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Smart Water; Smart Money
For more than a century, Aqua America (NYSE: WTR) has delivered quality water service to communities throughout the United States, with the mission of “protecting and providing Earth’s most essential resource.” Now the second largest water utility in the nation, the company serves three million people in eight states, and is committed to providing excellent customer care, bringing value to shareholders year over year, and upgrading and consolidating water and wastewater infrastructure throughout America.
Operates and maintains 20 water treatment plants, 3,000 wells, and nearly 1,500 public water systems
Operates and maintains more than 12,000 miles of water and sewer mains
Has delivered 72 consecutive years of shareholder dividends
Has posted a shareholder return of more than 35 percent since 2015
Has made more than 300 acquisitions since 1995
Advisor Access spoke to President and Chief Executive Officer Christopher Franklin about Aqua America and the water industry.
Advisor Access: Can you give us a brief overview of Aqua America and the fragmented nature of the water industry in the U.S.?
Chris Franklin: Aqua America is one of the largest publicly traded water utilities in the country, serving approximately three million people in eight states. During our company’s 130-year history, we have been guided by our mission to protect and provide the Earth’s most essential resource in the communities we serve.
The vast majority of the nation’s population receives water and wastewater services from municipally owned entities. In the U.S., 85 percent of the water market and 97 percent of the wastewater market are municipally controlled, with over 50,000 water and 16,000 wastewater systems. At Aqua, we see this as an opportunity within our strategic outlook to consolidate these systems, bringing greater efficiencies and enhanced service.
AA: You recently announced a major investment in infrastructure upgrades. Can you address why infrastructure is a challenge, and how Aqua America intends to approach that challenge?
CF: Major investment is needed in the water utility space. The U.S. Environmental Protection Agency expects the need to spend $384.2 billion on water infrastructure, and $292.2 billion on wastewater infrastructure, over the next twenty years.
We at Aqua believe we can be an important part of the solution to the nation’s infrastructure challenges, both from financial and expertise standpoints. We have plans to invest more than $1.2 billion in infrastructure improvements through 2019. We have seen evidence of failing and crumbling infrastructure throughout the country, and have witnessed the effect it has on our local communities. Consistent and ongoing upgrades and replacements of water and wastewater lines are imperative to ensure high quality service for our customers, and for citizens across the U.S. The opportunity to deploy capital allows us to contribute to the solution of the infrastructure problem while growing our rate base and improving shareholder value. Our expertise in water and wastewater presents mutually beneficial opportunities for Aqua America and local communities.
AA: What other challenges or goals are being targeted by Aqua America?
CF: We are targeting 1.5-2 percent customer growth for 2017, and currently have five deals representing nearly 10,000 customers and more than $100 million purchase price pending. Additionally, we are evaluating approximately 70 additional new opportunities within our targeted size range of 2,500 to 25,000 customers.
Acquiring new systems comes with different complexities, so our challenge is to continually identify and evaluate options, and work within the regulatory environment to expand and increase our company’s value. We believe Aqua can play an important part in the rehabilitation of U.S. water infrastructure, recently given a D grade by the American Society of Civil Engineers.
AA: Utility investors tend to focus on dividends. Can you describe Aqua America’s dividend philosophy, and what investors should look for in the future?