@macquarie.com. The Investor Day event will be webcast live on the Fund's website.

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.

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, representing approximately 350 MW of installed capacity, and a 45% 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 Group Limited. Please visit www.macquarie.com/mpt for additional information.

(1) Distributable cash is defined as cash flows from operating activities after removing changes in working capital. Distributable cash also reflects the impacts of: cash taxes; releases from maintenance reserves; allocations to major maintenance and capital expenditure reserves; non-discretionary payments and receipts; and distributions from Leisureworld.

(2) Income from operations refers to income before net interest, foreign exchange, share of income (losses) from long-term investments, unrealized gains (losses) on swap contracts and on embedded derivatives in gas purchase contracts, gain on sale of capital assets, and taxes.

(3) Contribution margin is defined as revenue net of direct operating expenses.

Forward-looking Statements

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. When used in the this news release, such statements use such words as "may", "will", "expect", "believe", "plan" and other similar terminology. 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. The forward-looking statements contained in this news release are based on information currently available and what the Fund currently believes are reasonable assumptions, including the material assumptions for each of the Fund's assets set out in the Fund's 2008 Annual Report under the headings "Outlook" on pages 23 to 24, as updated in subsequently filed quarterly Financial Reports of the Fund. 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, except as required by law, the Fund does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The Fund cautions readers not to place undue reliance on any forward-looking statements contained in this news release. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

The forward-looking information contained in this news release is presented for the purposes of assisting investors and analysts in understanding the Fund's financial position and our stated priorities and objectives may not be appropriate for other purposes. The Fund cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. 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 operational performance of the Fund's assets; power purchase agreements; fuel costs, supply and transportation; default under credit agreements; regulatory regime and permits; land tenure and related rights; government regulation and funding; the ability to complete future acquisitions; LTC home ownership and operation; minority ownership interest in Leisureworld; reliance on key personnel; default under Leisureworld's long-term debt and credit facility; labour relations and cost; the variability of distributions; unitholder liability; dependence on Macquarie Power Management Ltd., the manager of the Fund, and potential conflicts of interest; insurance; and risks related to the environmental, health and safety regimes within which the Fund's assets operate. The risks and uncertainties described above are not exhaustive and other events and risk factors, including risk factors disclosed in Fund's filings with Canadian securities regulatory authorities, could cause actual results to differ materially from the results discussed in the forward-looking statements.

Non-GAAP Financial Measures

"Income from operations", "distributable cash" and "contribution margin" do not have any standardized meaning under Canadian 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.

Macquarie Power & Infrastructure Income Fund is not an authorised deposit taking institution for the purposes of the Banking Act (Cth) 1959 and Macquarie Power & Infrastructure Income Fund's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN 46 008 583 542 (MBL). MBL does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Power & Infrastructure Income Fund.

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