Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System City of Boynton Beach Utilities Department Boynton Beach, Florida GAI Project Number: A132321.03, HC Project No. 14108.00 June 2015 Prepared by: GAI Consultants, Inc. Orlando Office 618 E. South Street, Suite 700 Orlando, Florida 32801 Prepared for: City of Boynton Beach 100 E. Boynton Beach Boulevard Boynton Beach, Florida 33435

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System City of Boynton Beach Utilities Department Boynton Beach, Florida GAI Project Number: A132321.03, GC Project Number: 14108.00 June 2015 Prepared for: City of Boynton Beach 100 E. Boynton Beach Boulevard Boynton Beach, Florida 33435 Prepared by: GAI Consultants, Inc. Orlando Office 618 E. South Street Suite 700 Orlando, Florida 32801 And Hartman Consultants, LLC 2107 Water Key Drive Windermere, Florida 34786 Report Authors: Jules Jay Ameno, Jr., P.E. Engineering Manager Gerald C. Hartman, P.E.

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page i Table of Contents 1.0 Introduction... 1 2.0 Royal Manor Estates (RME) Water System... 1 2.1 General... 1 2.2 Water Quality... 1 2.3 Water Use Permit... 1 2.4 FDEP MOR s... 1 3.0 Purchase and Sale Provisions... 2 3.1 General... 2 3.2 Assumed Terms and Conditions... 2 3.3 Asset Purchase Agreement (APA)... 3 3.4 Chapter 180.301 Florida Statutes... 3 4.0 Financial Feasibility... 3 4.1 General... 3 4.2 City of Boynton Beach Rates... 3 4.3 Expected Costs... 4 4.4 Expected Revenue... 4 4.5 Financial Feasbility... 5 5.0 Summary of Benefits... 6 5.1 Royal Manor Estates... 6 5.2 Boynton Beach Regional Utilities... 6 6.0 Recommendation... 7 7.0 Implementation Steps... 7 Table 2-1 Table 4-1 Table 4-2 Table 4-3 Appendix A Appendix B Appendix C Appendix D Appendix E Appendix F Appendix G FDEP MOR for PWS s Meters, Meter Sizes, Construction Cost Expected Rate Revenue Financial Feasibility RME 2013 Water Quality Report RME SFWMD Water Use Permit RME FDEP Water MOR s RME Map Boynton Beach Water Rates APA Initial Draft RME & CBB FS Chapter 180.301 Requirements 2015 GAI Consultants, Inc. A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 1 1.0 Introduction Earlier in the 1900 s Palm Beach County had a variety of small developments with self-serving utilities. Abutting and later annexing into the City of Boynton Beach (BB) was the Royal Manor estates (RME) subdivision. This subdivision includes mobile home lots and a central community center with the amenities for the residents. At the time of development, central Boynton Beach utility services were not available. Over time, additional developments were constructed in the area and the regional Boynton Beach utility system (BBRU) was extended to abut RME. As the Florida Department of Environmental Protection (FDEP) rules changed and RME desired back-up emergency water supply, BBRU and RME interconnected the water systems with a master meter and back-flow protection. As both South Florida Water Management District (SFWMD) and FDEP rules and regulations have increased, the built-out RME with only 438 connections did not have an economy of scale to absorb the increased costs effectively. RME approached BBRU and requested the feasibility of BBRU acquiring the water utility. 2.0 Royal Manor Estates (RME) Water System 2.1 General The map of RME is shown in Appendix D. The system is located within the city limits of Boynton Beach. The RME water system is interconnected to the BBRU water system for back-up supply. 2.2 Water Quality In 2013, the FDEP performed a source water assessment of the RME water system. The assessment was conducted to provide information about potential sources of contamination in the vicinity of the RME wells. The search of the data sources indicated no potential sources of contamination. See Appendix A. 2.3 Water Use Permit RME has a SFWMD permit number 50-03349W. The location is shown as S/3/T45S/R42E. The permit was issued on January 7, 2011. The expiration date is January 7, 2031. The annual allocation is 36.1248 MG or 98,972 gpd. The maximum month allocation is 5.4499 MG or 181,663 gpd. The water sources are groundwater from the surficial aquifer system for drinking water and on-site lakes/ponds for irrigation water (non-potable). The groundwater system has one (1), 6-inch diameter well cased to 80-feet of the total depth of 98-feet with a 550 gpm pump installed. The well has an annual allocation of 79,178 gpd. This permit is shown in Appendix B. 2.4 FDEP MOR s The FDEP MOR s for the on-site well are summarized on Table 2-1 and shown in Appendix C. The 2013/2014 annual average production was 89,381 gpd. Table 2-1. FDEP MOR for PWS s. Month, Year Connections Average Monthly Flow 1 Max Daily Flow 1 October 2013 438 63,758 82,300 November 2013 438 71,650 94,300 December 2013 438 67,148 90,150 A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 2 Month, Year Connections Average Monthly Flow 1 Max Daily Flow 1 January 2014 438 65,648 78,600 February 2014 438 74,889 96,600 March 2014 438 73,326 89,600 April 2014 438 65,913 103,300 May 2014 438 97,632 156,800 June 2014 438 110,903 193,700 July 2014 438 103,503 187,700 August 2014 438 142,761 252,300 September 2014 438 135,436 250,550 Values 438 89,381 252,300 AAPCP 1 204 ABCP 1 6,205 production Assume 25% of Water Loss Per Capita 4,654 g/month 96 gpd 1 Flow in gpd This amount is approximately 10,000 gpd AADF greater than the SFWMD WUP. The RME system has some two (2) miles of water distribution mains, 438 services, one well, one water treatment plant and one water interconnect with Boynton Beach. 3.0 Purchase and Sale Provisions 3.1 General Existing water systems, if purchased by another entity, need not pay impact fees or connection fees. It is the buyer s decision to address how water is supplied to the customers. Prior to acquisition, the customers were supplied an adequate amount of potable water and that supply is being modified by the Buyer. BBRU has significant available capacity and 90,000 gpd is insignificant to the total capacity available. A higher utilization of capacity is a benefit to BBRU. 3.2 Assumed Terms and Conditions The standard terms and conditions commonly used in the water industry are assumed for this appraisal. The purchase price would be as a cash and/or donation purchase in U.S. dollars at the time of closing. There are no limitations relative to exposure, financing, futures, prepaid or discounted connections, or other factors. We assume that no properties are vested or have prepaid CIAC or discounted connections in any fashion whatsoever. The standard terms and conditions assumed are listed below: A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 3 Purchase Price, as Cash at Closing, Paid by Buyer Bill of Sale Provided by Seller Satisfaction of Liens, Encumbrances or Title Problems to Obtain Free and Clear Title by Seller Easement, Land Rights, or Other Utility Rights Transferred by Seller Regulatory Conduct and Compliance to Maintain Permits without Deficiency Transfer of all Necessary Agreements to Buyer Transfer of Customer Deposits to Buyer Transfer of all Records, Drawings, Reports, Permits and Like Documents to Buyer 100% Accounts Receivable Collected Forward to Seller as Collected by Buyer Vendor Invoices, Materials, Supplies as Incurred up to Closing Paid by Seller Inventory of Consumables at Closing at Appropriate Levels for Continuous Operations All Taxes and/or Fees Paid by Seller Pro Rate through Closing Inspection of all Closing Documents Verification of Proper Authorization to Bind a Party Conduct After Agreement and Before Closing not to Diminish Value or Hamper Operations Seller Keeps Existing Funds, Restricted Fund and Satisfies Debt and Lien Obligations As-is Type of Transaction Rolling Stock, Movable Equipment, Laboratory Equipment, Tools and Accessories or Appurtenances Included in Sale No Outstanding Litigation Assistance in Petitions or Transfer, No Objections, Contractual Extent and Type of Cooperation Payment of Representative Fees and Costs as Incurred by Each Party Payment of Documentary Stamps, Recording Costs by Buyer Payment of Title Search and Policy by Buyer 3.3 Asset Purchase Agreement (APA) A typical Asset Purchase Agreement (APA) is provided as Appendix F for the reader. Negotiations, legal reviews, etc. all are required prior to finalization. Nonetheless, for planning purposes and discussion, we provided an initial draft for the parties to start from, if desired. 3.4 Chapter 180.301 Florida Statutes The most current edition of the above is provided in Appendix G. A briefing document covering these provisions, supplemented by testimony, is, typically, required prior to the City Council making the determination of public interest and thereafter separately authorizing the appropriate individual to effectuate the transaction with the authorized signature. 4.0 Financial Feasibility 4.1 General This section addresses the projected costs of the transaction and whether the projected revenue supports the expenditures. 4.2 City of Boynton Beach Rates The BBRU water rates are presented in Appendix E. The 2015/2016 rates are used. A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 4 4.3 Expected Costs Table 4-1 presents the expected BBRU costs of the transaction. There are no meters; so some 438 meters will be cut in an placed on the service lines. There is no fire protection; so some 3,000 LF of 6-inch water main will be extended from the BBRU water system and hydrants installed. There will be costs of the transaction, facilities transfer, permit transfers, recording and closing costs, and due diligence fees and costs. The expected cost estimate for construction, etc., is shown on Table 4-1 and is $280,000. The purchase price and variety of other minor costs will add approximately $20,000 for a projected total cost of $300,000. Table 4-1. Meters, Meter Sizes, and Construction Cost. Number Size $/Meter Cost 435 5/8 x ¾ $130 56,550 2 1 $150 300 1 1 ½ $206 206 Construction and Miscellaneous Parts $80 35,040 Subtotal $92,096 6 Water Main Approximately 3,000 LF 108,000 Hydrants 30,000 BB Utilities Subtotal Construction $230,096 Engineering and Permitting + Permit Transfers, etc., P&S, Recording, Due Diligence $50,000 4.4 Expected Revenue Expected Cost Estimate (Rounded) $280,000 Table 4-2 presents the expected revenues from the RME water customer base. In summary, the customer base is expected to produce approximately $85,000 per year. A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 5 Table 4-2. Expected Rate Revenue. A. Minimum Monthly Charge 435 x $12.35 x 0.7 = $3,761 2 x 12.35 x 1.5 = 37 1 x 12.35 x 2.5 = 31 B. Usage Charge Per Month $3,829/mo. Billed/Metered at Current 2,039,000 Less long term demand elasticity (39,000) Use per Month 2,000,000 Less 2% Metering (40,000) Billed Use per Month 1,960,000 1,960 x $1.65 = 3,234/mo. Total Monthly Total Yearly Rounded $7,063/mo. $84,756/yr. $85,000/yr. 4.5 Financial Feasibility Table 4-3 presents the projected financial feasibility of the transaction. In summary, the potential transaction is feasible as long as the total allocated costs do not increase more than $70,000. The typical MHP acquisition contingency is 30% and this transaction has only a 23% contingency. Typically, MHP s have latent defects in the distribution system and service connections. It is difficult at this time to quantify the extent of latent defects of this system. Only after 5 years of ownership will such costs be able to be quantified due to actual operations. GAI/HC find that the RME transaction is financially feasible given the above caveats. A. Costs Table 4-3. Financial Feasibility. 1. Construction, etc. $280,000 2. Purchase Price 10,000 3. Other Costs 10,000 Total $300,000 A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 6 B. Revenue / Debt Service 1. Gross Revenue $85,000/yr. 2. Use 33% for Debt Service (P&I) 28,050/yr. Rounded 28,000/yr. 3. 20 yr. Back Loan @ 4% $380,529 Less Financing (10,500) Net 370,029 C. Feasibility Yes, yet with only a 23% contingency (Typically 30%) 5.0 Summary of Benefits 5.1 Royal Manor Estates Royal Manor Estates will derive the following benefits: a. Fire protection. b. Metered service. c. Improved reliability. d. Improved water quality. e. Improved customer service. f. Compliance with Federal, State, and Local regulations. g. 24-hour and 7-day a week service, and resource access. h. The economy of scale provided by the City of Boynton Beach. i. Risk and liability avoidance. 5.2 Boynton Beach Regional Utilities BBRU will derive the following benefits: a. Gaining a minor groundwater WUP. b. Minor efficiencies for all customers. c. Incremental rate stabilization for all customers. d. Greater utilization of available capacity. e. Greater utilization of existing resources. f. Creates demand not from internal growth. A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department Page 7 g. Water supply is a City core business. h. Only minor responsibilities assumed. 6.0 Recommendation GAI/HC jointly recommend that BBRU pursue this business opportunity. 7.0 Implementation Steps The following implementation steps are envisioned: a. City accepting this report. b. BBRU and RME finalizing a transaction (APA) and RME signing the APA. c. Chapter 180.301 F.S. hearing and thereafter authorization to sign APA. d. Transfer of permits. e. Due diligence. f. Closing of sale. g. Meter installations. h. Design and construct fire protection system. A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX A RME 2013 Water Quality Report A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX B RME SFWMD Water Use Permit A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX C RME FDEP MOR s A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX D RME Map A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX E Boynton Beach Water Rates A132321.03 / June 10, 2015

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX F APA Initial Draft RME & CBB A132321.03 / June 10, 2015

Appendix F ROYAL MANOR ESTATES (SELLER) AND CITY OF BOYNTON BEACH (PURCHASER) INITIAL DRAFT OF ASSET PURCHASE AGREEMENT BOYNTON BEACH, FLORIDA This Agreement is entered into on this day of July 2015 by and between the City of Boynton Beach, Florida a municipal corporation, (hereinafter referred to as Purchaser ) and Royal Manor Estates, a Florida corporation (hereinafter referred to as Seller ). WITNESSETH WHEREAS the Seller is the owner of a water distribution system in Palm Beach County, Florida, and serving the residential community more fully described on Attachments A and B, attached, (hereinafter referred to as the Utility Area ); and WHEREAS Seller is currently operating its water distribution system; and WHEREAS Purchase is engaged in potable water service to this area is interconnected with Seller and is authorized to be in the business of furnishing water service to the various communities in the Purchaser s Service Area 1. Purchaser desires to acquire, and Seller desires to sell the water distribution facilities, (collectively Facilities ) installed to provide water service to the property of the Seller, subject to the terms and conditions of this Agreement, as such Facilities may be modified prior to Closing with the consent of the City of Boynton Beach. NOW, THEREFORE, in consideration of the mutual covenants as hereinafter set forth, the parties hereto agree as follows: ARTICLE I REPRESENTATIONS BY SELLER Seller represents and warrants that, to Seller s actual knowledge: 1) Seller is a Florida corporation duly incorporated, validly existing and in good standing under the laws of the State of Florida authorizing it to construct, operate and maintain a public water distribution system.

2) Seller is, and at the Closing (the Closing as hereinafter defined) will be, the owner of the Facilities with good and marketable title, free and clear of all liens and encumbrances. 3) Purchaser is exempt from the Florida Public Service Commission regulation (hereinafter referred to as the Commission ). 4) Seller will cooperate fully with the Purchaser in any and all applications or petitions to public authorities deemed necessary or desirable by Purchaser in connection with the purchase of the Facilities from Seller as contemplated herein. 5) Attached hereto as Attachments A and B are a detailed maps of the Facilities of Seller to be acquired by Purchaser, pursuant to this Agreement, showing both their respective installation and description. Said Facilities include all water utility assets and equipment owned by the Seller within the Property 2, including but not limited to a complete water distribution system as shown in Exhibit 1. The engineering plans and specifications for the Facilities have been organized and will be transferred to Purchaser with all other records. Said Facilities expressly exclude customer deposits and accounts receivables, if any, both of which shall be transferred to the Seller within 180 days of Closing. The Facilities are constructed within Sellers lands or are otherwise accessible to Seller and Purchaser. To the extent Purchaser agrees to grant those rights. 6) Attached hereto as Exhibit 2 is a list, signed by the Seller, and briefly describing, as of the date of this Agreement, the following: a) All pending or threatened action at law, suits in equity or administrative proceedings relating to the Facilities; b) All contracts or obligations of any nature between Seller and any other party including all developer agreements relating to the Property. c) All real estate, easements and rights and/or privileges associated with the utility owned by Seller to be transferred hereunder. 7) Except as indicated in item #6 above, there are no pending or threatened actions at law or suits in equity relating to the Facilities, or any pending or threatened proceedings before any governmental agency. 8) Except as indicated in item #6 above, there are no contracts or obligations of any nature between Seller and any other party relating to the Facilities or service or promised service. 9) Neither Seller nor any entity or individual affiliated with Seller has executed any agreement with purchasers of lots within the Service Area, or any other parties,

whereunder such purchases or other parties have acquired any interest in the Facilities used or to be used in rendering service to them. 10) Facilities are capable of rendering water utility service in the ordinary course of business in compliance with all federal, state and local rules and regulations including but not limited to all rules and regulations related to environmental protection and drinking water. 11) Prior to the Closing, the consummation of the transactions contemplated herein will have been duly authorized by all necessary action, corporate or otherwise, on behalf of Seller. 12) Seller has filed all tax returns which are required to be filed, and each return which has been filed is true and correct, and Seller has paid all taxes shown as payable on such returns when and as required by applicable law associated with the Facilities. 13) No representation or warranty by Seller in this agreement, or any statement or certificate furnished or to be furnished to Purchaser pursuant hereto or in connection with the transactions contemplated herein, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. ARTICLE II CLOSING AND PURCHASE PRICE 1) Closing a) The Closing shall take place within ninety (90) days of the date of mutual approval of this Agreement. b) At the Closing, the Seller will, upon due performance by Purchaser of its obligations under the Agreement, deliver: (i) such good and sufficient warranty deeds, bills of sale with covenants of warranty, and sufficient instruments of sale, in form and substance reasonably satisfactory to Purchaser s counsel, as shall be required to vest in Purchaser marketable title to all of the Facilities uses for the existing water system, free and clear of liens and encumbrances of every nature that would render title to the Facilities unmarketable. (ii) all of the files, documents, papers, agreements, books of account, customer lists, original cost invoices, engineering drawings, and records possessed by Seller pertaining to the water and sewer utility business conducted by Seller in the Property, other than its minute books and stock records, and any other records reasonably needed by Seller;

(iii) all orders, permits, licenses or certificates issued or granted to Seller by any governmental authority in connection with any authorization related to the construction, operation or maintenance of its Facilities or the conduct of its water and sewer utility business; and (iv) Opinions of Counsels, dated as of the Closing, that upon the delivery to Purchaser of the Bill of Sale and the approval respective legislative parties under Chapter 180.301 F.S. that Purchaser will then have title to the Facilities, free and clear of all liens and encumbrances in connection with the acquisition, construction, installation, and financing of the Facilities. c) At the Closing and from time to time thereafter, Seller shall execute and deliver such further instruments of sale, conveyance, transfer and assignment, and take such other action (without expending funds or bring suit) as Purchaser may reasonably request, in order more effectively to sell, convey, transfer and assign to Purchaser any of the Seller s Facilities, to confirm the title of Purchaser thereto and to assist Purchaser in exercising rights with respect thereto. 2) Purchase Consideration At the Closing Purchaser shall, upon due performance by Seller of its obligations under the Agreement, deliver to the Seller, the Purchase Price (the Purchase Price ) in the amount of ten thousand dollars ($10,000). Purchaser does not assume any liabilities of Seller wholly arising prior to Closing. ARTICLE III AGENCY APPROVALS Within fifteen (15) days following the execution of this Agreement Purchaser will file applications for transfer with the FDEP and SFWMD requesting the transfer of the Public Utility permits or sequential water use permit. Seller agrees to cooperate fully with Purchaser in Purchaser s application for such transfers and approvals. ARTICLE IV GENERAL 1) Upon purchase of the Facilities of Seller, Purchaser agrees to supply all customers within the Royal Manor Estates with continuous (subject to unavoidable outages) adequate and customary water utility service, and to operate, continuously maintain and promptly repair Facilities acquired herein. The Royal Manor Estates customers shall

receive a rate no less favorable than the rate offered by the City of Boynton Beach to any other customer it serves inside of the boundaries of the City of Boynton Beach. This warranty shall survive the Closing of this Agreement. 2) The failure of either party hereto to enforce any of the provisions of this Agreement or the waiver thereof in any instance by either party shall not be construed as a general waiver or relinquishment on its part of any such provisions, but the same shall, nevertheless, be and remain in full force and effect. 3) Any notice of delivery required to be made hereunder may be made by mailing a copy thereof addressed to the appropriate party as follows: If to Purchaser: Mr. Carl Pearse, Property Manager Royal Manor Estates 4290 Royal Manor Blvd. Boynton Beach, Florida 33436 If to Seller: Mr. Colin Groff, Utilities Director City of Boynton Beach 124 E. Woolbright Road Boynton Beach, Florida 33435 Delivery, when made by registered or certified mail, shall be deemed complete upon mailing. 4) The Attachments to this Agreement are a part hereof and are hereby incorporated in full by reference. 5) This Agreement shall be governed by the laws of the State of Florida. 6) The representations and warranties contained herein Article I shall survive, and continue in effect, after the Closing for a period of 12 months. Purchaser agrees to indemnify Seller, its successors and assigns, and hold it harmless against any loss, damage, liability, expense or cost accruing or resulting from any misrepresentation or breach of any representation, warranty or agreement on the part of the Purchaser under this Agreement or from any misrepresentation in or material omission from any certificate or other document furnished or to be furnished to Seller by Purchaser; Seller agrees to indemnify Purchaser, its successors and assigns, and hold it harmless against any loss, damage, liability, expense or cost, accruing or resulting from any misrepresentation or breach of any representation, or warranty or agreement made or to be performed by

Seller under this Agreement or from any misrepresentation in or material omission from any certificate or other documents furnished or to be furnished to Purchaser by Seller. 7) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the parties hereto have set their hands and seals the day and year above first written. ROYAL MANOR ESTATES, FLORIDA (SEAL) By: ATTEST: Owner Attorney APPROVED AS TO FORM AND CORRECTNESS Attorney CITY OF BOYNTON BEACH, FLORIDA (SEAL) By: ATTEST: Owner City Clerk APPROVED AS TO FORM AND CORRECTNESS Attorney

Phase I Overview Feasibility of the Acquisition Integration of the Royal Manor Estates Water System Boynton Beach Utilities Department APPENDIX G FS Chapter 180.301 Requirements A132321.03 / June 10, 2015