Download - WEX2011InvestorPresentation 2 1 11
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
1/23
WEX2011
Presentation
WaterAssetManagementDynamicInvestmentApproachtoCapitalize
onPositiveTrendsinWater
February,2011
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
2/23
Global demand for clean water growing at a rate greater than GDP.
WaterInvestment
pportun ty
Growing scarcity of fresh water supplies due to contamination,overuse, climate change, and inefficient agricultural practices.
Deterioratingwaterinfrastructureandincreasinglystringentwaterqualityregulationsrequiresignificantincreasesincapitalspending.
Waterindustryshistoricallypositivepricingpowerisacceleratingasmarket
based
pricing
for
water
grows
in
acceptance
as
ameans
to
allocatescarceresources.
Overleveraged government and municipal balance sheets lead toincreased privatization pressure.
Proven and available solutions exist to remedy all water supply andquality issues.
Water related equity returns have a high degree of dispersion incomparison to the broader market, offering compelling opportunities
on both longs and shorts.
WEX2011Presentation Page 2
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
3/23
ater ar :Denmark Germany 1.003.00cent gallon*
US/Canada/Spain/Japan 0.250.70
cent/gallon
*
India/China 0.050.20cent/gallon*
Other: Soda: $3.26/gallon
Gasoline: $2.89/gallon
OrganicMilk: $7.98/gallon
Waterpricesarelessthan1%ofdisposableincome. Plentyofroomforpricesto
continuetoincrease,allowingattractivereturnsoncapitalnecessarytoensurewater
supplyandquality,yetremainaffordable.
AverageUSmonthlywaterbillistypicallylessthan50%ofcellular,cable,orelectricity.
Page 3WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
4/23
Water H stor ca yHas
Been
An
E ect ve
In at on
He ge
350.014.0%
16.0%
Water&SewerRatesVs.CPIForUrbanWageEarners
Water and Sewer Component of CP I Water and Sewer CPI 6 Month Rolling Average% Change YOY CPI All Urban Consumers % Change YOY
200.0
250.0
300.0
8.0%
10.0%
12.0%
erCPI
Index
nthrolingaverage
100.0
150.0
0.0%
2.0%
4.0%
.
Water&Se
angeInIndexYOY,6m
0.0
50.0
4.0%
2.0%
May77
May78
May79
May80
May81
May82
May83
May84
May85
May86
May87
May88
May89
May90
May91
May92
May93
May94
May95
May96
May97
May98
May99
May00
May01
May02
May03
May04
May05
May06
May07
May08
May09
May10
C
h
Page 4WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
5/23
u ure
o a
n ras ruc ure
pen ng:
ower
a er
ea
Page 5WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
6/23
naan
In a
Water
ap ta
pen ng
Page 6WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
7/23
arge
n rastructure
pen ng
ee s
EPAsCleanWater
and
Drinking
Water
InfrastructureGap
Analysisestimated
drinkingwater
sys ems year
capitalneedswithin
arangeof$170to
$493Billion,witha
midpoint
estimate
of 303 Billion. 1 TheCon ressionalBud etOffice CBO re ortFutureInvestmentinDrinkin WaterandWastewaterInfrastructureestimatesannualwatersystemneedsof$12.2to
$21.2Billion,whichwouldextrapolatetoa20yeartotalneedintherangeof$245to
$424Billion.2
TheWaterInfrastructureNetworks(WINs)CleanandSafeWaterforthe21st Century enewe a ona omm men o a eran as ewa er n ras ruc ure
estimateswatersystemneedsof$21Billionannually,whichextrapolatesto$420Billionover20years. 3
1 U.S.EnvironmentalProtectionAgency,CleanWaterandDrinkingWaterInfrastructureGapAnalysis(September2002),p.5. Needswereassumedtobein1999dollars
.
2 CongressionalBudgetOffice,FutureInvestmentinDrinkingWaterandWastewaterInfrastructure(November2002),p.ix. Needswerereportedin2001dollars.
3 WaterInfrastructureNetwork,CleanandSafeWaterforthe21stCentury ARenewedNationalCommitment toWaterandWastewaterInfrastructure(undated),p.31.
Needswereassumedtobein1999dollarsbasedontheplanningperiodanddataused.
Page 7WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
8/23
orecas e
row
or
r va e
a er
ewerage
erv ces
onpeop e %ofPopulation %ofPopulation %ofPopulation
WesternEurope 187.1 46% 217.5 53% 229.6 55%
C&EEurope 33.8 10% 64.4 20% 81.1 27%
. . .
South&CAsia 10.1 1% 53.1 3% 97.4 5%
SouthEastAsia 250.7 12% 436.1 20% 555.2 24%
Oceania 8.4 25% 12.1 32% 14.7 36%
NorthAmerica 93.9 21% 137.9 29% 209.0 40%
LatinAmerica 79.9 17% 120.5 24% 148.0 27%
Worldtotal 731.2 11% 1160.6 16.0% 1537.6 19%
Source:GlobalWaterIntelligence11/08
Page 8WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
9/23
stor ca y
avora e
eturns
n
o at ty
or
ater
qu t es
17YearAnnualizedReturnsandVolatilitythroughNovember2010
Thewatersector
continuesto
generateabove
averagereturns5%
10%
15%
20%
thantheS&P500,
electricutilities,
energycompanies
andcommodities
0%
WAMOpportunitySet USWaterUtilities S&P500 Philade lphiaUtility Index AmexOilIn de x GSCommodityIndex
PriceReturn,CAGRAnnualVolatility
overtime
5
6
7
US Water Utilities
S&P 500
Philadelphia Util ity Index
Amex Oil Index
ear umu at ve eturnst roug ovem er
1
2
3
4GS Commo ity In ex
0Dec-92
Jun-93
Dec-93
Jun-94
Dec-94
Jun-95
Dec-95
Jun-96
Dec-96
Jun-97
Dec-97
Jun-98
Dec-98
Jun-99
Dec-99
Jun-00
Dec-00
Jun-01
Dec-01
Jun-02
Dec-02
Jun-03
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Page 9WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
10/23
pportun ty
et
eturn
spers on
vs
Quarterly SpreadofBestDecileAveragevs.WorstDecileAverageReturn
120%
140%
80%
100%
read
40%
60%
Quarterlys
S&P500
WAMOpSet
20%
1Q04
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
1Q06
2Q06
3Q06
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Page 10WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
11/23
H stor ca yH g
D spers on
Returns
For
Water
Equ t es
Historically,thewater
sectorhas
demonstratedahigh
degreeofdispersion
AverageAnnualPerformance19962009,byDecile
133.6%
51.6%
Decile1
Decile2 ,
offeringopportunities
togeneratereturns
onbothlongand
shortstockselection
30.3%
17.4%
Decile3
Decile4
7.4%
0.0%
.Decile5
Decile6
Decile7
49.5%
28.1%
16.8% Decile8
Decile9
Decile10
60% 40% 20% 0% 20% 40% 60% 80% 100% 120% 140% 160%
Page 11WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
12/23
aster
un
nvestment
esu ts
nce
Growth of Initial $1000
TRF Historical Data$2,000
Compound ROR 11.48% 2.29% 3.02%
$800
$1,000
$1,200
$1,400
$1,600
$1,800
Cumulative Return 72.18% 11.99% 16.03%
Cumulative Growth of$1000 $1,722 $1,120 $1,160
$0
$200
$400
De
c-05
Ma
r-06
Jun-06
Se
p-06
De
c-06
Ma
r-07
Jun-07
Se
p-07
De
c-07
Ma
r-08
Jun-08
Se
p-08
De
c-08
Ma
r-09
Jun-09
Se
p-09
De
c-09
Ma
r-10
Jun-10
Se
p-10
De
c-10
TRF Master Fund Cayman LP S&P 500 MSCI AC
Risk vs. Return
TRF Comparison ToBenchmark
S&P 500 MSCI AC
13%
TRF Master Fund Cayman LP S&P 500 MSCI AC
Mont y A p a . 7 .
Alpha Annualized 10.96% 10.37%
Beta 0.42 0.433%
5%
7%
9%
11%
AnnualReturn
orre a on . .
R-Squared 0.24 0.32
14% 15% 16% 17% 18% 19% 20% 21%
Annualized Standard Deviation
Page 12WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
13/23
o ut ore unicipa ater is eport
KeyCERES
members
include
CalPERS
CalSTRS
IllinoisStateBoardofRetirement
IllinoisStateTreasurer
North
Carolina
Treasurer
DeutscheAssetManagement
BlackrockFinancial
TIAACREF
State
Street
Global
Advisors PrudentialInvestmentManagement
Page 13WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
14/23
. .
LakeMead
z Water at lowest oint in 75 ears
z HooverDammaybereducedto3turbines
EnergyWaterConnection:30%ofpowerusedtomove
watertoSouthernCalifornia
LakePowell
z WatermaybetransferredtoLakeMead
EnergyWater
Connection:
Powell
cools
Navajo
,LADWP
Bay Delta
z Uncertaintyofrestorationfunding,stakeholderbuyinStorage
z Limitedstorage
opportunities:
capacity
&
quality
z Highcost
Energy
z gn can opera ngcos orsomesupp es
Page 14WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
15/23
Creditratings
do
not
consistently
communicate
these
trends
Ratin o inions:
Assumethatwaterflowsinthefuturewillbeconsistentwiththerecentpast.
Nostress
test
to
understand
revenue
effects
of
manmade
supply
shocks.
Donotalwaysassesshowwaterlimitationsfacingwholesaleproviderscanimpactretail roviders.
Sometimesconfoundrevenuegrowthandvolumegrowth.
Applymetricslikeregionalwaterratebenchmarksthatmaydiscourageconservation
pricing. Do not necessaril differentiate between welldiversified resilient s stems from more
vulnerablesystems.
Utilityinvestorsfacetwomainfinancialrisks:
Defaultrisk.
Failure
to
incorporate
all
material
emerging
trends
into
resource
planning
candamageautilitysabilitytohonoritsdebtobligations.
Pricevolatility.Inabilitytopassthroughcostsorraisefuturedebtcanimpairautilityscreditquality.Creditchangesormarketrecognitionofriskmayresultinchangesinbondpricesonthesecondarymarketwellbeforematurity.
Page 15WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
16/23
Population shifts due to migration and birth rates will continue to favor the Western U.S.
where o ulations are ro ected to increase b almost 40% between 2005 and 2030.
. .
State 2005Projections
2030
ProjectedGrowth
%Increase. , , , , , ,
.California 36,038,859 46,444,861 10,406,002 29%
.Colorado 4,617,962 5,792,357 1,174,395 25%
.Idaho 1,407,060 1,969,624 562,564 40%
. , , , , , ,
.NewMexico 1,902,057 2,099,708 197,651 10%
.Oregon 3,596,083 4,833,918 1,237,835 34%
.Texas 22,775,044 33,317,744 10,542,700 46%
. , , , , , ,
.Washington 6,204,632 8,624,801 2,420,169 39%
TOTAL 87,179,785 121,562,879 34,383,094 39%Footnotes:
Source: U.S.CensusBureau,PopulationDivision,InterimStatePopulationProjections,2005.
Page 16WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
17/23
Tenmillionacrefeetofadditionalwaterannuallycouldberequiredto
This increase in water will be needed to:
sustaintheWesternU.S.overthenexttwentyyears
EstimatedUrbanWaterUsage
Increaseby2030
Replace depleted allocations
Enhance existing supplies
Provide for future housing
State ProjectedIncrease
California 1,300,000 5,800,000afTexas 2,500,000 3,000,000afUtah 600,000af
Enable industrial development
Ensure recreational viability
o ora o , aArizona 250,000 500,000afNevada 200,000 300,000afOregon 250,000 500,000af
Satisfycoolingandprocessingneedsof
conventionalandrenewablepowerplants
TOTAL 5,770,000
11,400,000
afCalifonia WaterPlanAdvisoryCommittee2005Update on UrbanUs e
Texas WaterDevelopmentBoard
UtahDivision ofWaterResources4
ColoradoStatewide WaterSupplyInitiative
Arizona DepartmentofWaterResources
Nevada Division ofWaterPlanning,Nevada State WaterPlan
Statewide WaterNeeds Assesment,OregonWaterResourceDepartment
Page 17WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
18/23
U. .Water
an
Lan ,
LL
Transact on
Price: 70 000 000 includin 10 000 000 in seller financinWinnemucca Farm Location: HumboldtCounty,Nevada,roughly20miles
Northof
Winnemucca
Acreage: 14,486acresofirrigatedlandand5,514acresofdryland
Water: 36,261AFofappurtenantcertifiedannualwaterrights
sse s: cen erp vo rr ga onsys emsan eep
waterirrigationwells
40yearhistoryofuninterruptedwaterusage
acqu res o nnemucca arm rom nnemucca arms, nc. .
WFI will Triple Net Lease the farm from WAL for an initial 10 year term at a rate of $3,000,000 per year.The lease will be collateralized by WFIs ownership in WAL.
Lease payments will be used to:
Pursuant to the business plan WAL has initiated discussions with a company pursuing a NorthernNevada integrated power generation and transmission strategy and a company interested in
Pay a 4% annual dividend
Fund asset development Cover management overhead
Pursue additional transactions
constructing concentrating solar power plants. Both entities are considering either acquiring and/or
leasing water from the property or alternatively developing a portion of the property as a power site.
Page 18WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
19/23
ConventionalPowerPlantOperator Leaseswaterfornewgeneratingstationson
capitalexpenditure.
RealEstate
Developer
Purchaseswaterrightsanddedicatesthemtoalocalwaterauthorityinexchan eforservicecommitmentsfor
AgricultureWaterDistrict Leases
water
on
astand
by
basis
to
augmentitssurfacewaterresources
anewsubdivision.
indryyearsinordertomeetcommitmentstoitsmembers.
CoalBedMethaneProducer Leaseswatertoreplacethe
wateritisextractingasapartofits naturalgasproduction.
WaterBanking
Authority
Purchaseswaterinwetyearswhenpricesarelowerinordertoaddtoitsundergroundstoragereserves.
ConcentratingSolarPlantFacility Leaseswatertosecureareliable
longtermsupply.
Page 19WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
20/23
Regulatedutilitiesprovideinflationprotected,highvisibilitycashflows
doubledigitreturns
Topline
revenue
growth
supported
by
sales
of
an
essential
resource
with
consistent
pricing
power
Highlyvisibleinflationprotectedcashflowssupportconsistentdividendgrowth
expenses
Preapprovedcapitalinvestmentsandtheassociatedincreaseinratesareprimarilydrivenby
environmentalcomplianceandthereplacementofdilapidatedcriticalinfrastructure
SouthWestoperatesintwoofthemostdynamicstatesforeconomicgrowthandwaterresource
development
Californiascustomerbaseisaprimarilyurban,stablecustomerbasewhiletheTexascustomerbaseis
primarilylocatedinthefastgrowingsuburbanandexurbanmetroregionsofAustinandDallas
Contractserviceshaveadiversecustomerbaseacrosssixstateswithminimalcustomerconcentration
SouthWesthas
substantial
water
rights
and
water
storage
rights
Whileoffbalancesheet,thesehavesignificantvalue:~$160million
Strategiesforassuringwatersupplyreliabilityandwaterresourcevaluecreationinexistingbasins
beingdeveloped
Diverseserviceterritories,includingnonregulatedbusinesses,providecomplementarygrowthopportunities
Financiallystressedmunicipalities,manyoutofcompliance,requirequalifiedwaterandwastewater
solutionproviders
to
create
operating
efficiencies
and
to
comply
with
environmental
requirements
Page 20WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
21/23
USAWaterServicesLLC,throughitsinvestmentinSouthWest Waterprovidesinvestorsa
un queopportun tyto nvest nt econso at ono t e waterut ty n ustryw t
attractive
financial
returns.
SouthWest WaterCompanyisauniquelyattractiveinvestmentforlongterminvestors
xpecte annua cas v en y e : . rst yearaverage ,grow ng
longterm
ExpectedIRRof12%+
Keyassets
located
in
attractive
regulatory
environments
ppor un y o nves su s an a a ona cap a np a ormgrow s ra egy
SouthWestWaterCompanywasacquiredbyWaterAssetManagementandJ.P.Morgan
AssetManagementsInfrastructureInvestmentsFundforapproximately$336millionin
ep em er
Page 21WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
22/23
Waterinvestmentspendingtoaccelerateglobally
Wateravailabilityanincreasinglyimportantrisk,largelyunderappreciatedbythefinancialcommunity.
Governmentownershiptodeclinedrivenbyfiscalpressuresandrecognitionofincreasedinvestmentandoperatingexpense.
Regulatoryreform
likely
as
private
capital
is
incentivized
to
enter
the
vo create ypu c nanc a constra nts.
Privateownershipandinvestmentinbothphysicalwateranddistributionassetswillgrowglobally.
,
longshort
equity,
private
U.S
water
utility,
water
rights,
and
agriculturalpropertieswithexcesswaterinkeyhydrologicalareas.
Page 22WEX2011Presentation
-
7/28/2019 WEX2011InvestorPresentation 2 1 11
23/23