Fair Market Value Appraisal

216 Pages·2016·14.21 MB·English

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FAIR MARKET VALUE APPRAISAL _ GANNETT FLEMING
VALUATION AND RATE CONSULTANTS, LLC
NEWGARDEN TOWNSHIP
AND
NEW GARDEN TOWNSHIP SEWER AUTHORITY'
S
SEWAGE COLLECTION AND TREATMENT SYSTEM ASSETS
FAIR MARKET VALUE APPRAISAL
AT
SEPTEMBER 30, 2016
Prepared by:
GANNETT FLEMING
VALUATION AND RATE CONSULTANTS. LLC
Valley Forge, Pennsylvania
ffi ArrrrrettFleming
Excellence Delivered As Promised
December 7,2016
VIA EMAIL
Mr. William C. Packer
Regional Controller
Aqua Pennsylvania, Inc.
762 W. Lancaster Ave
Bryn Mawr, PA 19010
Re: Fair Market Value Appraisal
Dear Mr. Packer:
In accordance with your request, we have prepared a fair market value appraisal of New
Garden Township and New Garden Township Sewer Authority's sewage collection and
treatment system assets ("Sewer System") as of September 30, 2016.
Fair market value is defined as "the price, expressed in terms of cash equivalents, at
which proper"ty would change hands between a hypothetical willing and able buyer and a
hypothetical willing and able seller, acting at arm's length in an open and unrestricted market,
when neither is under compulsion to buy or sell and when both have reasonable knowledge of
the relevant facts."
Based on our analysis, as described in the attached appraisal report, the estimate of the
fair market value of the Sewer System as of September 30, 2016 is $33,666,000 (rounded).
Our appraisal was developed consistent with the Uniform Standards of Professional
Appraisal Practices. Our fair market value appraisal of the Sewer System was based on the Cost,
Market and Income Approaches to valuation. We used four methods under the Cost, Market and
Income Approaches to valuation: Original Cost New Less Depreciation Method, Market
Multiple Discounted Cash Flow Method, Capitalization Discounted Cash Flow Method, and the
Market Multiples Method.
The attached narrative appraisal, present our findings and conclusions regarding the fair
market vafue of the Sewage System's assets of September 30,2016. The report describes the
valuation methodologies employed and the Exhibits that present the valuation results.
Gannett Fleming Valuation and Rate Consultants, LLC
P O Box 80794. Valley Forge, PA 19484-0194 | 1010 Adams Avenue.Audubon,PA19403-2402
t: 610 650 8101 . f: 610 6508190
www gannettfleming com
EanneLtFlemlng
Mr. William C. Packer
BrynMawr,PA 19010 -2- December 7,2016
We thank Aqua for this opportunity to provide valuation services in connection with the
fair market value appraisal of the Sewer System's assets.
Respectfu lly Submitted,
GANNETT FLEMING VALUATION
AND RATE CONSULTANTS, LLC
tM
HAROLD WALKER, III
Manager, Financial Studies
HW:amp
TABLE OF CONTENTS
INTRODUCTION
........ I
Summary
Introduction and .............. I
Assignment
Description of the ......... I
Value....
Standard and Premise of ....................... I
Valuation
Intended Use of the .........2
Users
Client and ............2
...........
Extraordinary Assumptions .....................2
Inspection.............
Site ..................... 3
.............
Sources of Information .......3
Township
Description ofNew Garden ............... 3
Authority...
Description of New Garden Sewer .....................4
System.......
Description of the Sewer .................5
System
Demographics and Growth for the Sewer .................7
BUSINESS............
HISTORY AND NATURE OF THE ...................... 10
Outlook
Economic ...... 10
Review......
Industry ....................... l1
.........
QUANTTTATTVE AND QUALTTATIVE ANALYSIS ............... 14
Review......
Comparison .................l4
Review
Financial ........ 16
Analysis
Financial Benchmark ......l7
..............
Risk Analysis ...................l7
Analysis
Property Plant & Equipment ..............20
Contributions..........
Property Plant & Equipment Analysis for .............21
Analysis
Capital Expenditures .......21
.............
Growth Rate Analyses ......22
Analyses
Profit Margin ..................22
VALUATION
.............23
Approach
The Cost .....23
Metrics
Benchmark .....26
Approach...
The Income .................27
Method......
The Capitalization of Earnings ......29
Method
The DCF ........31
Approach
The Market .................... 33
Method
The Market Multiples .......33
Method
The Selected Transactions ...................36
Conclusion
..................39
................
APPENDTX A - QUALIFICATIONS .................4r
EXHIBITS
..................45
INTRODUCTION
Introduction and Summary. The following narrative report, present our findings and
conclusions regarding the fair market value of the sewage collection and treatment system assets
of New Garden Township and New Garden Township Sewer Authority as of September 30,2016.
The repoft describes the valuation methodologies employed and the Exhibits that present the
valuation results. Based upon the analyses, we believe the fair market value of the sewage
collection and treatment system assets of New Garden Township and New Garden Township
Sewer Authority is $33.7 million. This conclusion is based upon the values suggested by the
Cost, Income and Market approaches. During our analysis we found indications of value that
ranged from $13.5 million to $53.8 million. However, most of the appropriate indicated values
approximated $33.7 million.
Description of the Assignment. Gannett Fleming Valuation and Rate Consultants, LLC
was retained by Aqua Pennsylvania Wastewater, Inc. ("Aqua") to estimate the fair market value
of New Garden Township and New Garden Township Sewer Authority's sewage collection and
treatment system assets ("Sewer System") as of September 30, 2016.
Standard and Premise of Value. The fair market value appraisal of the Sewer System
complies with the Uniform Standards of Professional Appraisal Practices, employing the cost,
market and income approaches. It should be noted that Gannett Fleming Valuation and Rate
Consultants,LLC ("Gannett") did not complete a cost approach for this assignment. However,
Gannett utilized the original cost study provided by the Sewer System and Aqua as the accepted
cost approach used in the fair market value determination in accordance with 66Pa. C.S. Section
1329.
Fair market value is defined as "the price, expressed in terms of cash equivalents, at which
properfy would change hands between a hypothetical willing and able buyer and a hypothetical
willing and able seller, acting at arm's length in an open and unrestricted market, when neither is
under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts."l
As stated, the standard of value for this engagement is fair market value. The premise of
value is going concern. The going concern premise of business value assumes that the business
will continue running normally using all of its assets to produce income and will continue operating
beyond the valuation date.
Gannett valued the Sewer System's assets as a group under the premise that the assets
collectively comprise an ongoing operating business enterprise. Additionally, in accordance with
66Pa. C.S. Section 1329 the original source of funding for any part of the Sewer System's assets
was not relevant to the determination of the value of said assets.
Intended Use of the Valuation. The intended use of the valuation is to comply with 66
Pa. C.S. Section l329,Yaltation of Acquired Water and Wastewater Systems and conductafair
market value appraisal of the Sewer System in compliance with the Uniform Standards of
Professional Appraisal Practices, employing the cost, market and income approaches.
Client and Users. The client is Aqua Pennsylvania Wastewater, Inc. The intended users
of the valuation are Aqua Pennsylvania Wastewater, Inc. and the Pennsylvania Public Utility
Commission.
Extraordinary Assumptions. We accepted all information and data provided by the Sewer
System and Aqua as it pertains to this assignment "as is" after a limited review. That is, we
I The International Glossary of Business Valuation Standards
2
neither audited nor verified any data, original cost study, financial records or operating data
provided for this assignment.
Site Inspection. We did not visit or inspect the Sewer System's facilities. We relied on
the original cost study provided by the Sewer System and Aqua to confirm the existence and
condition of the Sewer System's property and equipment.
Sources of Information. The following sources of information were reviewed for during
the assignment:
AUS Consultants Original Cost Study and Depreciated Original Cost at June 30,2015
Sewer System's Annual Flow by Service Area and Customer
Sewer System's Customer data
New Garden Township Audited Financials for the years2014,2013 and2012
New Garden Township Sewer Authority Audited Financials: 2014,2013 and 2012
New Garden Township Comprehensive Plan
The Delaware Valley Regional Planning Commission AnalyticalData Reports
Blue Chip Financial Forecasts
US Census Bureau. various data files
Value Line Investment Survev
S&P Research Insieht
. New Garden Township ("Township")
encompasses 16 square miles. The Township is located in southeastern Pennsylvania within
southern Chester County, and is surrounded by the Townships of Kennett, London Grove,
Franklin, East Marlborough, West Marlborough, London Britain; and the Boroughs of West Grove
and Kennett Square. It is positioned25 miles from Philadelphia and l5 miles and l0 miles from
Wilmington and Newark, Delaware, respectively.
The northern Delaware and southeastern Pennsylvania area has a combination of suburban
and urban characteristics which have stimulated development pressure in the Township and the
region. Due to these neighboring centers of employment and commercial activity, the
Township's population has been increasing.
The major services provided by the Township include general administration, public works
(highways and streets and sewer), public safety (police and fire), planning andzoning, culture and
recreation and community development. The Township has historically been considered a rural
area due to the large amount of agricultural industry in the Township, but has experienced recent
residential and commercial growth.
The Township is one of 73 municipalities in Chester County and is one of the fastest
growing and most populated in the county. According to U.S. Census figures, Township
population grew nearly 32%ofrom 2000 to 2010, while population in Pennsylvania grew 3.4Yo and
151% in Chester County. The Township and surrounding region is rapidly transitioning from a
rural area to a more suburban area.
. The Sewer System was constructed by the
New Garden Township Sewer Authority ("Authority") at the request of the Township's Board of
Supervisors. The Authority was established through Ordinance Number 76 of the Township on
March 14, 1966. The Township created the Authority for the purpose of planning, constructing,
renovating and acquiring certain assets for the collection and treatment of wastewater for the
benefit of the residents of the Township.
The sewer system owned by the Authority is operated by the Township under long-term
lease rental agreements. The Authority's operating revenues consist solely of lease rental payments
from the Township. Pursuant to the lease rental agreements, the Township must operate and
maintain the sewer system to make lease rental payments to the Authority sufficient to pay the
debt service obligations and administrative fees incurred by the Authority to acquire, construct and
renovate the sewer system. The lease rental agreements expire on February 25,2021unless the
related debt is retired earlier.
Description of the Sewer Svstem. Most Township residents rely upon on-lot septic
systems for wastewater treatment and the Sewer System currently only provides selices in three
areas of the Township. The Sewer System is sufficient to meet the Township's current needs. As
new andlor extended service to existing development is required, the Authority evaluates the need
to issue future long-term financing to enhance the Sewer System and accommodate future growth
within the Township.
The Township has enacted and covenants (Connection and Sewer Rent Ordinances) to keep
in full force and effect ordinances requiring all owners of improved property within the Township
accessible to the Sewer System to connect to the Sewer System.
Currently, the Sewer System's three service areas are: East End, South End and Avondale.
The East End service area is comprised of gravity collection mains, nine pump stations and
associated conveyance force mains. The East End's treatment system consists of two aeration
lagoons, one storage lagoon and a spray field. The storage lagoon has a capacity of between2l-
23 million gallons and the two aeration lagoons have a capacity of about 5 million gallons each.
The Township also has reserved 100,000 gallons of daily treatment capacily in the Kennett
Boroush Treatment Plant.