Macquarie Power & Infrastructure Income Fund
TSX : MPT.UN

Macquarie Power & Infrastructure Income Fund

November 08, 2006 17:28 ET

Macquarie Power & Infrastructure Income Fund Announces Third Quarter 2006 Results

TORONTO, ONTARIO--(CCNMatthews - Nov. 8, 2006) - Macquarie Power & Infrastructure Income Fund (TSX:MPT.UN) ("MPT" or the "Fund") today announced results for the third quarter of 2006 ended September 30, 2006.

"During the third quarter, the Fund's operating assets, Cardinal and Leisureworld, continued to generate stable, sustainable distributions to unitholders," said Mr. Gregory Smith, President and Chief Executive Officer. "Our outlook for the remainder of 2006 and into 2007 is positive. Cardinal is now entering its seasonally high period, when higher power rates and peak output are expected to drive growth in revenue. At Leisureworld, we expect improved occupancy levels and the optimization of preferred bed mix to generate increasing cash flow. Overall, we believe the Fund is well positioned to deliver increasing, sustainable value to unitholders."

Fund Financial Review

The Fund generated recurring revenue for the quarter of $20.4 million compared with $19.3 million in the same period last year, primarily reflecting a 5.9% increase in the Direct to Consumer Rate (DCR) that was effective starting in the first quarter of 2006. Total revenue in the third quarter of 2005 was $20.7 million, including a $1.3 million adjustment in the DCR that was received during the quarter. Income from operations(1) for the Fund was $2.2 million for the quarter, compared with $2.9 million for the previous corresponding quarter.

The Fund's distributable cash(2) for the quarter was $6.9 million ($0.231 per fully diluted unit), compared with $6.2 million ($0.295 per fully diluted unit) in the same period last year. This increase in total distributable cash primarily reflected distributions of $2.6 million from Leisureworld, the ongoing impact of electricity rate increases under Cardinal's Power Purchase Agreement with the Ontario Electricity Financial Corporation, and decreased fuel transportation costs. The increase was partially offset by a DCR adjustment received in the third quarter of 2005 as well as by the accrual of the Fund's administration expenses on a quarterly basis. Prior to 2006, administration costs were primarily recorded in the fourth quarter. Additionally, the decrease in distributable cash per unit reflects the issuance of units in the fourth quarter of 2005 as a result of the Leisureworld acquisition.

"We are pleased with the increasing revenue and distributable cash from ongoing operations," continued Mr. Smith. "This growth reflects the high quality and stability of our assets."

Declared distributions to unitholders for the quarter were $7.7 million ($0.255 per unit), representing a payout ratio of 110% (Q3 2005 - 80%). For the nine months ended September 30, 2006, distributions to unitholders were $22.7 million ($0.755 per unit), representing a payout ratio of 94% (2005 - 83%). Distributions to unitholders are paid from cash flows from operations and unrestricted cash balances.

As at September 30, 2006, the Fund had working capital of $16.3 million, including cash and cash equivalents totalling $10.5 million, of which $4.9 million was allocated to its general, major maintenance and capital expenditure reserve accounts. The balance of this amount is maintained as free cash on hand and is available to finance the seasonality of operations and investment opportunities.

Cardinal Operational Performance

During the quarter, the Cardinal plant had availability of 99.8% compared with 100% in 2005, capacity of 97.2% compared with 96.1% in 2005 and electricity sales of 306,000 MWh in line with 2005.

Leisureworld Operational Performance

Through its 45% indirect interest in Leisureworld Senior Care LP ("LSCLP"), the Fund owns a 45% interest in Leisureworld, which it accounts for as an equity investment.

During the quarter, Leisureworld continued to operate in line with expectations, demonstrating steady growth in revenue. Of Leisureworld's 19 facilities, 17 long-term care ("LTC") facilities are considered mature and had average total occupancy of 98.3% for the nine months ended September 30, 2006 compared with 92.3% in the same period last year. One facility, Vaughan, is still in ramp up and recorded average total occupancy of 72.6% for the nine months ended September 30, 2006 compared with 34.5% in 2005. The remaining facility, Spencer House, is in the process of being closed and replaced by a new facility in Orillia, which is scheduled to open by the end of November. Average total occupancy at the Spencer House facility for the nine months ended September 30, 2006 was 68.5% compared with 93.3% in 2005.

Preferred bed average total occupancy for the same mature facilities was 82.7% for the nine months ended September 30, 2006 compared with 77.8% in 2005.

Distributions

With the strong step-up in cash flow following the completion of major maintenance at Cardinal in 2006, the Board of Trustees anticipates maintaining an annual payout ratio of 90% to 95%, providing growth and stability of distributions to unitholders. Management previously indicated that in excess of 75% of distributions for 2006 would reflect a return of capital, based on current operations and barring any significant unexpected external developments. In light of the proposed tax policy for income trusts announced by the federal government on October 31, 2006, management intends to review the Fund's tax position with a view to maximizing unitholder value.

The complete third quarter report for 2006, including Management's Discussion and Analysis, and unaudited financial statements, is available on the Investor Centre section of the Fund's website at www.macquarie.com/mpt.

Comment on Tax Policy Announcement

On October 31, 2006, the federal government proposed changes in the tax treatment of income funds and limited partnerships, other than REITs and those that hold portfolio-only investments. The proposed changes, which appear to effectively tax income funds in a similar, but not identical manner as corporations, are expected to have the greatest impact on tax-deferred investors (pension funds and RRSPs) and non-resident investors. The proposed tax policy is expected to become effective for the Fund in 2011. Management is currently evaluating the potential impact of the proposed tax policy on the Fund.

The proposed policy suggests that distributions that are characterized as return of capital will not be taxed. In 2004 and 2005, 100% of the Fund's distributions were return of capital. A high return of capital component is expected to mitigate the impact of the proposed tax policy on unitholders.

The government has indicated that the new rules do not apply to REITs. To be a REIT for this purpose, a trust must hold no "non-portfolio" properties except real estate, must derive at least 95% of its income from rents, mortgages or gains from real property, and must hold real property in Canada, cash and government debt that accounts for at least 75% of its equity value. Management is currently evaluating how this provision could apply to the Fund.

"The Fund has delivered solid growth and value for unitholders since inception, reflecting the high quality and stability of our assets as well as the success of our operating strategies," continued Mr. Smith. "The fundamentals of our business are strong and we remain confident in the Fund's long-term growth prospects, including growth through acquisitions. We have four years to plan for the proposed changes, and, in the interim, unitholders will continue to receive stable cash distributions and benefit from the Fund's continuing growth."

Investor Pack

The Fund has developed an Investor Pack and financial model to assist analysts and institutional investors in understanding the Fund and its key value drivers. The Investor Pack is available by contacting Sarah Borg-Olivier, at 416-607-5009 or sarah.borg-olivier@macquarie.com.

Conference Call and Webcast

The Fund will hold a conference call to discuss the third quarter results on Thursday, November 9, 2006 at 8:30 a.m. The conference call will be available via webcast through the Fund's website at www.macquarie.com/mpt and by telephone at 416-695-9701 (local) or 1-888-334-9269 (toll free). A replay of the conference call will be available until November 16, 2006 and can be accessed by dialling 416-695-5275 (local) or 1-888-509-0081 (toll free), pass code 633351.



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(1) Income from operations is net income less unrealized gains or
losses, interest and equity accounted income or loss.

(millions) Q3 2006 Q3 2005
Net Income $2.3 $1.7
Unrealized (gain) loss (.7) .9
Net interest expense .3 .3
Equity accounted loss from Leisureworld .3
--------------------------
Income from operations $2.2 $2.9
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(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.

(millions) Q3 2006 Q3 2005
Cash flow from operating activities $(2.3) $5.7
Add: Release from major maintenance reserve - 1.2
Distribution from Leisureworld 2.6 -
Less: Changes in Working Capital (7.3) -
Allocation to major maintenance reserve .6 .6
Allocation to capital reserve .1 .1
--------------------------
Distributable Cash 6.9 6.2
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About the Fund

Macquarie Power & Infrastructure Income Fund invests in infrastructure assets with an emphasis on power infrastructure. MPT's strategy is to acquire and actively manage a high-quality portfolio of long-life infrastructure assets to improve their financial performance and provide growing and sustainable distributions to unitholders for the long term. MPT's infrastructure portfolio includes Cardinal, a 156MW gas-fired cogeneration power station in Ontario, and a 45% interest in Leisureworld, a leading long-term care provider in Ontario with over 30 years operating experience. MPT is managed by a wholly-owned subsidiary of Macquarie Bank Limited and a member of the Macquarie group.

Forward-looking Statements

Certain statements in this news release may constitute forward-looking statements which involve known and unknown risks, uncertainties and other factors which 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 Cardinal facility and the power industry, risks associated with MPT's interest in Leisureworld and the long-term care sector, and risks associated with the structure of MPT. 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 Manager currently believes are reasonable assumptions, however neither the Fund nor the Manager can 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 and the Manager caution 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.

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. Macquarie Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Power & Infrastructure Income Fund.

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