Fair Market Value Appraisal PDF
Preview Fair Market Value Appraisal
E)GIIBIT U 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.
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