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REPLACEMENT RESERVE REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION REPLACEMENT RESERVE REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION Community Management by: SEASCAPE PROPERTY MANAGEMENT Mr. Doug Nichols 17563 Nassau Commons Blvd Lewes, Delaware 19958 302.645.2222 Consultant: 929 West Street, Suite 310 Annapolis, MD 21401 Tel: 410.268.0479 Fax: 410.268.8483 www.mdareserves.com
Transcript
Page 1: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

REPLAC

EMEN

T RESER

VE REPO

RT FY

2015

BAYSH

OR

E PR

OPER

TY OW

NER

S ASSO

CIATIO

N

REPLACEMENT RESERVE REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION

Community Management by:

SEASCAPE PROPERTY MANAGEMENT

Mr. Doug Nichols

17563 Nassau Commons Blvd Lewes, Delaware 19958

302.645.2222

Consultant:

929 West Street, Suite 310 Annapolis, MD 21401

Tel: 410.268.0479 Fax: 410.268.8483

www.mdareserves.com

Page 2: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

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Page 3: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

REPLACEMENT RESERVE REPORT

BAYSHORE PROPERTY OWNERS ASSOCIATION

MILLSBORO, DELAWARE Description. Bayshore Property Owners Association is a community association located on Bayshore Drive in Millsboro, Delaware. Constructed in 2005, the community consists of 66 detached single family homes and 146 townhouses containing a total of 212 units. The survey examined the common elements of the property, including:

• Asphalt drive and parking. • Concrete sidewalks, steps, and curb and gutter. • Retaining walls, fencing, and railings. • Swimming pool and community building. • Storm water management system.

Section A

Replacement Reserve Analysis

Executive Summary Reserve Status & Funding Plan - A1

General Information - A2 Cash Flow Method - A4

Cash Flow Inflation Funding - A6 Component Method - A8

Current Funding and Reserve Analysis Comments - A10

Section B

Replacement Reserve Inventory

Replacement Reserve Inventory General information - B1

Replacement Reserve Inventory Comments - B2

Schedule of Projected Replacements and Exclusions - B3

Section C

Projected Annual Replacements

Projected Annual Replacements General Information - C1

Reserve Analysis and Inventory Policies, Procedures, and Administration - C2

Calendar of Projected Annual Replacements - C2

Section D

Condition Assessment

Section E

Attachments

Accounting Summary Appendix

Video Answers to Frequently Asked Questions

Page 4: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Level of Service. This study has been performed as a Level 2 Update with Site Visit/On-Site Review as defined under the National Reserve Study Standards that have been adopted by the Community Associations Institute. As such, the component inventory is based on the study that was performed in 2008 by Miller - Dodson Associates. The inventory was adjusted to reflect changes as provided by the Community Manager or adjustments were made based on the site visit and visual inspection performed by the Analyst. The included fund status and funding plan have been developed from analysis of the adjusted inventory. To aid in the understanding of this report and its concepts and practices, on our web site, we have developed videos addressing frequently asked topics. In addition, there are posted links covering a variety of subjects under the resources page of our web site at mdareserves.com. Purpose. The purpose of this Replacement Reserve Study is to provide Bayshore Property Owners Association (hereinafter called the Association) with an inventory of the common community facilities and infrastructure components that require periodic replacement. The Study includes a general view of the condition of these items and an effective financial plan to fund projected periodic replacements. • Inventory of Items Owned by the Association. Section B lists the Projected Replacements of the

commonly owned items that require periodic replacement using funding from Replacement Reserves. The Replacement Reserve Inventory also provides information about excluded items, which are items whose replacements are not scheduled for funding from Replacement Reserves.

• Condition of Items Owned by the Association. Section B includes our estimates of the normal

economic life and the remaining economic life for the projected replacements. Section C provides a year-by-year listing of the projected replacements. Section D provides additional detail for items that are unique or deserving of attention because of their condition or the manner in which they have been treated in this study.

• Financial Plan. The Association has a fiduciary responsibility to protect the appearance, value, and

safety of the property and it is therefore essential the Association have a financial plan that provides funding for the projected replacements. In conformance with American Institute of Certified Public Accountant guidelines; Section A evaluates the current funding of Replacement Reserves as reported by the Association and recommends annual funding of Replacement Reserves by two generally accepted accounting methods; the Cash Flow Method and the Component Method. Section A includes graphic and tabular presentations of these methods and current Association funding. An Executive Summary of these calculations is provided on Page A1.

Basis. The data contained in this Replacement Reserve Study is based upon the following: • The Request for Proposal submitted and executed by the Association.

• Miller - Dodson performed a visual evaluation on November 14, 2014 to determine a remaining useful

life and replacement cost for the commonly owned elements of this facility. • This study contains additional recommendations to address inflation for the Cash Flow Method only.

For this recommendation, Miller - Dodson uses the Producers Price Index (PPI), which gauges inflation in manufacturing and construction. Please see page A6 and A7 for further details.

To-Scale Drawings. Site plans by Design Consultants Group dated May 2002 were used in the development of the previous study. We recommend the Association assemble and maintain a library of site and building plans of the entire facility. Record drawings should be scanned into an electronic format for safe storage and ease of distribution. Upon request for a nominal fee, Miller - Dodson can provide scanning services.

Page 5: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Current Funding. This reserve study has been prepared for Fiscal Year 2015 covering the period from January 1, 2015 to December 31, 2015. The Replacement Reserves on deposit as of January 1, 2015 are reported to be $130,043. The planned contribution for the fiscal year is $ 36,514. The balance and contribution figures have been supplied by the property management agent and confirmation or audit of these figures is beyond the scope of the study. For the purposes of this study, it is assumed that the annual contribution will be deposited at the end of each month. Acknowledgement. Miller - Dodson Associates would like to acknowledge the assistance and input of the Community Manager, Mr. Doug Nichols who provided very helpful insight into the current operations of the property. Analyst’s Credentials. Mr. Gregory S. Gilbert holds a Bachelors Degree in Architecture from the Georgia Institute of Technology and a Master of Architecture from the University of Oklahoma. Mr. Gilbert is a licensed Architect. Mr. Gilbert’s experience includes the design of residential homes, fire stations, and most recently educational projects. He has also done over twenty feasibility studies for the U. S. Navy, Boards of Education, and retail developers. All of these feasibility studies included performing existing condition surveys to look for maintenance issues, code violations and general conditions of the structure to determine if and how the buildings can be renovated or modified. He is currently a Reserve Analyst for Miller - Dodson Associates. Respectfully submitted,

Gregory S. Gilbert, AIA Reserve Analyst

Page 6: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

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Page 7: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A1Bayshore Property Owners Association Revised November 24, 2014

1029515BAYSHORE15

EXECUTIVE SUMMARYThe Bayshore Property Owners Association Replacement Reserve Inventory identifies 63 Projected Replacements forfunding from Replacement Reserves, with an estimated one-time replacement cost of $1,194,116.

The Replacement Reserve Analysis calculates recommended funding of Replacement Reserves by the two generallyaccepted methods, the Cash Flow Method and the Component Method. The Analysis also evaluates current fundingof Replacement Reserves, as reported by the Association. The calculations and evaluation are summarized below:

$52,616CASH FLOW METHOD MINIMUM ANNUAL FUNDING OF REPLACEMENT RESERVES IN THE STUDY YEAR, 2015.$20.68 Per unit (average), minimum monthly funding of Replacement Reserves

The Cash Flow Method (CFM) calculates Minimum Annual Funding of Replacement Reserves that will fund Projected Replacements identified in the Replacement Reserve Inventory from a common pool of ReplacementReserves and prevent Replacement Reserves from dropping below a Minimum Recommended Balance.

CFM - Minimum Annual Funding remains the same between peaks in cumulative expenditures called Peak Years.

The first Peak Year occurs in 2054 which is outside of the 30-year Study Period. The Cash FlowMethod - Minimum Annual Funding of Replacement Reserves remains constant at $52,616 throughout theentire 30-year Study Period.

$91,720COMPONENT METHOD RECOMMENDED ANNUAL FUNDING OF REPLACEMENT RESERVES IN THE STUDY YEAR, 2015.$36.05 Per unit (average), recommended monthly funding of Replacement Reserves

The Component Method is a very conservative funding model developed by HUD in the early 1980's.

The Component Method treats each projected replacement in the Replacement Reserve Inventory as a separate account. Deposits are made to each individual account, where funds are held for exclusive use by that item.

Based on this funding model, the Association has a Current Funding Objective of $486,258.

The Association reports having $130,043 on deposit, which is 26.7% funded.

$36,514CURRENT ANNUAL FUNDING OF REPLACEMENT RESERVES (as reported by the Association).$14.35 Per unit (average), reported current monthly funding of Replacement Reserves

The evaluation of Current Funding, as reported by the Association, has calculated that if the Associationcontinues to fund Replacement Reserves at the current level, there will NOT be adequate funds for ProjectedReplacements in 13 years of the 30-year Study Period, and a maximum shortfall of $-132,099 occurs in 2026.

Pages A2 and A3 explain the Study Year, Study Period, Adjustments (interest & inflation), Beginning Balance, and Projected Replacements. Pages A4 to A9explain in more detail the calculations associated with the Cash Flow Method, Component Method, and Current Funding.

REPLACEMENT RESERVE STATUS AND FUNDING PLAN

Current funding of Replacement Reserves is inadequate to fund Projected Replacements.

We recommend the Association adopt a Replacement Reserve Funding Plan based on the Cash Flow Method or theComponent Method, to ensure that adequate funding is available throughout the 30-Year Study Period for the$1,174,976 of Projected Replacements listed in the Bayshore Property Owners Association Replacement Reserve Inven

The Funding Plan should be professionally updated every three to five years or after completion of each major replacement project. The Board of Directors has a fiduciary responsibility to review the Funding Plan annually andshould consider annual increases in Replacement Reserve funding at least equal to the Producer Price Index.

Page 8: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A2Bayshore Property Owners Association Revised November 24, 2014

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REPLACEMENT RESERVE ANALYSIS - GENERAL INFORMATION

The Bayshore Property Owners Association Replacement Reserve Analysis calculations of recommended funding ofReplacement Reserves by the Cash Flow Method and the Component Method, and the evaluation of the Current Funding, are based upon the same General Information; including the Study Year, Study Period, Beginning Balance, and Projected Replacements.

STUDY YEARThe Association reports that their accounting year begins on January 1, and the Study Year, the first year evaluatedby the Replacement Reserve Analysis, begins on January 1, 2015.

STUDY PERIODThe Replacement Reserve Analysis evaluates the funding of Replacement Reserves over a 30-year Study Period that begins on January 1, 2015.

BEGINNING BALANCEThe Association reports Replacement Reserves on Deposit totaling $130,043 at the start of the Study Year.

ADJUSTMENTS AND INFLATIONThe short term consequences of 4.50% inflation and no constant annual increase in Reserve funding on the Cash Flow Method, as calculated by a proprietary model developed by Miller + Dodson Associates. are shown onPages A6 and A7. Other calculations in this Analysis do not account for inflation or a constant annual increase.The calculations in this Analysis do not account for interest earned on Replacement Reserves.

Graph #1. Annual Expenditures for Projected Replacements This bar graph summarizes annual expenditures for the $1,174,976 of Projected Replacements identified in the Replacement Reserve Inventory over the30-year Study Period. The red line shows the average annual expenditure of $39,166.

30 YR AVERAGE

$39,166

$8,9

60 $19,

118

$0

$5,1

07 $19,

050

$54,

000

$220

,914

$8,0

60

$0

$44,

735

$19,

319

$301

,046

$5,8

20

$0

$21,

610

$66,

357

$54,

120

$0

$5,8

20

$25,

178

$32,

519 $4

8,28

6

$2,2

00

$0

$24,

870

$108

,022

$43,

718

$5,1

07

$5,8

60

$25,

178

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

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2030

2031

2032

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2044

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

Page 9: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A3Bayshore Property Owners Association Revised November 24, 2014

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PROJECTED REPLACEMENTSThe Bayshore Property Owners Association Replacement Reserve Inventory (Section B) identifies 63 ProjectedReplacements with a one-time Replacement Cost of $1,194,116 and replacements totaling $1,174,976 in the30-year Study Period. Projected Replacements are the replacement of commonly-owned items that:

require periodic replacement and whose replacement is to be funded from Replacement Reserves.

The accuracy of the Bayshore Property Owners Association Replacement Reserve Analysis is dependent upon expenditures from Replacement Reserves being made ONLY for the 63 Projected Replacementsspecifically listed in the Replacement Reserve Inventory.

To further assist in the identification of items not appropriately funded from Replacement Reserves,the Replacement Reserve Inventory identifies 43 Excluded Items. The rationale behind the exclusion of itemsfrom funding by Replacement Reserves is discussed in detail on Page B1.

The Section B - Replacement Reserve Inventory, contains Tables that list each Projected Replacement (and any Excluded Items) broken down into 11 major categories (Pages B3 to B13). Tables are also included that list eachProjected Replacement by year for each of the 30 years of the Study Period beginning on Page C1.

Graph #2. Comparison of Cumulative Replacement Reserve Funding and ExpendituresThe line graph shows Replacement Reserves - Cumulative Receipts over the 30-year Study Period by the Cash Flow Method (red circles), ComponentMethod (purple diamonds), and the Current Funding Plan as reported by the Association (blue triangles). The bar graph shows the CumulativeExpenditures necessary to fund the Project Replacements listed in the Replacement Reserve Inventory (Section B) and summarized in Graph #1.

$1,225,463$1,174,976

$1,967,765

$1,708,531

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$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Cash Flow Method - Cumulative Receipts

Component Method - Cumulative Receipts

Current Funding - Cumulative Receipts

Projected Replacements - CumulativeExpenditures

Page 10: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A4Bayshore Property Owners Association Revised November 24, 2014

1029515BAYSHORE15

CASH FLOW METHOD

$52,616CASH FLOW METHOD MINIMUM ANNUAL FUNDING OF REPLACEMENT RESERVES IN THE STUDY YEAR, 2015.$20.68 Per unit (average), minimum monthly funding of Replacement Reserves

General. The Cash Flow Method (also referred to as the Straight Line Method) is founded on the concept that theReplacement Reserve Account is solvent if cumulative receipts always exceed cumulative expenses. The Cash FlowMethod calculates a MINIMUM annual deposit to Replacement Reserves that will:

Fund all Projected Replacements listed in the Replacement Reserve Inventory (see Section B) Prevent Replacement Reserves from dropping below the Minimum Recommended Balance (see Page A-5) Allow a constant annual funding level between peaks in cumulative expenditures

Graph #3. Cash Flow Method - Cumulative Receipts and Expenditures Graph

$1,174,976

$533,555

$1,708,531

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$0

$500,000

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Cash Flow Method - Cumulative Receipts Cash Flow Method - Year End Balance Cumulative Expenditures

Page 11: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A5Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD (cont'd)

Replacement Reserves - Minimum Recommended Balance. The Minimum Recommended Balance is $59,706,which is 5.0 percent of the one-time replacement cost of the Projected Replacements listed in the ReplacementReserve Inventory. Unless otherwise noted in the Comments on Page A-9, the Minimum RecommendedBalance has been established by the Analyst based upon an evaluation of the types of items included in theReplacement Reserve Inventory.

Peak Years. The Cash Flow Method calculates a constant annual funding of Replacement Reserves betweenpeaks in cumulative expenditures called Peak Years. In Peak Years, Replacement Reserves on Deposit declineto the Replacement Reserves - Minimum Recommended Balance discussed in the paragraph above.

First Peak Year. The first Peak Year occurs in 2054, which is outside of the 30-year Study Period. The Cash FlowMethod - Minimum Annual Funding of Replacement Reserves of $52,616 remains the same throughout theentire 30-year Study Period.

This funding level is adequate to fund the $1,174,976 of Projected Expenditures listed in the Replacement ReserveInventory.

Study Period. The Cash Flow Method calculates the recommended contributions to Replacement Reserves over the 30-year Study Period. These calculations are based upon a 40-year projection of expenditures for Projected Replacements to avoid the Replacement Reserve balance dropping to the Minimum Recommended Balance in thefinal year of the Study Period.

Failure to Fund. The Cash Flow Method calculates a MINIMUM annual funding of Replacement Reserves. Failure to fund Replacement Reserves at the minimum level calculated by the Cash Flow Method will result in Replacement Reserves not being available for the Projected Replacements listed in the Replacement Reserve Inventory and/or Replacement Reserves dropping below the Minimum Recommended Balance.

Adjustment to the Cash Flow Method for interest and inflation. The funding recommendations on Pages A4 and A5 do not account for interest earned on Replacement Reserves, the effects of inflation of the cost of Projected Replacements, or a constant annual increase in Annual Funding of Replacement Reserves.

Comparison of Cash Flow Funding and Average Annual Expenditure. The Average Annual Expenditure for Projected Replacements listed in the Reserve Inventory over the 30-year Study Period is $39,166 (see Graph #1).The Cash Flow Method - Minimum Annual Funding of Replacement Reserves in the Study Year is $52,616.This is 134.3 percent of the Average Annual Expenditure, indicating that the Association is building ReplacementReserves in advance of the first Peak Year in 2054.

Table #1. Cash Flow Method Data - Years 1 through 30Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Beginning balance $130,043 Minimum annual funding $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616

Expenditures $8,960 $19,118 $5,107 $19,050 $54,000 $220,914 $8,060 $44,735Year end balance $173,699 $207,197 $259,813 $307,322 $340,889 $339,505 $171,207 $215,763 $268,379 $276,260

Minimum recommended balance $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706Cumulative expenditures $8,960 $28,078 $28,078 $33,186 $52,236 $106,236 $327,150 $335,210 $335,210 $379,945

Cumulative receipts $182,659 $235,276 $287,892 $340,508 $393,124 $445,741 $498,357 $550,973 $603,589 $656,206

Year 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034Minimum annual funding $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616

Expenditures $19,319 $301,046 $5,820 $21,610 $66,357 $54,120 $5,820 $25,178Year end balance $309,558 $61,128 $107,924 $160,540 $191,547 $177,806 $176,302 $228,918 $275,715 $303,153

Minimum recommended balance $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706Cumulative expenditures $399,264 $700,310 $706,130 $706,130 $727,740 $794,098 $848,217 $848,217 $854,037 $879,215

Cumulative receipts $708,822 $761,438 $814,054 $866,671 $919,287 $971,903 $1,024,519 $1,077,136 $1,129,752 $1,182,368

Year 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044Minimum annual funding $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616 $52,616

Expenditures $32,519 $48,286 $2,200 $24,870 $108,022 $43,718 $5,107 $5,860 $25,178Year end balance $323,250 $327,581 $377,997 $430,614 $458,360 $402,954 $411,852 $459,361 $506,117 $533,555

Minimum recommended balance $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706 $59,706Cumulative expenditures $911,734 $960,020 $962,220 $962,220 $987,090 $1,095,112 $1,138,831 $1,143,938 $1,149,798 $1,174,976

Cumulative receipts $1,234,985 $1,287,601 $1,340,217 $1,392,833 $1,445,450 $1,498,066 $1,550,682 $1,603,298 $1,655,915 $1,708,531

Page 12: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A6Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD - INFLATION ADJUSTED FUNDING

The Miller + Dodson ModelGeneral. The Cash Flow Method funding recommendations shown on pages A4 and A5 have been calculated in today's dollars with no adjustment for inflation. Recent swings in construction costs demonstrate the risk facing anAssociation that does not consider the effects of inflation when funding Replacement Reserves.

Cash Flow Method - Inflation Adjusted Funding. Below is an outline of the proprietary model developed by Miller + Dodson Associates to forecast the short-term consequences of inflation on Replacement Reserves.

Study Year. The Unit Replacement Costs in the Study Year (listed in Section B Inventory) reflect currentconstruction costs. Appropriate adjustments to account for any time lag between when the Study is conductedand the Study Year have been made by the Reserve Analyst.

Year Two Inflation Adjusted Funding calculation. The Year Two Starting Balance is calculated assumingAssociation compliance with the Study Year funding and replacement data listed on Page A7.Next, the Projected Replacement Costs are adjusted using the Construction Cost Inflation Rate (see detailed information below). The adjusted data is then evaluated using the Cash Flow Method, calculating the Year Two Inflation AdjustedMinimum Annual Funding of Replacement Reserves.

Year Three Inflation Adjusted Funding Calculation. The same methodology has been used to develop the Inflation Adjusted Cash Flow Method Minimum Annual Funding of Replacement Reserves in Year Three. Simplecompounding has been used to calculate the Year Three Projected Replacement Costs.

Year Four and Beyond. We have not calculated adjusted funding recommendations beyond the third year of the Study nor do we believe it is appropriate to do so. Inflation adjusted funding recommendations are not intended to be a substitute for the periodic evaluation of the common elements by an experienced Reserve Analyst. We recommend the common elements of the community be evaluated by a Reserve Analyst every 3 to 5 years and at the completion of each major replacement project.

Base Construction Cost Inflation Rate. We have utilized a 4.50 percent base rate of inflation in our calculation of second and third year inflation adjusted funding. The rate of inflation is based upon our review of the Producer Price Indexes for Construction Materials, Structure Types & Subcontractors as published by the Bureau of Labor Statistics and our experience with recent pricing trends in your area."

Assumptions. Cash Flow Method, Inflation Adjusted Funding in Year Two and Year Three is calculated based upon three assumptions discussed below and quantified on Page A7. Prior to approving a budget based upon the calculations, the Association should review the accuracy of the assumptions. If discrepancies are noted, contactMiller + Dodson Associates to arrange for a Replacement Reserve Study Update.

Replacement Reserve Funding. We have assumed the Association will fund Replacement Reserves asrecommended in the Study.

Scheduled Replacements. We have assumed the Association will make Scheduled Replacements as discussed in the Study (listed on Page C2) and that the cost of these replacements is in substantial compliance with theestimated replacement costs. We have further assumed that no Replacement Reserves will be used to fundreplacements other than those specifically listed in the Replacement Reserve Inventory.

Construction Cost Inflation Rate evaluation. Prior to approving a budget based upon the Year Two and Year Three Adjusted Replacement Reserve Funding calculations, the 4.50 percent base rate of inflation used in our should be compared to rates published by the Bureau of Labor Statistics. If a significant discrepancy (over1 percent) is noted, contact Miller Dodson Associates prior to using the funding calculations.

Interest. The recommended funding calculations above do not account for interest earned on Replacement Reserves.In 2015, based on a 1.50 percent interest rate, we estimate the Association will earn $2,278 on an average balanceof $151,871, $2,872 on an average balance of $191,490 in 2016, and $3,582 on $238,781 in 2017. Should the Association earn and choose to attribute 100 percent of the interest to Reserves, the 2015 the minimum funding could be reduced from $52,616 to $50,338 (a 4.33 percent reduction), $55,559 to $52,687 in 2016 (a 5.17 percent reduction), and $59,001 to $55,420 in 2017 (a 6.07 percent reduction).

Page 13: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Replacement Reserve Analysis - Page A7Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD ANNUAL FUNDING GRAPH

THREE-YEAR FUNDING RECOMMENDATIONS WITH INFLATIONADJUSTMENT

The bar graph below shows the Cash Flow Method Annual Funding calculated in today's dollars (lighter bars) and the Inflation Adjusted Cash Flow Method Annual Funding (dark bars)

2015 - STUDY YEAR

$52,616 MINIMUM ANNUAL FUNDING

$20.68 Per unit (average), minimum monthly funding of Replacement Reserves

The $52,616 funding of Replacement Reserves in the Study Year has been calculated using current construction costs (listed in Section B Inventory). The Analyst has adjusted the costs to account for any time lag between the preparation of the Study and the Study Year.

2016 - YEAR TWO

$55,559 INFLATION ADJUSTED MINIMUM ANNUAL FUNDING

$21.84 Per unit (average), minimum monthly funding of Replacement Reserves

The $55,559 inflation adjusted funding of Replacement Reserves in 2016 represents a 5.59 percent increase over the non-inflation adjusted fundingrecommendation of $52,616 in the Study Year.

The specific assumptions used to calculate the Year Two Inflation Adjusted Funding are listed below. If the assumptions are inaccurate, do not use the data and contact Miller Dodson Associates to arrange for a Replacement Reserve Study Update. The assumptions are:

Replacement Reserves on Deposit totaling $173,699 on January 1, 2016.

All 2015 Projected Replacements scheduled in the Replacement ReserveInventory and listed on Page C2, having been accomplished in 2015 ata cost of $8,960.

An average annual Construction Cost Inflation Rate of 4.50 percentover the previous 12 month period.

2017 - YEAR THREE

$59,001 INFLATION ADJUSTED MINIMUM ANNUAL FUNDING

$23.19 Per unit (average), minimum monthly funding of Replacement Reserves

The $59,001 inflation adjusted funding of Replacement Reserves in 2017 represents a 12.14 percent increase over the non-inflation adjusted fundingrecommendation of $52,616 in the Study Year.

The specific assumptions used to calculate the Year Two Inflation Adjusted Funding are listed below. If the assumptions are inaccurate, do not use the data and contact Miller Dodson Associates to arrange for a Replacement Reserve Study Update. The assumptions are:

Replacement Reserves on Deposit totaling $209,280 on January 1, 2016.

All 2016 Projected Replacements scheduled in the Replacement ReserveInventory and listed on Page C2, having been accomplished in 2016 ata cost of $19,979.

An average annual Construction Cost Inflation Rate of 4.50 percentover the previous 24 month period.

$52,

616

$52,

616

$52,

616 $5

5,55

9

$52,

616

$59,

001

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

Cash Flow Method Annual FundingInflation Adjusted Cash Flow Method Annual Funding

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COMPONENT METHOD

$91,720COMPONENT METHOD RECOMMENDED ANNUAL FUNDING OF REPLACEMENT RESERVES IN THE STUDY YEAR, 2015.$36.05 Per unit (average), recommended monthly funding of Replacement Reserves

General. The Component Method (also referred to as the Full Funded Method) is a very conservativemathematical model developed by HUD in the early 1980s. Each of the 63 Projected Replacements listed in theReplacement Reserve Inventory is treated as a separate account. The Beginning Balance is allocated to each of theindividual accounts, as is all subsequent funding of Replacement Reserves. These funds are "locked" in these individual accounts and are not available to fund other Projected Replacements. The calculation of Recommended Annual Funding of Replacement Reserves is a multi-step process outlined in more detail on Page A9.

Graph #4. Component Method - Cumulative Receipts and Expenditures Graph

$1,174,976

$792,790

$1,967,765

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$0

$500,000

$1,000,000

$1,500,000

$2,000,000

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Component Method - Cumulative Receipts Component Method - Year End Balance Projected Replacements - Cumulative Expenditures

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COMPONENT METHOD (cont'd)

Current Funding Objective. A Current Funding Objective is calculated for each of the Projected Replacementslisted in the Replacement Reserve Inventory. Replacement Cost is divided by the Normal Economic Life todetermine the nominal annual contribution. The Remaining Economic Life is then subtracted from theNormal Economic Life to calculate the number of years that the nominal annual contribution should havebeen made. The two values are then multiplied to determine the Current Funding Objective. This is repeated for each of the 63 Projected Replacements. The total, $486,258, is the Current Funding Objective.

For an example, consider a very simple Replacement Reserve Inventory with one Projected Replacement, a fencewith a $1,000 Replacement Cost, a Normal Economic Life of 10 years, and a Remaining Economic Life of 2 years.A contribution to Replacement Reserves of $100 ($1,000 + 10 years) should have been made in each of theprevious 8 years (10 years - 2 years). The result is a Current Funding Objective of $800 (8 years x $100 per year).

Funding Percentage. The Funding Percentage is calculated by dividing the Beginning Balance ($130,043)by the Current Funding Objective ($486,258). At Bayshore Property Owners Association the Funding Percentage is 2

Allocation of the Beginning Balance. The Beginning Balance is divided among the 63 Projected Replacementsin the Replacement Reserve Inventory. The Current Funding Objective for each Projected Replacement ismultiplied by the Funding Percentage and these funds are then "locked" into the account of each item.

If we relate this calculation back to our fence example, it means that the Association has not accumulated $800in Reserves (the Funding Objective), but rather at 26.7 percent funded, there is $214 in the account for the fence.

Annual Funding. The Recommended Annual Funding of Replacement Reserves is then calculated for eachProjected Replacement. The funds allocated to the account of the Projected Replacement are subtracted from the Replacement Cost. The result is then divided by the number of years until replacement, and the result is the annual funding for each of the Projected Replacements. The sum of these is $91,720, the Component MethodRecommended Annual Funding of Replacement Reserves in the Study Year (2015).

In our fence example, the $214 in the account is subtracted from the $1,000 Total Replacement Cost and divided by the 2 years that remain before replacement, resulting in an annual deposit of $393. Next year, the depositremains $393, but in the third year, the fence is replaced and the annual funding adjusts to $100.

Adjustment to the Component Method for interest and inflation. The calculations in the Replacement ReserveAnalysis do not account for interest earned on Replacement Reserves, inflation, or a constant annual increase in Annual Funding of Replacement Reserves. The Component Method is a very conservative method and if the Analysis is updated regularly, adequate funding will be maintained without the need for adjustments.

Table #2. Component Method Data - Years 1 through 30Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Beginning balance $130,043 Recommended annual funding $91,720 $87,027 $82,825 $82,825 $82,482 $80,966 $78,292 $63,539 $63,445 $63,445

Expenditures $8,960 $19,118 $5,107 $19,050 $54,000 $220,914 $8,060 $44,735Year end balance $212,803 $280,712 $363,537 $441,255 $504,687 $531,653 $389,031 $444,510 $507,956 $526,666

Cumulative Expenditures $8,960 $28,078 $28,078 $33,186 $52,236 $106,236 $327,150 $335,210 $335,210 $379,945Cumulative Receipts $221,763 $308,790 $391,615 $474,441 $556,923 $637,889 $716,181 $779,720 $843,166 $906,611

Year 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034Recommended annual funding $62,617 $61,785 $52,836 $52,715 $52,715 $52,715 $52,539 $52,134 $52,134 $52,062

Expenditures $19,319 $301,046 $5,820 $21,610 $66,357 $54,120 $5,820 $25,178Year end balance $569,964 $330,703 $377,719 $430,434 $461,540 $447,898 $446,317 $498,451 $544,765 $571,649

Cumulative Expenditures $399,264 $700,310 $706,130 $706,130 $727,740 $794,098 $848,217 $848,217 $854,037 $879,215Cumulative Receipts $969,228 $1,031,013 $1,083,849 $1,136,564 $1,189,280 $1,241,995 $1,294,534 $1,346,668 $1,398,802 $1,450,865

Year 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044Recommended annual funding $52,062 $51,984 $51,901 $51,901 $51,901 $51,855 $51,452 $51,300 $51,272 $51,272

Expenditures $32,519 $48,286 $2,200 $24,870 $108,022 $43,718 $5,107 $5,860 $25,178Year end balance $591,193 $594,891 $644,593 $696,494 $723,525 $667,357 $675,091 $721,284 $766,696 $792,790

Cumulative Expenditures $911,734 $960,020 $962,220 $962,220 $987,090 $1,095,112 $1,138,831 $1,143,938 $1,149,798 $1,174,976Cumulative Receipts $1,502,927 $1,554,911 $1,606,812 $1,658,714 $1,710,615 $1,762,469 $1,813,922 $1,865,222 $1,916,494 $1,967,765

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CURRENT FUNDING

$36,514CURRENT ANNUAL FUNDING OF REPLACEMENT RESERVES (as reported by the Association).$14.35 Per unit (average), reported current monthly funding of Replacement Reserves

General. Our evaluation of the Current Association Funding assumes that the Association will continue to fundReplacement Reserves at the current level of $36,514 per year in each of the 30 years of the Study Period.

Our evaluation is based upon this Replacement Reserve Funding Level, a $130,043 Beginning Balance, theProjected Annual Replacement Expenditures shown in Graph #1 and listed in the Replacement Reserve Inventory,and any interest, inflation rate, or constant annual increase in annual contribution adjustments discussed below.

Evaluation. Our calculations have determined that Current Annual Funding of Replacement Reserves, as reportedby the Association, is inadequate to fund Projected Replacement beginning in 2026.

The Current Annual Funding of Replacement Reserves results in insufficient funds to make Projected Replacementsin 13 years of the 30-year Study Period, and a maximum shortfall of $-132,099 occurs in 2026.

Adjustment to the Current Association Funding for interest and inflation. The Calculations in the ReplacementReserve Analysis do not account for interest earned on Replacement Reserves, the effects of inflation of the cost of Projected Replacements, or a constant annual increase in Annual Funding of Replacement Reserves.

Comparison of Current Association Funding and Average Annual Expenditure. The average annual expenditure forProjected Replacements listed in the Reserve Inventory over the 30-year Study Period is $39,166 (see Graph #1). Current Association annual funding of Replacement Reserves is $36,514, or approximately 93 percent ofthe Average Annual Expenditure.

Graph #5. Current Association Funding - Cumulative Receipts and Expenditures Graph

$1,174,976

$50,487

$1,225,463

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($500,000)

$0

$500,000

$1,000,000

$1,500,000

Current Funding - Cumulative Receipts Current Funding - Year End Balance Projected Replacements - CumulativeExpenditures

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CURRENT FUNDING (cont'd)

Table #3. Current Funding Data - Years 1 through 30Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Beginning balance $130,043 Annual deposit $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514

Expenditures $8,960 $19,118 $5,107 $19,050 $54,000 $220,914 $8,060 $44,735Year end balance $157,597 $174,993 $211,507 $242,913 $260,377 $242,891 $58,491 $86,945 $123,459 $115,238

Cumulative Expenditures $8,960 $28,078 $28,078 $33,186 $52,236 $106,236 $327,150 $335,210 $335,210 $379,945Cumulative Receipts $166,557 $203,071 $239,585 $276,099 $312,613 $349,127 $385,641 $422,155 $458,669 $495,183

Year 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034Annual deposit $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514

Expenditures $19,319 $301,046 $5,820 $21,610 $66,357 $54,120 $5,820 $25,178Year end balance $132,433 ($132,099) ($101,405) ($64,891) ($49,987) ($79,831) ($97,436) ($60,922) ($30,228) ($18,892)

Cumulative expenditures $399,264 $700,310 $706,130 $706,130 $727,740 $794,098 $848,217 $848,217 $854,037 $879,215Cumulative receipts $531,697 $568,211 $604,725 $641,239 $677,753 $714,267 $750,781 $787,295 $823,809 $860,323

Year 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044Annual deposit $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514 $36,514

Expenditures $32,519 $48,286 $2,200 $24,870 $108,022 $43,718 $5,107 $5,860 $25,178Year end balance ($14,897) ($26,669) $7,645 $44,159 $55,803 ($15,705) ($22,910) $8,497 $39,151 $50,487

Cumulative Expenditures $911,734 $960,020 $962,220 $962,220 $987,090 $1,095,112 $1,138,831 $1,143,938 $1,149,798 $1,174,976Cumulative Receipts $896,837 $933,351 $969,865 $1,006,379 $1,042,893 $1,079,407 $1,115,921 $1,152,435 $1,188,949 $1,225,463

COMMENTS ON THE REPLACEMENT RESERVE ANALYSIS

This Replacement Reserve Study has been developed in compliance with the Community Associations Institute,National Reserve Study Standards, for a Level Two - Update (with site visit and on-site review).

Bayshore Property Owners Association has 212 units. The type of property is a home owner association.

Our calculations assume that Replacement Reserves are not subject to tax.

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Intentionally Left Blank

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REPLACEMENT RESERVE INVENTORYGENERAL INFORMATION

Bayshore Property Owners Association - Replacement Reserve Inventory identifies 106 items. Two types of items areidentified, Projected Replacements and Excluded Items:

PROJECTED REPLACEMENTS. 63 of the items are Projected Replacements and the periodicreplacements of these items are scheduled for funding from Replacement Reserves. The Projected Replacementshave an estimated one-time replacement cost of $1,194,116. Replacements totaling $1,174,976 are scheduledin the Replacement Reserve Inventory over the 30-year Study Period.

Projected Replacements are the replacement of commonly owned physical assets that require periodic replacement and whose replacement is to be funded from Replacement Reserves.

EXCLUDED ITEMS. 43 of the items are Excluded Items, and expenditures for these items are NOTscheduled for funding from Replacement Reserves. The accuracy of the calculations made in the ReplacementReserve Analysis is dependent on expenditures NOT being made for Excluded Items. The Excluded Itemsare listed in the Replacement Reserve Inventory to identify specific items and categories of items thatare not to be funded from Replacement Reserves. There are multiple categories of items that are typicallyexcluded from funding by Replacement Reserves, including but not limited to:

Tax Code. The United States Tax Code grants very favorable tax status to Replacement Reserves, conditionedon expenditures being made within certain guidelines. These guidelines typically exclude maintenanceactivities, minor repairs and capital improvements.

Value. Items with a replacement cost of less that $1,000 and/or a normal economic life of less than 3 years are typically excluded from funding from Replacement Reserves. This exclusion is made to accurately reflecthow Replacement Reserves are administered. If the Association has selected an alternative levels, it will benoted in the Replacement Reserve Inventory - General Comments on Page B2.

Long-lived Items. Items that when properly maintained, can be assumed to have a life equal to the propertyas a whole, are typically excluded from the Replacement Reserve Inventory.

Unit improvements. Items located on property owned by a single unit and where the items serve a single unit are generally assumed to be the responsibility of that unit, not the Association.

Other non-common improvements. Items owned by the local government, public and private utility companies, the United States Postal Service, Master Associations, state and local highway authorities, etc., may beinstalled on property that is owned by the Association. These types of items are generally not the responsibility of the Association and are excluded from the Replacement Reserve Inventory.

The rationale for the exclusion of an item from funding by Replacement Reserves is discussed in more detail inthe 'Comments' sections of the Section B - Replacement Reserve Inventory.

CATEGORIES. The 106 items included in the Bayshore Property Owners Association Replacement Reserve Invenare divided into 11 major categories. Each category is printed on a separate page, Pages B3 to B13.

LEVEL OF SERVICE. This Replacement Reserve Inventory has been developed in compliance with the standardsestablished for a Level Two - Update (with site visit and on-site review), as defined by the National Reserve StudyStandards, established in 1998 by Community Associations Institute, which states:

Level II Studies are based entirely on the component inventory from a prior study. This informationis adjusted to reflect changes to the inventory that are provided by the Association, and the quantities are adjusted accordingly from field measurement and/or quantity takeoffs from to-scaledrawings that are made available to us. The condition of all components is ascertained from a sitevisit and the visual inspection of each component by the analyst. The Remaining Economic Life andreplacement cost of components are provided based in part on these observations. The fund status and Funding Plan are derived from analysis of this data.

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REPLACEMENT RESERVE INVENTORY - GENERAL INFORMATION (cont'd)

INVENTORY DATA. Each of the 63 Projected Replacements listed in the Replacement Reserve Inventoryincludes the following data:

Item Number. The Item Number is assigned sequentially and is intended for identification purposes only.

Item Description. We have named each item included in the Inventory. Where the name of the itemand the category are not sufficient to specifically identify the item, we have included additional information in the Comments section at the bottom of the page.

Units. We have used standard abbreviations to identify the number of units including SF-square feet, LF-lineal feet, SY-square yard, LS-lump sum, EA-each, and PR-pair. Nonstandard abbreviations are noted in the Comments section on the page on which the abbreviation is used.

Number of Units. The methods used to develop the quantities are discussed in "Level of Service" above.

Unit Replacement Cost. We use three sources to develop the unit cost data shown in the Inventory; actualreplacement cost data provided by the client, industry standard estimating manuals, and a cost databasethat we have developed based upon our detailed interviews with contractors and service providers who arespecialists in their respective lines of work. In addition, trends in the Producers Price Index (PPI), laborrates, and transportation costs are monitored and considered. This cost database is reviewed and updated regularly by Miller Dodson and biannually by an independent professional cost estimating firm.

Normal Economic Life (Yrs). The number of years that a new and properly installed item should beexpected to remain in service.

Remaining Economic Life (Yrs). The estimated number of years before an item will need to be replaced. In "normal" conditions, this could be calculated by subtracting the age of the item from the Normal Economic Life of the item, but only rarely do physical assets age "normally". Some itemsmay have longer or shorter lives depending on many factors such as environment, initial quality of the item, maintenance, etc.

Total Replacement Cost. This is calculated by multiplying the Unit Replacement Cost by the Number of Units.

Each of the 43 Excluded Items includes the Item Description, Units, and Number of Units. Many of theExcluded Items are listed as a 'Lump Sum' with a quantity of 1. For the Excluded Items, this indicates thatall of the items identified by the 'Item Description' are excluded from funding by Replacement Reserves.

REVIEW OF EXPENDITURES. This Replacement Reserve Study should be reviewed by an accounting professional representing the Association prior to implementation.

PARTIAL FUNDING. Items may have been included in the Replacement Reserve Inventory at less than 100 percent of their full quantity and/or replacement cost. This is done on items that will never be replacedin their entirety, but which may require periodic replacements over an extended period of time. The assumptions that provide the basis for any partial funding are noted on in the Comments section.

REMAINING ECONOMIC LIFE GREATER THAN 40 YEARS. The calculations do not include funding for initialreplacements beyond 40 years. These replacements are included in this Study for tracking and evaluation. Theyshould be included for funding in future Studies, when they enter the 40-year window.

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CONCRETE COMPONENTSPROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

1 Concrete flatwork (6%) sf 208 $9.65 60 3 2 $2,0072 Concrete flatwork (6%) sf 208 $9.65 60 9 2 $2,0073 Concrete flatwork (6%) sf 208 $9.65 60 15 2 $2,0074 Concrete flatwork (6%) sf 208 $9.65 60 21 2 $2,0075 Concrete flatwork (6%) sf 208 $9.65 60 27 2 $2,0076 Concrete flatwork (6%) sf 208 $9.65 60 33 2 $2,0077 Concrete flatwork (6%) sf 208 $9.65 60 39 2 $2,0078 Concrete flatwork (6%) sf 208 $9.65 60 45 2 $2,0079 Concrete flatwork (6%) sf 208 $9.65 60 51 2 $2,007

10 Concrete flatwork (6%) sf 208 $9.65 60 57 2 $2,007

11 Concrete curb (6%) ft 80 $34.00 60 6 2 $2,72012 Concrete curb (6%) ft 80 $34.00 60 12 2 $2,72013 Concrete curb (6%) ft 80 $34.00 60 18 2 $2,72014 Concrete curb (6%) ft 80 $34.00 60 24 2 $2,72015 Concrete curb (6%) ft 80 $34.00 60 30 2 $2,72016 Concrete curb (6%) ft 80 $34.00 60 36 2 $2,72017 Concrete curb (6%) ft 80 $34.00 60 42 2 $2,72018 Concrete curb (6%) ft 80 $34.00 60 48 2 $2,72019 Concrete curb (6%) ft 80 $34.00 60 54 2 $2,72020 Concrete curb (6%) ft 80 $34.00 60 60 2 $2,720

CONCRETE COMPONENTS - Replacement Costs - Subtotal $47,272

CONCRETE COMPONENTSCOMMENTS

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GENERAL SITE IMPROVEMENTSPROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

21 Asphalt, seal coat - townhouse sf 107,280 $0.07 5 1 2 $7,51022 Asphalt, overlay - townhouse sf 107,280 $1.70 25 6 2 $182,37623 Asphalt, seal coat - entry and houses sf 165,840 $0.07 5 1 2 $11,60924 Asphalt, overlay - entry and houses sf 165,840 $1.70 25 11 2 $281,928

25 Repoint & repair entrance feature ls 1 $2,200.00 10 20 2 $2,20026 Painted wood street signs ls 1 $5,500.00 20 10 2 $5,500

27 Pressure treated wood retaining wall ls 1 $1,200.00 15 7 2 $1,20028 Segmental retaining wall sf 950 $12.50 60 50 2 $11,875

29 Storm water - structure & pipe (10%) ls 1 $4,750.00 20 15 2 $4,75030 Storm water - drainage swales ls 1 $52,500.00 10 5 2 $52,50031 SW Pond - dredging ls 1 $15,000.00 20 20 2 $15,00032 SW Pond - bulkheads, cap lf 321 $25.00 10 9 2 $8,02533 SW Pond - bulkheads, refurbish (10%) ls 1 $14,450.00 30 9 2 $14,45034 SW Pond - bulkheads, replace lf 321 $450.00 50 39 2 $144,45035 SW Pond - fountains - servicable ea 2 $5,000.00 10 4 2 $10,00036 SW Pond - electric system ls 1 $22,000.00 35 25 2 $22,000

GENERAL SITE IMPROVEMENTS - Replacement Costs - Subtotal $775,372

GENERAL SITE IMPROVEMENTSCOMMENTS

We have assumed that the Association will replace the asphalt pavement by the installation of a 2 inch thick overlay. Speed bumps included in cost projection.

Comprehensive drawings detailing the components of the storm water management systems listed above were not available for our review. We have included the estimated cost of the systems based upon our experience with other similar communities. We have assumed that 10 percent of the system(s) will require replacement every 20 years. In the future, this assumption and the estimated costs should be adjusted based upon actual experience at the community.

Storm water drainage swales allowance for repairs to riprap and inlets/outlets, Does not include maintenance

of vegetation or removal of debris.

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CLUBHOUSE EXTERIORPROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

37 Asphalt shingle roof sf 4,756 $4.50 25 16 2 $21,402

38 Gutter & downspout lf 347 $8.50 25 16 2 $2,950

39 Vinyl siding/trim sf 1,662 $7.70 35 25 2 $12,79740 Vinyl soffit / trim sf 1,350 $3.50 35 25 2 $4,725

41 Columns and header trim ea 20 $800.00 35 25 2 $16,000

42 Entry doors ea 4 $1,000.00 35 26 2 $4,00043 Door hardware and card readers ls 1 $5,500.00 15 6 2 $5,500

44 Exterior metal utility door ls 1 $1,400.00 35 26 2 $1,400

45 Windows - doublehung ea 16 $1,200.00 35 26 2 $19,200

46 Exterior lights ls 1 $4,000.00 25 15 2 $4,000

CLUBHOUSE EXTERIOR - Replacement Costs - Subtotal $91,974

CLUBHOUSE EXTERIORCOMMENTS

Exterior lights includes recess, flood, and motion lights.

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CLUBHOUSE INTERIORPROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

47 Heat pump/AC unit ls 1 $8,100.00 15 6 2 $8,10048 Heat pump/air handler ls 1 $4,600.00 30 21 2 $4,600

49 Water heater ea 1 $1,000.00 15 7 2 $1,000

CLUBHOUSE INTERIOR - Replacement Costs - Subtotal $13,700

CLUBHOUSE INTERIORCOMMENTS

11/24/14. Deleted soft goods.

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SWIMMING POOL PROJECTED REPLACEMENTS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

50 Swimming pool, structure sf 2,344 $65.00 45 35 2 $152,36051 Swimming pool, whitecoat sf 2,344 $6.50 10 9 2 $15,23652 Swimming pool, waterline tile sf 213 $9.00 10 9 2 $1,91753 Swimming pool, coping ft 213 $50.00 20 16 2 $10,65054 Swimming pool, cover sf 2,344 $2.50 7 none 2 $5,860

55 Swimming pool, concrete deck (25%) ls 1,256 $11.00 40 10 2 $13,81956 Swimming pool, concrete deck (25%) ls 1,256 $11.00 40 20 2 $13,81957 Swimming pool, concrete deck (25%) ls 1,256 $11.00 40 30 2 $13,81958 Swimming pool, concrete deck (25%) ls 1,256 $11.00 40 40 2 $13,819

59 Swimming pool pump (5 hp) ls 1 $5,750.00 10 4 2 $5,75060 Swimming pool filter ls 1 $3,300.00 20 4 2 $3,300

61 Stainless ladders and rails ls 1 $1,500.00 15 5 2 $1,500

62 Pool furniture (33%) ls 1 $3,100.00 3 none 2 $3,100

63 Perimeter fence - aluminum lf 350 $31.00 40 39 2 $10,850

SWIMMING POOL - Replacement Costs - Subtotal $265,798

SWIMMING POOL COMMENTS

We have assumed that the project to replace the pool deck will include the replacement of the plumbing and electrical systems installed beneath the pavement.

11/24/14. Deleted exercise equipment.

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VALUATION EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Clubhouse toilet rooms ls 1 3 EXCLUDEDClubhouse kitchen ls 1 3 EXCLUDEDClubhouse interior finishes ls 1 3 EXCLUDEDClubhouse interior electrical ls 1 3 EXCLUDEDClubhouse interior plumbing ls 1 3 EXCLUDEDBollard/access control devices ls 1 3 EXCLUDED

VALUATION EXCLUSIONSCOMMENTS

Valuation Exclusions. For ease of administration of the Replacement Reserves and to reflect accurately how Replacement Reserves are administered, items with a dollar value less than $1,000.00 have not been scheduled for funding from Replacement Reserves. Examples of items excluded from funding by Replacement Reserves by this standard are listed above.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.

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LONG-LIFE EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Building foundation(s) ls 1 3 EXCLUDEDConcrete floor slabs (interior) ls 1 3 EXCLUDEDWall, floor, & roof structure ls 1 3 EXCLUDED

LONG-LIFE EXCLUSIONSCOMMENTS

Long Life Exclusions. Components that when properly maintained, can be assumed to have a life equal to the property asa whole, are normally excluded from the Replacement Reserve Inventory. Examples of items excluded from funding by Replacement Reserves by this standard are listed above.

Exterior masonry is generally assumed to have an unlimited economic life but periodic repointing is required and we have included this for funding in the Replacement Reserve Inventory.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.

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UNIT IMPROVEMENTS EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Domestic water pipes serving one unit ls 1 3 EXCLUDEDSanitary sewers serving one unit ls 1 3 EXCLUDEDElectrical wiring serving one unit ls 1 3 EXCLUDEDCable TV service serving one unit ls 1 3 EXCLUDEDTelephone service serving one unit ls 1 3 EXCLUDEDGas service serving one unit ls 1 3 EXCLUDED

Fence on an individual lot ls 1 3 EXCLUDED

Unit exterior ls 1 3 EXCLUDEDUnit windows ls 1 3 EXCLUDEDUnit doors ls 1 3 EXCLUDEDUnit skylights ls 1 3 EXCLUDEDUnit deck, patio, and/or balcony ls 1 3 EXCLUDEDUnit mailbox ls 1 3 EXCLUDED

UNIT IMPROVEMENTS EXCLUSIONSCOMMENTS

Unit improvement Exclusions. We understand that the elements of the project that relate to a single unit are the responsibility of that unit owner. Examples of items excluded from funding by Replacement Reserves by this standard arelisted above.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.

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UTILITY EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Primary electric feeds ls 1 3 EXCLUDEDElectric transformers ls 1 3 EXCLUDEDCable TV systems and structures ls 1 3 EXCLUDEDTelephone cables and structures ls 1 3 EXCLUDED

Gas mains and meters ls 1 3 EXCLUDEDWater mains and meters ls 1 3 EXCLUDEDSanitary sewers ls 1 3 EXCLUDEDSewage pumping stations ls 1 3 EXCLUDED

UTILITY EXCLUSIONSCOMMENTS

Utility Exclusions. Many improvements owned by utility companies are on property owned by the Association. We have assumed that repair, maintenance, and replacements of these components will be done at the expense of the appropriate utility company. Examples of items excluded from funding Replacement Reserves by this standard are listed above.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.

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MAINTENANCE AND REPAIR EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Landscaping and site grading ls 1 3 EXCLUDED

Exterior painting ls 1 3 EXCLUDEDInterior painting ls 1 3 EXCLUDED

Janitorial service ls 1 3 EXCLUDEDRepair services ls 1 3 EXCLUDEDPartial replacements ls 1 3 EXCLUDEDCapital improvements ls 1 3 EXCLUDED

MAINTENANCE AND REPAIR EXCLUSIONSCOMMENTS

Maintenance activities, one-time-only repairs, and capital improvements. These activities are NOT appropriately funded from Replacement Reserves. The inclusion of such component in the Replacement Reserve Inventory could jeopardize the special tax status of ALL Replacement Reserves, exposing the Association to significant tax liabilities. We recommend that the Board of Directors discuss these exclusions and Revenue Ruling 75-370 with a Certified Public Accountant.

Examples of items excluded from funding by Replacement Reserves by this standard are listed above.

The list above exemplifies exclusions by the cited standard(s) and is not intended to be comprehensive.

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IRRIGATION SYSTEM EXCLUSIONSEXCLUDED ITEMS

UNIT NORMAL REMAININGITEM ITEM NUMBER REPLACEMENT ECONOMIC ECONOMIC REPLACEMENT

# DESCRIPTION UNIT OF UNITS COST ($) LIFE (YRS) LIFE (YRS) COST ($)

Subsurface irrigation pipe ls 1 3 EXCLUDEDSubsurface irrigation valve ls 1 3 EXCLUDEDSubsurface irrigation control wiring ls 1 3 EXCLUDED

Irrigation control system ls 1 3 EXCLUDEDIrrigation system electrical service ls 1 3 EXCLUDEDIrrigation system enclosures ls 1 3 EXCLUDED

IRRIGATION SYSTEM EXCLUSIONSCOMMENTS

Irrigation System Exclusions. We have assumed that the maintenance, repair, and periodic replacement of the components of the extensive irrigation systems at the property will not be funded from Replacement Reserves. These systems should be inspected each spring when the systems are brought on line and each fall when they are winterized. Repairs/replacements should be made in conjunction with these inspections.

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Miller + Dodson Associates, Inc. Projected Annual Replacements - Page C1Bayshore Property Owners Association Revised November 24, 2014

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PROJECTED ANNUAL REPLACEMENTSGENERAL INFORMATION

CALENDAR OF ANNUAL REPLACEMENTS. The 63 Projected Replacements in the Bayshore Property Owners AssociReplacement Reserve Inventory whose replacement is scheduled to be funded from Replacement Reserves are broken down on a year-by-year basis, beginning on Page C2.

REPLACEMENT RESERVE ANALYSIS AND INVENTORYPOLICIES, PROCEDURES, AND ADMINISTRATION

REVISIONS. Revisions will be made to the Replacement Reserve Analysis and Replacement Reserve Inventoryin accordance with the written instructions of the Board of Directors. No additional charge is incurred for the first revision, if requested in writing within three months of the date of the Replacement Reserve Study. It is ourpolicy to provide revisions in electronic (Adobe PDF) format only.

TAX CODE. The United States Tax Code grants favorable tax status to a common interest development (CID)meeting certain guidelines for their Replacement Reserve. If a CID files their taxes as a 'Corporation' onForm 1120 (IRC Section 277), these guidelines typically require maintenance activities, partial replacements, minor replacements, capital improvements, and one-time only replacements to be excluded from Reserves.A CID cannot commingle planning for maintenance activities with capital replacement activities in the Reserves(Revenue Ruling 75-370). Funds for maintenance activities and capital replacements activities must be held inseparate accounts. If a CID files taxes as an "Exempt Homeowners Association" using Form 1120H (IRCSection 528), the CID does not have to segregate these activities. However, because the CID may elect tochange their method of filing from year to year within the Study Period, we advise using the more restrictiveapproach. We further recommend that the CID consult with their Accountant and consider creating separateand independent accounts and reserves for large maintenance items, such as painting.

CONFLICT OF INTEREST. Neither Miller - Dodson Associates nor the Reserve Analyst has any prior or existingrelationship with this Association which would represent a real or perceived conflict of interest.

RELIANCE ON DATA PROVIDED BY THE CLIENT. Information provided by an official representative of theAssociation regarding financial, physical conditions, quality, or historical issues is deemed reliable.

INTENT. This Replacement Reserve Study is a reflection of the information provided by the Association and the visual evaluations of the Analyst. It has been prepared for the sole use of the Association and is not for thepurpose of performing an audit, quality/forensic analyses, or background checks of historical records.

PREVIOUS REPLACEMENTS. Information provided to Miller - Dodson Associates regarding prior replacementsis considered to be accurate and reliable. Our visual evaluation is not a project audit or quality inspection.

UPDATING. In the first two or possibly three years after the completion of a Level One Replacement ReserveStudy, we recommend the Association review and revise the Replacement Reserve Analysis and Inventory

annually to take into account replacements which have occurred and known changes in replacement costs. This can frequently be handled as a Level Two or Level Three Study (as defined by the Community AssociationsInstitute), unless the Association has completed major replacement projects. A full analysis (Level One) based on a comprehensive visual evaluation of the site should be accomplished every three to five years or after each major replacement project.

EXPERIENCE WITH FUTURE REPLACEMENTS. The Calendar of Annual Projected Replacements, listsreplacements we have projected to occur over the next thirty years, begins on Page C2. Actual experience inreplacing the items may differ significantly from the cost estimates and time frames shown because of conditionsbeyond our control. These differences may be caused by maintenance practices, inflation, variations in pricingand market conditions, future technological developments, regulatory actions, acts of God, and luck. Someitems may function normally during our visual evaluation and then fail without notice.

REVIEW OF THE REPLACEMENT RESERVE STUDY. For this study to be effective, it should be reviewed by the Bayshore Property Owners Association Board of Directors, those responsible for the management of the itemsincluded in the Replacement Reserve Inventory, and the accounting professionals employed by the Association.

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Miller + Dodson Associates, Inc. Projected Annual Replacements - Page C2Bayshore Property Owners Association Revised November 24, 2014

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PROJECTED REPLACEMENTS - YEARS ONE TO FIFTEEN

Item 2015 $ Item 2016 $ Item 2017 $ 54 Swimming pool, cover $5,860 21 Asphalt, seal coat - townhou $7,51062 Pool furniture (33%) $3,100 23 Asphalt, seal coat - entry and $11,609

Total Scheduled Replacements $8,960 Total Scheduled Replacements $19,118 No Scheduled Replacements

Item 2018 $ Item 2019 $ Item 2020 $ 1 Concrete flatwork (6%) $2,007 35 SW Pond - fountains - servic $10,000 30 Storm water - drainage swal $52,500

62 Pool furniture (33%) $3,100 59 Swimming pool pump (5 hp) $5,750 61 Stainless ladders and rails $1,50060 Swimming pool filter $3,300

Total Scheduled Replacements $5,107 Total Scheduled Replacements $19,050 Total Scheduled Replacements $54,000

Item 2021 $ Item 2022 $ Item 2023 $ 11 Concrete curb (6%) $2,720 27 Pressure treated wood retain $1,20021 Asphalt, seal coat - townhou $7,510 49 Water heater $1,00022 Asphalt, overlay - townhouse $182,376 54 Swimming pool, cover $5,86023 Asphalt, seal coat - entry and $11,60943 Door hardware and card rea $5,50047 Heat pump/AC unit $8,10062 Pool furniture (33%) $3,100

Total Scheduled Replacements $220,914 Total Scheduled Replacements $8,060 No Scheduled Replacements

Item 2024 $ Item 2025 $ Item 2026 $ 2 Concrete flatwork (6%) $2,007 26 Painted wood street signs $5,500 21 Asphalt, seal coat - townhou $7,510

32 SW Pond - bulkheads, cap $8,025 55 Swimming pool, concrete de $13,819 23 Asphalt, seal coat - entry and $11,60933 SW Pond - bulkheads, refurb $14,450 24 Asphalt, overlay - entry and $281,92851 Swimming pool, whitecoat $15,23652 Swimming pool, waterline tile $1,91762 Pool furniture (33%) $3,100

Total Scheduled Replacements $44,735 Total Scheduled Replacements $19,319 Total Scheduled Replacements $301,046

Item 2027 $ Item 2028 $ Item 2029 $ 12 Concrete curb (6%) $2,720 35 SW Pond - fountains - servic $10,00062 Pool furniture (33%) $3,100 54 Swimming pool, cover $5,860

59 Swimming pool pump (5 hp) $5,750

Total Scheduled Replacements $5,820 No Scheduled Replacements Total Scheduled Replacements $21,610

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PROJECTED REPLACEMENTS - YEARS SIXTEEN TO THIRTY

Item 2030 $ Item 2031 $ Item 2032 $ 3 Concrete flatwork (6%) $2,007 21 Asphalt, seal coat - townhou $7,510

29 Storm water - structure & pip $4,750 23 Asphalt, seal coat - entry and $11,60930 Storm water - drainage swal $52,500 37 Asphalt shingle roof $21,40246 Exterior lights $4,000 38 Gutter & downspout $2,95062 Pool furniture (33%) $3,100 53 Swimming pool, coping $10,650

Total Scheduled Replacements $66,357 Total Scheduled Replacements $54,120 No Scheduled Replacements

Item 2033 $ Item 2034 $ Item 2035 $ 13 Concrete curb (6%) $2,720 32 SW Pond - bulkheads, cap $8,025 25 Repoint & repair entrance fe $2,20062 Pool furniture (33%) $3,100 51 Swimming pool, whitecoat $15,236 31 SW Pond - dredging $15,000

52 Swimming pool, waterline tile $1,917 56 Swimming pool, concrete de $13,81961 Stainless ladders and rails $1,500

Total Scheduled Replacements $5,820 Total Scheduled Replacements $25,178 Total Scheduled Replacements $32,519

Item 2036 $ Item 2037 $ Item 2038 $ 4 Concrete flatwork (6%) $2,007 27 Pressure treated wood retain $1,200

21 Asphalt, seal coat - townhou $7,510 49 Water heater $1,00023 Asphalt, seal coat - entry and $11,60943 Door hardware and card rea $5,50047 Heat pump/AC unit $8,10048 Heat pump/air handler $4,60054 Swimming pool, cover $5,86062 Pool furniture (33%) $3,100

Total Scheduled Replacements $48,286 Total Scheduled Replacements $2,200 No Scheduled Replacements

Item 2039 $ Item 2040 $ Item 2041 $ 14 Concrete curb (6%) $2,720 30 Storm water - drainage swal $52,500 21 Asphalt, seal coat - townhou $7,51035 SW Pond - fountains - servic $10,000 36 SW Pond - electric system $22,000 23 Asphalt, seal coat - entry and $11,60959 Swimming pool pump (5 hp) $5,750 39 Vinyl siding/trim $12,797 42 Entry doors $4,00060 Swimming pool filter $3,300 40 Vinyl soffit / trim $4,725 44 Exterior metal utility door $1,40062 Pool furniture (33%) $3,100 41 Columns and header trim $16,000 45 Windows - doublehung $19,200

Total Scheduled Replacements $24,870 Total Scheduled Replacements $108,022 Total Scheduled Replacements $43,718

Item 2042 $ Item 2043 $ Item 2044 $ 5 Concrete flatwork (6%) $2,007 54 Swimming pool, cover $5,860 32 SW Pond - bulkheads, cap $8,025

62 Pool furniture (33%) $3,100 51 Swimming pool, whitecoat $15,23652 Swimming pool, waterline tile $1,917

Total Scheduled Replacements $5,107 Total Scheduled Replacements $5,860 Total Scheduled Replacements $25,178

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Miller - Dodson Associates, Inc. Condition Assessment - Page D1 Bayshore Property Owners Association Revised November 24, 2014

CONDITION ASSESSMENT General Comments. Miller - Dodson Associates conducted a Reserve Study at Bayshore Property Owners Association in November 2014. Bayshore Property Owners Association is in generally good condition for a community constructed in 2005. A review of the Replacement Reserve Inventory will show that we are anticipating most of the components achieving their normal economic lives. The following comments pertain to the larger, more significant components in the Replacement Reserve Inventory and to those items that are unique or deserving of attention because of their condition or the manner in which they have been treated in the Replacement Reserve Analysis or Inventory. General Condition Statements. Excellent. 100% to 90% of Normal Economic Life expected, with no appreciable wear or defects. Good. 90% to 60% of Normal Economic Life expected, minor wear or cosmetic defects found. Normal maintenance should be expected. If performed properly, normal maintenance may increase the useful life of a component. Otherwise, the component is wearing normally. Fair. 60% to 30% of Normal Economic Life expected, moderate wear with defects found. Repair actions should be taken to extend the life of the component or to correct repairable defects and distress. Otherwise, the component is wearing normally. Marginal. 30% to 10% of Normal Economic Life expected, with moderate to significant wear or distress found. Repair actions are expected to be cost effective for localized issues, but normal wear and use are evident. The component is reaching the end of the Normal Economic Life. Poor. 10% to 0% of Normal Economic Life expected, with significant distress and wear. Left unattended, additional damage to underlying structures is likely to occur. Further maintenance is unlikely to be cost effective. SITE COMPONENTS Entry Monument and Signage. The Association maintains entry monuments. The monuments are made of rock of varying degrees of hardness including soft sedimentary stone. These soft stones are flaking in many locations. The monuments are in good condition. We recommend repointing and replacement of defective areas of the masonry as needed. The Association may want to consider applying a coat of Siloxane or other appropriate breathable sealant to mitigate water penetration and further degradation of the masonry work. For additional information, please see the appropriate links on our web site at http://mdareserves.com/resources/links/building-exterior. Asphalt Pavement. The Association is responsible for the roadways and parking areas. In general, the Association’s asphalt pavements of the main roadways are in good condition, with minor cracking, while the roadways serving the Townhouses are in fair condition, with wide cracking and distress in a few locations.

Entry monument

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Miller - Dodson Associates, Inc. Condition Assessment - Page D2 Bayshore Property Owners Association Revised November 24, 2014

The Association maintains an inventory of asphalt pavement along the following streets and areas:

● Bayshore Blvd (service road) 20,320 sf ● Bayshore Blvd (main entrance roadway) 25,500 sf ● Bayshore Drive (residential roadway) 90,600 sf ● Ashcroft Drive (residential roadway) 24,000 sf ● Clubhouse Parking 5,420 sf ● Heron Point (townhouse roadway) 10,700 sf ● Pelican Court (townhouse roadway) 38,200 sf ● Teal Court (townhouse roadway) 2,500 sf ● Sandpiper Court (townhouse roadway) 12,780 sf ● Turnstone Court (townhouse roadway) 40,600 sf ● Osprey Court (townhouse roadway) 2,500 sf

As a rule of thumb, asphalt should be overlaid when approximately 5% of the surface area is cracked or otherwise deteriorated. The normal service life of asphalt pavement is typically 18 to 20 years.

Main roadway

Townhouse roadway In order to maintain the condition of the pavement throughout the community and to ensure the longest life of the asphalt, we recommend a systematic and comprehensive maintenance program that includes:

• Cleaning. Long-term exposure to oil or gas breaks down asphalt. Because this asphalt pavement is generally not used for long-term parking, it is unlikely that frequent cleaning will be necessary. When necessary, spill areas should be cleaned or patched if deterioration has penetrated the asphalt. This is a maintenance activity, and we have assumed that it will not be funded from Reserves.

• Crack Repair. All cracks should be repaired with an appropriate compound to prevent water

infiltration through the asphalt into the base. This repair should be done annually. Crack repair is normally considered a maintenance activity and is not funded from Reserves. Areas of extensive cracking or deterioration that cannot be made watertight should be cut out and patched.

• Seal Coating. The asphalt should be seal coated every five to seven years. For this maintenance,

activity to be effective in extending the life of the asphalt, cleaning and crack repair should be performed first.

For seal coating, several different products are available. The older, more traditional seal coating products are simply paints. They coat the surface of the asphalt and they are minimally effective. However, the newer coating materials, such as those from Total Asphalt Management, Asphalt Restoration Technologies, Inc., and others, are penetrating. They are engineered, so to speak, to ‘remoisturize’ the pavement. Asphalt pavement is intended to be flexible. Over time, the volatile chemicals in the pavement dry, the pavement becomes brittle,

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Miller - Dodson Associates, Inc. Condition Assessment - Page D3 Bayshore Property Owners Association Revised November 24, 2014

and degradation follows in the forms of cracking and potholes. Remoisturizing the pavement can return its flexibility and extend the life of the pavement. Lastly, the resource links provided on our website may provide insight into the general terms and concerns, including maintenance related advantages and disadvantages, which may help the Association better manage the asphalt pavements throughout the community: http://mdareserves.com/resources/links/site-components.

Concrete sidewalk at clubhouse

Concrete curb Concrete Work. The concrete work includes the community curbs, and sidewalks, and other flatwork. The overall condition of the concrete work is good. The standards we use for recommending replacement are as follows:

• Trip hazard, ½ inch height difference. • Severe cracking. • Severe spalling and scale.

Because it is highly unlikely that all of the concrete components will fail and require replacement in the period of the study, we have programmed funds for the replacement of these inventories and spread the funds over an extended timeframe to reflect the incremental nature of this work. The relevant links on our web site may provide useful information related to concrete terminology, maintenance, and repair. Please see http://mdareserves.com/resources/links/site-components. Site Lighting. The Association is not responsible for the operation of the facility’s street lights.

Site lighting

Segmental block wall Retaining Walls. The Association maintains several wood and segmental block retaining walls. The retaining walls are in good condition.

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Miller - Dodson Associates, Inc. Condition Assessment - Page D4 Bayshore Property Owners Association Revised November 24, 2014

Retaining walls in general are designed to provide slope stabilization and soil retention by means of a structural system. Typically, walls that are three feet high or more require some level of design. Movement and displacement of any retaining wall is a sign of general settlement or failure. This typically is in the form of leaning and bowing, and can involve the entire wall or localized sections of the wall. Typically, these types of movements are gradual and may require the replacement of the wall. Movement of retaining walls located near other buildings or structures may negatively affect the stability of the adjacent structure. These conditions can become extremely costly if not properly identified, monitored, and addressed. Wood retaining walls will experience rot and decay over time and partial replacement of defective wooden members is often possible in the early stages of decay. Eventually however, these walls will require replacement. Wood retaining walls can have a useful life of 25 to 35 years. Segmental block retaining walls can have an extended useful life, and if stable, are likely to only require localized resetting of displaced blocks, typically near the top of the wall. This study assumes that resetting will be performed incrementally as needed. When and if it becomes necessary to replace these walls, we recommend the Association consider one of the segmental block retaining wall systems. These systems are very low maintenance. If over time the wall experiences movement, sections of the walls can be re-stacked at a very small portion of the cost of a new wall. Segmental block retaining walls can have a service life of 80 years or more. As a general source of information about retaining walls, we offer several links from our website at http://mdareserves.com/resources/links/site-components. Retaining wall replacement can be costly, and early planning on the part of the Association can help to reduce the impact of this work on the community’s budget in the future. We therefore recommend having a Professional Engineer inspect the walls and develop preliminary replacement alternatives and recommendations based on the site conditions, replacement costs, and recommended replacement wall types. This information can then be incorporated into future updates to the Reserve Study. Underground Utilities. The Association is responsible for the maintenance of the underground utility lines, including the storm water management pipes. Engineering drawings were not used in the determination of these underground components. Instead, we have provided an estimate of the approximate replacement costs based on our experience with other facilities of similar size and configuration. The inspection and evaluation of underground lines and structures is beyond the scope of work for this study. Storm Water Ponds. The community is served by two wet storm water ponds and multiple dry ponds and swales.

Storm water pond

Dry pond swale Ponds will accumulate silt and over time and lose the ability to store storm water at design levels, which could result in overflows and minor local flooding. In addition, water quality can be negatively affected by increased siltation and debris accumulation. Accordingly, ponds require periodic dredging.

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Miller - Dodson Associates, Inc. Condition Assessment - Page D5 Bayshore Property Owners Association Revised November 24, 2014

Estimates of cost and the frequency of dredging ponds are a function of many variables, including the volume of the pond, the siltation rate, the nature of the material being removed, the method of removal, and the haul distance to a site that will accept the spoil material. Most of this information is unknown and must be assumed for the purpose of reserve study planning. The siltation rate and cost of periodic dredging are speculative, varying greatly depending on local conditions. As a rule of thumb, dredging should be performed when approximately one-third of the volume of the pond has been filled with silt. In the absence of accurate information about the original depth of the pond and the local siltation rate, we have assumed that it will be necessary to remove one cubic yard of material over a third of the pond area every 20 years. We have assumed that the material being removed is free of heavy metals and hydrocarbons, and that it will be accepted as fill at a local landfill. A more accurate prediction of cost and cycles will require a hydrologic analysis and testing, which is beyond the scope of our study. Because of the significant cost of this work, it is recommended that the Association undertake studies to refine the assumptions of this study. Based on our understanding, we recommend the following:

• Periodically remove accumulated debris and vegetation growing in the ponds. • Survey the ponds to establish the current profile of the bottom. After five years of operation, have the

pond re-surveyed to establish new depths to determine the local siltation rate. This will establish the frequency required for periodic dredging.

• Periodically sample and test for contaminants. • Consult with local contractors to determine the cost of removing and disposing of the spoil, once its

nature is known. Firms that specialize in this work can be typically found by internet searching “Lake and Pond, Construction and Maintenance” for your state or area of the country. Some states provide short lists of companies that specialize in this type of work. Please note that the periodic removal of overgrown vegetation from the pond is considered a maintenance activity and has not been reserved for or included in this study. Drainage Swales. The Association maintains an inventory of drainage swales. Drainage swales require periodic cleaning. The swale is vegetated with wetland plants that can aid in the evaporation of water.

Drainage swale

Bulkhead Bulkhead. There is approximately 630 lineal feet of bulkhead extending along the ponds at the front of the community. The bulkheads are in good condition.

Page 42: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller - Dodson Associates, Inc. Condition Assessment - Page D6 Bayshore Property Owners Association Revised November 24, 2014

BUILDING EXTERIOR Building Roofing. The clubhouse is roofed in asphalt shingles that are in generally good condition. Asphalt shingle roofs can have a useful life of 20 to 50 years depending on the weight and quality of the shingle. Weathered, curled, and missing shingles are all indications that the shingles may be nearing the end of their useful life. For additional information on roofs and roof maintenance, please see the appropriate links on our web site at http://mdareserves.com/resources/links/building-exterior. Gutters and Downspouts. The buildings have has aluminum gutters and downspouts. The gutters and downspouts are in good condition. A gutter and downspout system will remove rainwater from the area of the building roof, siding, and foundation. This will protect building’s exterior surfaces from water damage. Gutters should run the full length of all drip edges of the building roof. Even with full gutters, it is important to inspection the function of the gutters during heavy rain to identify any deficiencies. It may be necessary to periodically adjust the slope of sections, repair connections, replace hangers, and install shrouds to the gutters. Downspouts should be securely attached to the side of the structure. Any broken straps should be replaced. The area of the outlet should be inspected to promote run-off in the desired direction. Long straight runs should have an elbow at the bottom. Splash blocks should be installed to fray the water out-letting from the downspout. It is recommended that all gutters be cleaned at least twice each year. If there are a large number of trees located close to a building, consider installing a gutter debris shield that will let water into the gutters but will filter out leaves, twigs, and other debris. Siding and Trim. The exterior of the clubhouse is clad in vinyl siding and trim. The siding and trim materials are in generally good condition. Vinyl siding and trim can have an extended useful life if not damaged by impact, heat, or other physical reasons. However, the coatings and finishes typically have a useful life and over time begin to weather, chalk, and show their age. For these reasons, we have modeled for the replacement of the siding and trim every 25 years. Windows and Doors. The Association is responsible for the common windows and doors of the facility. The windows and doors are in generally good condition. Window and door units play an integral part in a facility’s overall comfort, efficiency, and energy use. The quality of the installed units and the care taken in their installation and maintenance are major factors in their effectiveness and useful life. These units can have a useful life of 20 to 35 years or more depending on their use and other factors mentioned above. In general, we recommend coordinating the replacement of these units with other exterior work, such as siding and roof replacements. The weather tightness of the building envelope often requires transitional flashing and caulking that should be performed in coordination with each other. Warranties and advantages in ‘economy of scale’ can often result in lower overall replacement costs and results that are more reliable. Lastly,

Clubhouse

Vinyl siding

Page 43: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller - Dodson Associates, Inc. Condition Assessment - Page D7 Bayshore Property Owners Association Revised November 24, 2014

coordinated replacements offer the opportunity to correct initial construction defects and improve the effectiveness of details with improved construction techniques and materials. For more information, please see our links at http://mdareserves.com/resources/links/building-exterior. Building Access. The clubhouse is an access-controlled facility with electrically operated doors activated by card reader. The system is reported to be operating normally. Systems of this type typically have a service life of 15 to 20 years. Beyond that point, it becomes increasingly difficult to find replacement parts. Additionally, changes in technology help render the systems obsolete. For these reasons, we have assumed a service life of 15 years for this type of system. MECHANICAL & ELECTRICAL Split and Package HVAC Systems. The heating ventilation and air conditioning (HVAC) of the facility are reported to be in good operating condition. Detailed inspection and testing of these systems is beyond the scope of this study. As is the case with most equipment, to achieve a maximum useful economic life, proper maintenance is essential. In some cases, proper and proactive maintenance can greatly extend the useful life of these components. RECREATIONAL FACILITIES Swimming Pool. The community operates an outdoor pool of concrete construction. Listed below are the major components of the pool facilities: The pool was winterized at the time of inspection and is reported to be in good.

• Pool Shell. The shell for the swimming pool is in good condition.

• Pool Deck. The pool has a concrete deck. The overall

condition of the deck is good.

• Whitecoat. The pool whitecoat is in good condition. We have assumed a service life of eight to ten years for the pool whitecoat.

• Waterline Tile. The waterline tile is in good condition. We have assumed that the waterline tile will be

replaced or restored when the pool is whitecoated.

• Coping. The pool is edged with masonry coping. The coping is in good condition.

• Pump and Filter System. The filter system is in good operating condition.

• Pool Fence. The swimming pool is enclosed by a metal fence that is in good condition.

Swimming pool

Page 44: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller - Dodson Associates, Inc. Condition Assessment - Page D8 Bayshore Property Owners Association Revised November 24, 2014

This Condition Assessment is based upon our visual survey of the property. The sole purpose of the visual survey was an evaluation of the common elements of the property to ascertain the remaining useful life and the replacement costs of these common elements. Our evaluation assumed that all components met building code requirements in force at the time of construction. Our visual survey was conducted with care by experienced persons, but no warranty or guarantee is expressed or implied.

End of Condition Assessment

Page 45: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-1Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD ACCOUNTING SUMMARYThis Bayshore Property Owners Association - Cash Flow Method Accounting Summary is an attachment to theBayshore Property Owners Association - Replacement Reserve Study dated Revised November 24, 2014 and is for usaccounting and reserve professionals experienced in Association funding and accounting principles.This Summary consists of four reports, the 2015, 2016, and 2017 Cash Flow Method Category FundingReports (3) and a Three-Year Replacement Funding Report.

CASH FLOW METHOD CATEGORY FUNDING REPORT, 2015, 2016, and 2017. Each of the 63 ProjectedReplacements listed in the Bayshore Property Owners Association Replacement Reserve Inventory has beenassigned to one of 5 categories. The following information is summarized by category in each report:

Normal Economic Life and Remaining Economic Life of the Projected Replacements.

Cost of all Scheduled Replacements in each category.

Replacement Reserves on Deposit allocated to the category at the beginning and end of the report period.

Cost of Projected Replacements in the report period.

Recommended Replacement Reserve Funding allocated to the category during the report period as calculated by the Cash Flow Method.

THREE-YEAR REPLACEMENT FUNDING REPORT. This report details the allocation of the $130,043Beginning Balance (at the start of the Study Year) and the $157,849 of additional Replacement ReserveFunding in 2015 through 2017 (as calculated in the Replacement Reserve Analysis) to each of the 63Projected Replacements listed in the Replacement Reserve Inventory. These allocations have been made using Chronological Allocation, a method developed by Miller Dodson Associates, Inc., and discussed below.The calculated data includes:

Identification and estimated cost of each Projected Replacement schedule in years 2015 through 2017.

Allocation of the $130,043 Beginning Balance to the Projected Replacements by Chronological Allocation.

Allocation of the $157,849 of additional Replacement Reserve Funding recommended in the Replacement Reserve Analysis in years 2015 through 2017, by Chronological Allocation.

CHRONOLOGICAL ALLOCATION. Chronological Allocation assigns Replacement Reserves to ProjectedReplacements on a "first come, first serve" basis in keeping with the basic philosophy of the Cash Flow Method.The Chronological Allocation methodology is outlined below.

The first step is the allocation of the $130,043 Beginning Balance to the Projected Replacements in theStudy Year. Remaining unallocated funds are next allocated to the Projected Replacements in subsequentyears in chronological order until the total of Projected Replacements in the next year is greater than the unallocated funds. Projected Replacements in this year are partially funded with each replacementreceiving percentage funding. The percentage of funding is calculated by dividing the unallocated funds by the total of Projected Replacements in the partially funded year.

At Bayshore Property Owners Association the Beginning Balance funds all Scheduled Replacements inthe Study Year through 2020 and provides partial funding (11%) of replacements scheduled in 2021.

The next step is the allocation of the $52,616 of 2015 Cash Flow Method Reserve Funding calculatedin the Replacement Reserve Analysis. These funds are first allocated to fund the partially fundedProjected Replacements and then to subsequent years in chronological order as outlined above.

At Bayshore Property Owners Association the Beginning Balance and the 2015 Replacement ReserveFunding, funds replacements through 2020 and partial funds (34.6%) replacements in 2021.

Allocations of the 2016 and 2017 Reserve Funding are done using the same methodology.

The Three-Year Replacement Funding Report details component by component allocations made by Chronological Allocation.

Page 46: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-2Bayshore Property Owners Association Revised November 24, 2014

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2015 - CASH FLOW METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CF-1 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data:

A Beginning Balance of $130,043 as of the first day of the Study Year, January 1, 2015.

Total reserve funding (including the Beginning Balance) of $182,659 in the Study Year.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2015 beingaccomplished in 2015 at a cost of $8,960.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2015 - CASH FLOW METHOD CATEGORY FUNDING - TABLE CF-1NORMAL REMAINING ESTIMATED 2015 2015 2015 2015

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

CONCRETE COMPONENTS 60 years 3 to 60 years $47,272 $2,300 $648 $2,948

GENERAL SITE IMPROVEMENTS 5 to 60 years 1 to 50 years $775,372 $103,333 $47,991 $151,324

CLUBHOUSE EXTERIOR 15 to 35 years 6 to 26 years $91,974 $593 $1,310 $1,903

CLUBHOUSE INTERIOR 15 to 30 years 6 to 21 years $13,700 $873 $1,929 $2,802

SWIMMING POOL 3 to 45 years 0 to 40 years $265,798 $22,944 $738 ($8,960) $14,722

Page 47: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-3Bayshore Property Owners Association Revised November 24, 2014

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2016 - CASH FLOW METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CF-2 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $173,699 on January 1, 2016.

Total reserve funding (including the Beginning Balance) of $235,276 in 2015 through 2016.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2016 being*****

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2016 - CASH FLOW METHOD CATEGORY FUNDING - TABLE CF-2NORMAL REMAINING ESTIMATED 2016 2016 2016 2016

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

CONCRETE COMPONENTS 60 years 2 to 59 years $47,272 $2,948 $648 $3,596

GENERAL SITE IMPROVEMENTS 5 to 60 years 0 to 49 years $775,372 $151,324 $47,991 ($19,118) $180,196

CLUBHOUSE EXTERIOR 15 to 35 years 5 to 25 years $91,974 $1,903 $1,310 $3,213

CLUBHOUSE INTERIOR 15 to 30 years 5 to 20 years $13,700 $2,802 $1,929 $4,731

SWIMMING POOL 3 to 45 years 2 to 39 years $265,798 $14,722 $738 $15,461

Page 48: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-4Bayshore Property Owners Association Revised November 24, 2014

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2017 - CASH FLOW METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CF-3 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $207,197 on January 1, 2017.

Total Replacement Reserve funding (including the Beginning Balance) of $287,892 in 2015 to 2017.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2017 - CASH FLOW METHOD CATEGORY FUNDING - TABLE CF-3NORMAL REMAINING ESTIMATED 2017 2017 2017 2017

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

CONCRETE COMPONENTS 60 years 1 to 58 years $47,272 $3,596 $648 $4,244

GENERAL SITE IMPROVEMENTS 5 to 60 years 2 to 48 years $775,372 $180,196 $47,991 $228,187

CLUBHOUSE EXTERIOR 15 to 35 years 4 to 24 years $91,974 $3,213 $1,310 $4,523

CLUBHOUSE INTERIOR 15 to 30 years 4 to 19 years $13,700 $4,731 $1,929 $6,661

SWIMMING POOL 3 to 45 years 1 to 38 years $265,798 $15,461 $738 $16,199

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Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-5Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD - THREE-YEAR REPLACEMENT FUNDING REPORT

TABLE 4 below details the allocation of the $130,043 Beginning Balance, as reported by the Association and the$157,849 of Replacement Reserve Funding calculated by the Cash Flow Method in 2015 to 2017, to the 63Projected Replacements listed in the Replacement Reserve Inventory. These allocations have been made byChronological Allocation, a method developed by Miller Dodson Associates, Inc., and outlined on Page CF-1.The accuracy of the allocations is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $130,043 on January 1, 2015.

Replacement Reserves on Deposit totaling $173,699 on January 1, 2016.

Replacement Reserves on Deposit totaling $207,197 on January 1, 2017.

Total Replacement Reserve funding (including the Beginning Balance) of $287,892 in 2015 to 2017.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2015 to 2017 beingaccomplished as scheduled in the Replacement Reserve Inventory at a cost of $28,078.

If any of these critical factors are inaccurate, do not use the data and please contact Miller DodsonAssociates, Inc., to arrange for an update of the Replacement Reserve Study.

CASH FLOW METHOD - THREE-YEAR REPLACEMENT FUNDING - TABLE CF-4Description of Estimated Allocation 2015 2015 2015 2016 2016 2016 2017 2017 2017

Item Projected Replacement of Beginning Reserve Projected End of Year Reserve Projected End of Year Reserve Projected End of Year# Replacement Costs Balance Funding Replacements Balance Funding Replacements Balance Funding Replacements Balance

CONCRETE COMPONENTS

1 Concrete flatwork (6%) 2,007 2,007 2,007 2,007 2,0072 Concrete flatwork (6%) 2,0073 Concrete flatwork (6%) 2,0074 Concrete flatwork (6%) 2,0075 Concrete flatwork (6%) 2,0076 Concrete flatwork (6%) 2,0077 Concrete flatwork (6%) 2,0078 Concrete flatwork (6%) 2,0079 Concrete flatwork (6%) 2,007

10 Concrete flatwork (6%) 2,00711 Concrete curb (6%) 2,720 293 648 941 648 1,589 648 2,23712 Concrete curb (6%) 2,72013 Concrete curb (6%) 2,72014 Concrete curb (6%) 2,72015 Concrete curb (6%) 2,72016 Concrete curb (6%) 2,72017 Concrete curb (6%) 2,72018 Concrete curb (6%) 2,72019 Concrete curb (6%) 2,72020 Concrete curb (6%) 2,720

GENERAL SITE IMPROVEMENTS

21 Asphalt, seal coat - townhouse 7,510 8,319 1,789 10,107 1,789 (7,510) 4,386 1,789 6,17522 Asphalt, overlay - townhouse 182,376 19,654 43,437 63,092 43,437 106,529 43,437 149,96623 Asphalt, seal coat - entry and houses 11,609 12,860 2,765 15,625 2,765 (11,609) 6,781 2,765 9,54624 Asphalt, overlay - entry and houses 281,92825 Repoint & repair entrance feature 2,20026 Painted wood street signs 5,50027 Pressure treated wood retaining wall 1,20028 Segmental retaining wall 11,87529 Storm water - structure & pipe (10%) 4,75030 Storm water - drainage swales 52,500 52,500 52,500 52,500 52,50031 SW Pond - dredging 15,00032 SW Pond - bulkheads, cap 8,02533 SW Pond - bulkheads, refurbish (10%) 14,45034 SW Pond - bulkheads, replace 144,45035 SW Pond - fountains - servicable 10,000 10,000 10,000 10,000 10,00036 SW Pond - electric system 22,000

CLUBHOUSE EXTERIOR

37 Asphalt shingle roof 21,40238 Gutter & downspout 2,95039 Vinyl siding/trim 12,797

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Miller + Dodson Associates, Inc. Cash Flow Method Accounting Summary - Page CF-6Bayshore Property Owners Association Revised November 24, 2014

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CASH FLOW METHOD - THREE-YEAR REPLACEMENT FUNDING - TABLE 4 cont'dDescription of Estimated Allocation 2015 2015 2015 2016 2016 2016 2017 2017 2017

Item Projected Replacement of Beginning Reserve Projected End of Year Reserve Projected End of Year Reserve Projected End of Year# Replacement Costs Balance Funding Replacements Balance Funding Replacements Balance Funding Replacements Balance

40 Vinyl soffit / trim 4,72541 Columns and header trim 16,00042 Entry doors 4,00043 Door hardware and card readers 5,500 593 1,310 1,903 1,310 3,213 1,310 4,52344 Exterior metal utility door 1,40045 Windows - doublehung 19,20046 Exterior lights 4,000

CLUBHOUSE INTERIOR

47 Heat pump/AC unit 8,100 873 1,929 2,802 1,929 4,731 1,929 6,66148 Heat pump/air handler 4,60049 Water heater 1,000

SWIMMING POOL

50 Swimming pool, structure 152,36051 Swimming pool, whitecoat 15,23652 Swimming pool, waterline tile 1,91753 Swimming pool, coping 10,65054 Swimming pool, cover 5,860 5,860 (5,860)55 Swimming pool, concrete deck (25%) 13,81956 Swimming pool, concrete deck (25%) 13,81957 Swimming pool, concrete deck (25%) 13,81958 Swimming pool, concrete deck (25%) 13,81959 Swimming pool pump (5 hp) 5,750 5,750 5,750 5,750 5,75060 Swimming pool filter 3,300 3,300 3,300 3,300 3,30061 Stainless ladders and rails 1,500 1,500 1,500 1,500 1,50062 Pool furniture (33%) 3,100 6,534 738 (3,100) 4,172 738 4,911 738 5,64963 Perimeter fence - aluminum 10,850

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Miller + Dodson Associates, Inc. Component Method Accounting Summary - Page CM-1Bayshore Property Owners Association Revised November 24, 2014

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COMPONENT METHOD ACCOUNTING SUMMARYThis Bayshore Property Owners Association - Component Method Accounting Summary is an attachment to theBayshore Property Owners Association - Replacement Reserve Study dated Revised November 24, 2014 and is for usaccounting and reserve professionals experienced in Association funding and accounting principals.This Summary consists of four reports, the 2015, 2016, and 2017 Cash Flow Method Category FundingReports (3) and a Three-Year Replacement Funding Report.

COMPONENT METHOD CATEGORY FUNDING REPORT, 2015, 2016, and 2017. Each of the 63 ProjectedReplacements listed in the Bayshore Property Owners Association Replacement Reserve Inventory has beenassigned to one of 5 categories. The following information is summarized by category in each report:

Normal Economic Life and Remaining Economic Life of the Projected Replacements.

Cost of all Scheduled Replacements in each category.

Replacement Reserves on Deposit allocated to the category at the beginning and end of the report period.

Cost of Projected Replacements in the report period.

Recommended Replacement Reserve Funding allocated to the category during the report period as calculated by the Component Method.

THREE-YEAR REPLACEMENT FUNDING REPORT. This report details the allocation of the $130,043Beginning Balance (at the start of the Study Year) and the $261,572 of additional Replacement Reservefunding in 2015 through 2017 (as calculated in the Replacement Reserve Analysis) to each of the 63Projected Replacements listed in the Replacement Reserve Inventory. These allocations have been madeusing the Component Method as outlined in the Replacement Reserve Analysis.The calculated data includes:

Identification and estimated cost of each Projected Replacement schedule in years 2015 through 2017.

Allocation of the $130,043 Beginning Balance to the Projected Replacements by the Component Method.

Allocation of the $261,572 of additional Replacement Reserve Funding recommended in the Replacement Reserve Analysis in years 2015 through 2017, by the Component Method.

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Miller + Dodson Associates, Inc. Component Method Accounting Summary - Page CM-2Bayshore Property Owners Association Revised November 24, 2014

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2015 - COMPONENT METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CM-1 below. This calculated data is a summaryof data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory. Theaccuracy of this data is dependent upon many factors including the following critical financial data:

A Beginning Balance of $130,043 as of the first day of the Study Year, January 1, 2015.

Total reserve funding (including the Beginning Balance) of $221,763 in the Study Year.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2015 beingaccomplished in 2015 at a cost of $8,960.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2015 - COMPONENT METHOD CATEGORY FUNDING - TABLE CM-1NORMAL REMAINING ESTIMATED 2015 2015 2015 2015

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

3 to 60 yearsCONCRETE COMPONENTS 60 years 3 to 60 years $47,272 $5,759 $1,999 $7,757

GENERAL SITE IMPROVEMENTS 5 to 60 years 1 to 50 years $775,372 $97,703 $66,926 $164,629

CLUBHOUSE EXTERIOR 15 to 35 years 6 to 26 years $91,974 $7,063 $4,266 $11,328

CLUBHOUSE INTERIOR 15 to 30 years 6 to 21 years $13,700 $1,608 $1,296 $2,904

SWIMMING POOL 3 to 45 years 0 to 40 years $265,798 $17,911 $17,234 $8,960 $26,185

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Miller + Dodson Associates, Inc. Component Method Accounting Summary - Page CM-3Bayshore Property Owners Association Revised November 24, 2014

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2016 - COMPONENT METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CM-2 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $212,803 on January 1, 2016.

Total reserve funding (including the Beginning Balance) of $308,790 in 2015 through 2016.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2016 being*****

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2016 - COMPONENT METHOD CATEGORY FUNDING - TABLE CM-2NORMAL REMAINING ESTIMATED 2016 2016 2016 2016

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

CONCRETE COMPONENTS 60 years 2 to 59 years $47,272 $7,757 $1,999 $9,756

GENERAL SITE IMPROVEMENTS 5 to 60 years 0 to 49 years $775,372 $164,629 $66,926 $19,118 $212,437

CLUBHOUSE EXTERIOR 15 to 35 years 5 to 25 years $91,974 $11,328 $4,266 $15,594

CLUBHOUSE INTERIOR 15 to 30 years 5 to 20 years $13,700 $2,904 $1,296 $4,200

SWIMMING POOL 3 to 45 years 2 to 39 years $265,798 $26,185 $12,541 $38,726

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2017 - COMPONENT METHOD CATEGORY FUNDING REPORT

Each of the 63 Projected Replacements included in the Bayshore Property Owners Association Replacement ReserveInventory has been assigned to one of the 5 categories listed in TABLE CM-3 below. This calculated data is asummary of data provided in the Three-Year Replacement Funding Report and Replacement Reserve Inventory.The accuracy of this data is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $280,712 on January 1, 2017.

Total Replacement Reserve funding (including the Beginning Balance) of $391,615 in 2015 to 2017.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

If any of these critical factors are inaccurate, do not use the data and please contact Miller Dodson Associatesto arrange for an update of the Replacement Reserve Study.

2017 - COMPONENT METHOD CATEGORY FUNDING - TABLE CM-3NORMAL REMAINING ESTIMATED 2017 2017 2017 2017

ECONOMIC ECONOMIC REPLACEMENT BEGINNING RESERVE PROJECTED END OF YEARCATEGORY LIFE LIFE COST BALANCE FUNDING REPLACEMENTS BALANCE

CONCRETE COMPONENTS 60 years 1 to 58 years $47,272 $9,756 $1,999 $11,754

GENERAL SITE IMPROVEMENTS 5 to 60 years 2 to 48 years $775,372 $212,437 $62,725 $275,161

CLUBHOUSE EXTERIOR 15 to 35 years 4 to 24 years $91,974 $15,594 $4,266 $19,859

CLUBHOUSE INTERIOR 15 to 30 years 4 to 19 years $13,700 $4,200 $1,296 $5,495

SWIMMING POOL 3 to 45 years 1 to 38 years $265,798 $38,726 $12,541 $51,267

Page 55: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller + Dodson Associates, Inc. Component Method Accounting Summary - Page CM-5Bayshore Property Owners Association Revised November 24, 2014

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COMPONENT METHOD - THREE-YEAR REPLACEMENT FUNDING REPORT

TABLE CM-4 below details the allocation of the $130,043 Beginning Balance, as reported by the Association and the$261,572 of Replacement Reserve Funding calculated by the Cash Flow Method in 2015 to 2017, to the 63Projected Replacements listed in the Replacement Reserve Inventory. These allocations have been made byChronological Allocation, a method developed by Miller Dodson Associates, Inc., and outlined on Page CF-1.The accuracy of the allocations is dependent upon many factors including the following critical financial data:

Replacement Reserves on Deposit totaling $130,043 on January 1, 2015.

Replacement Reserves on Deposit totaling $212,803 on January 1, 2016.

Replacement Reserves on Deposit totaling $280,712 on January 1, 2017.

Total Replacement Reserve funding (including the Beginning Balance) of $391,615 in 2015 to 2017.

No expenditures from Replacement Reserves other than those specifically listed in theReplacement Reserve Inventory.

All Projected Replacements scheduled in the Replacement Reserve Inventory in 2015 to 2017 beingaccomplished as scheduled in the Replacement Reserve Inventory at a cost of $28,078.

If any of these critical factors are inaccurate, do not use the data and please contact Miller DodsonAssociates, Inc., to arrange for an update of the Replacement Reserve Study.

COMPONENT METHOD - THREE-YEAR REPLACEMENT FUNDING - TABLE CM-4Description of Estimated Allocation 2015 2015 2015 2016 2016 2016 2017 2017 2017

Item Projected Replacement of Beginning Reserve Projected End of Year Reserve Projected End of Year Reserve Projected End of Year# Replacement Costs Balance Funding Replacements Balance Funding Replacements Balance Funding Replacements Balance

CONCRETE COMPONENTS

1 Concrete flatwork (6%) 2,007 501 377 878 377 1,254 377 1,6312 Concrete flatwork (6%) 2,007 447 156 603 156 759 156 9153 Concrete flatwork (6%) 2,007 394 101 494 101 595 101 6964 Concrete flatwork (6%) 2,007 340 76 416 76 492 76 5675 Concrete flatwork (6%) 2,007 286 61 348 61 409 61 4716 Concrete flatwork (6%) 2,007 233 52 285 52 337 52 3897 Concrete flatwork (6%) 2,007 179 46 225 46 270 46 3168 Concrete flatwork (6%) 2,007 125 41 166 41 207 41 2489 Concrete flatwork (6%) 2,007 72 37 109 37 146 37 183

10 Concrete flatwork (6%) 2,007 18 34 52 34 86 34 12111 Concrete curb (6%) 2,720 643 297 939 297 1,236 297 1,53312 Concrete curb (6%) 2,720 570 165 735 165 901 165 1,06613 Concrete curb (6%) 2,720 497 117 614 117 731 117 84814 Concrete curb (6%) 2,720 424 92 516 92 608 92 70015 Concrete curb (6%) 2,720 352 76 428 76 504 76 58116 Concrete curb (6%) 2,720 279 66 345 66 411 66 47717 Concrete curb (6%) 2,720 206 58 265 58 323 58 38118 Concrete curb (6%) 2,720 133 53 186 53 239 53 29219 Concrete curb (6%) 2,720 61 48 109 48 157 48 20620 Concrete curb (6%) 2,720 45 45 45 89 45 134

GENERAL SITE IMPROVEMENTS

21 Asphalt, seal coat - townhouse 7,510 1,205 3,152 4,357 3,152 (7,510) 1,502 1,50222 Asphalt, overlay - townhouse 182,376 35,117 21,037 56,154 21,037 77,191 21,037 98,22823 Asphalt, seal coat - entry and houses 11,609 1,863 4,873 6,736 4,873 (11,609) 2,322 2,32224 Asphalt, overlay - entry and houses 281,928 39,207 20,227 59,434 20,227 79,660 20,227 99,88725 Repoint & repair entrance feature 2,200 105 105 105 210 105 31426 Painted wood street signs 5,500 662 440 1,102 440 1,542 440 1,98127 Pressure treated wood retaining wall 1,200 150 131 281 131 412 131 54428 Segmental retaining wall 11,875 476 224 700 224 923 224 1,14729 Storm water - structure & pipe (10%) 4,750 254 281 535 281 816 281 1,09730 Storm water - drainage swales 52,500 5,616 7,814 13,430 7,814 21,244 7,814 29,05831 SW Pond - dredging 15,000 714 714 714 1,429 714 2,14332 SW Pond - bulkheads, cap 8,025 803 803 803 1,605 803 2,40833 SW Pond - bulkheads, refurbish (10%) 14,450 2,576 1,187 3,764 1,187 4,951 1,187 6,13834 SW Pond - bulkheads, replace 144,450 7,726 3,418 11,144 3,418 14,562 3,418 17,98135 SW Pond - fountains - servicable 10,000 1,337 1,733 3,070 1,733 4,802 1,733 6,53536 SW Pond - electric system 22,000 1,513 788 2,301 788 3,089 788 3,877

CLUBHOUSE EXTERIOR

37 Asphalt shingle roof 21,402 1,832 1,151 2,983 1,151 4,134 1,151 5,28538 Gutter & downspout 2,950 252 159 411 159 570 159 72839 Vinyl siding/trim 12,797 880 458 1,338 458 1,797 458 2,255

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Miller + Dodson Associates, Inc. Component Method Accounting Summary - Page CM-6Bayshore Property Owners Association Revised November 24, 2014

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COMPONENT METHOD - THREE-YEAR REPLACEMENT FUNDING - TABLE CM-4 cont'dDescription of Estimated Allocation 2015 2015 2015 2016 2016 2016 2017 2017 2017

Item Projected Replacement of Beginning Reserve Projected End of Year Reserve Projected End of Year Reserve Projected End of Year# Replacement Costs Balance Funding Replacements Balance Funding Replacements Balance Funding Replacements Balance

40 Vinyl soffit / trim 4,725 325 169 494 169 663 169 83341 Columns and header trim 16,000 1,100 573 1,673 573 2,246 573 2,82042 Entry doors 4,000 245 139 384 139 523 139 66243 Door hardware and card readers 5,500 784 674 1,458 674 2,132 674 2,80544 Exterior metal utility door 1,400 86 49 134 49 183 49 23245 Windows - doublehung 19,200 1,174 668 1,841 668 2,509 668 3,17746 Exterior lights 4,000 385 226 611 226 837 226 1,063

CLUBHOUSE INTERIOR

47 Heat pump/AC unit 8,100 1,155 992 2,147 992 3,140 992 4,13248 Heat pump/air handler 4,600 328 194 522 194 716 194 91149 Water heater 1,000 125 109 234 109 344 109 453

SWIMMING POOL

50 Swimming pool, structure 152,360 8,149 4,006 12,155 4,006 16,161 4,006 20,16751 Swimming pool, whitecoat 15,236 1,524 1,524 1,524 3,047 1,524 4,57152 Swimming pool, waterline tile 1,917 192 192 192 383 192 57553 Swimming pool, coping 10,650 427 601 1,029 601 1,630 601 2,23154 Swimming pool, cover 5,860 1,567 4,293 (5,860) 837 837 837 1,67455 Swimming pool, concrete deck (25%) 13,819 2,679 1,013 3,692 1,013 4,705 1,013 5,71756 Swimming pool, concrete deck (25%) 13,819 1,755 574 2,330 574 2,904 574 3,47957 Swimming pool, concrete deck (25%) 13,819 832 419 1,250 419 1,669 419 2,08858 Swimming pool, concrete deck (25%) 13,819 337 337 337 674 337 1,01159 Swimming pool pump (5 hp) 5,750 769 996 1,765 996 2,761 996 3,75860 Swimming pool filter 3,300 662 528 1,190 528 1,717 528 2,24561 Stainless ladders and rails 1,500 241 210 451 210 660 210 87062 Pool furniture (33%) 3,100 829 2,271 (3,100) 1,033 1,033 1,033 2,06763 Perimeter fence - aluminum 10,850 271 271 271 543 271 814

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Miller - Dodson Associates, Inc. Attachments - Page E1 Appendix

1. COMMON INTEREST DEVELOPMENTS - AN OVERVIEW Over the past 40 years, the responsibility for community facilities and infrastructure around many of our homes has shifted from the local government to Community Associations. Thirty years ago, a typical new town house abutted a public street on the front and a public alley on the rear. Open space was provided by a nearby public park and recreational facilities were purchased ala carte from privately owned country clubs, swim clubs, tennis clubs, and gymnasiums. Today, 60% of all new residential construction, i.e. townhouses, single-family homes, condominiums, and cooperatives, is in Common Interest Developments (CID). In a CID, a homeowner is bound to a Community Association that owns, maintains, and is responsible for periodic replacements of various components that may include the roads, curbs, sidewalks, playgrounds, streetlights, recreational facilities, and other community facilities and infrastructure. The growth of Community Associations has been explosive. In 1965, there were only 500 Community Associations in the United States. According to the U.S. Census, there were 130,000 Community Associations in 1990. Community Associations Institute (CAI), a national trade association, estimates there were more than 200,000 Community Associations in the year 2000, and that the number of Community Associations will continue to multiply. The shift of responsibility for billions of dollars of community facilities and infrastructure from the local government and private sector to Community Associations has generated new and unanticipated problems. Although Community Associations have succeeded in solving many short-term problems, many Associations have failed to properly plan for the tremendous expenses of replacing community facilities and infrastructure components. When inadequate replacement reserve funding results in less than timely replacements of failing components, home owners are exposed to the burden of special assessments, major increases in Association fees, and a decline in property values.

2. REPLACEMENT RESERVE STUDY The purpose of a Replacement Reserve Study is to provide the Association with an inventory of the common community facilities and infrastructure components that require periodic replacement, a general view of the condition of these components, and an effective financial plan to fund projected periodic replacements. The Replacement Reserve Study consists of the following:

• Replacement Reserve Study Introduction. The introduction provides a description of the property, reviews the intent of the Replacement Reserve Study, and lists documents and site evaluations upon which the Replacement Reserve Study is based.

• Section A Replacement Reserve Analysis. Many components owned by the Association have a limited life and

require periodic replacement. Therefore, it is essential the Association have a financial plan that provides funding for the timely replacement of these components in order to protect the safety, appearance, and value of the community. In conformance with American Institute of Certified Public Accountant guidelines; Section A Replacement Reserve Analysis evaluates the current funding of Replacement Reserves as reported by the Association and recommends annual funding of Replacement Reserves by two generally accepted accounting methods; the Cash Flow Method and the Component Method. Section A Replacement Reserve Analysis includes graphic and tabular presentations of these methods and current Association funding.

• Section B Replacement Reserve Inventory. The Replacement Reserve Inventory lists the commonly owned

components within the community that require periodic replacement using funding from Replacement Reserves. The Replacement Reserve Inventory also provides information about components excluded from the Replacement Reserve Inventory whose replacement is not scheduled for funding from Replacement Reserves.

Replacement Reserve Inventory includes estimates of the normal economic life and the remaining economic life

for those components whose replacement is scheduled for funding from Replacement Reserves.

• Section C Projected Annual Replacements. The Calendar of Projected Annual Replacements provides a year-by-year listing of the Projected Replacements based on the data in the Replacement Reserve Inventory.

• Section D Condition Assessment. Several of the items listed in the Replacement Reserve Inventory are discussed

in more detail. The Condition Assessment includes a narrative and photographs that document conditions at the property observed during our visual evaluation.

• Section E Attachments. The Appendix is provided as an attachment to the Replacement Reserve Study.

Additional attachments may include supplemental photographs to document conditions at the property and additional information specific to the property cited in the Conditions Assessment (i.e. Consumer Product Safety Commission, Handbook for Public Playground Safety, information on segmental retaining walls, manufacturer recommendations for asphalt shingles or siding, etc).

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Miller - Dodson Associates, Inc. Attachments - Page E2 Appendix

3. METHODS OF ANALYSIS The Replacement Reserve industry generally recognizes two different methods of accounting for Replacement Reserve Analysis. Due to the difference in accounting methodologies, these methods lead to different calculated values for the Minimum Annual Contribution to the Reserves. The results of both methods are presented in this report. The Association should obtain the advice of its accounting professional as to which method is more appropriate for the Association. The two methods are:

• Component Method. This method is a time tested mathematical model developed by HUD in the early 1980s. It treats each item in the replacement schedule as an individual line item budget. Generally, the Minimum Annual Contribution to Reserves is higher when calculated by the Component Method. The mathematical model for this method works as follows:

First, the total Current Objective is calculated, which is the reserve amount that would have accumulated had all of the items on the schedule been funded from initial construction at their current replacement costs. Next, the Reserves Currently on Deposit (as reported by the Association) are distributed to the components in the schedule in proportion to the Current Objective. The Minimum Annual Deposit for each component is equal to the Estimated Replacement Cost, minus the Reserves on Hand, divided by the years of life remaining.

• Cash Flow Method. The Cash Flow Method is sometimes referred to as the "Pooling Method." It calculates the

minimum constant annual contribution to reserves (Minimum Annual Deposit) required to meet projected expenditures without allowing total reserves on hand to fall below the specified minimum level in any year. This method usually results in a calculated requirement for annual contribution somewhat less than that arrived at by the Component Method of analysis.

First, the Minimum Recommended Reserve Level to be Held on Account is determined based on the age, condition, and replacement cost of the individual components. The mathematical model then allocates the estimated replacement costs to the future years in which they are projected to occur. Based on these expenditures, it then calculates the minimum constant yearly contribution (Minimum Annual Deposit) to the reserves necessary to keep the reserve balance at the end of each year above the Minimum Recommended Reserve Level to be Held on Account. The Cash Flow Analysis assumes that the Association will have authority to use all of the reserves on hand for replacements as the need occurs. This method usually results in a Minimum Annual Deposit, which is less than that, arrived at by the Component Method.

• Adjusted Cash Flow Analysis. This program has the ability to modify the Cash Flow Method to take into account

forecasted inflation and interest rates, thereby producing an Adjusted Cash Flow Analysis. Attempting to forecast future inflation and interest rates and the impact of changing technology is highly tenuous. Therefore, in most cases it is preferable to make a new schedule periodically rather than attempt to project far into the future. We will provide more information on this type of analysis upon request.

4. REPLACEMENT RESERVE STUDY DATA

• Identification of Reserve Components. The Reserve Analyst has only two methods of identifying Reserve

Components; (1) information provided by the Association and (2) observations made at the site. It is important that the Reserve Analyst be provided with all available information detailing the components owned by the Association. It is our policy to request such information prior to bidding on a project and to meet with the individuals responsible for maintaining the community after acceptance of our proposal. After completion of the Study, the Study should be reviewed by the Board of Directors, individuals responsible for maintaining the community, and the Association’s accounting professionals. We are dependent upon the Association for correct information, documentation, and drawings.

• Unit Costs. Unit costs are developed using nationally published standards and estimating guides and are adjusted

by state or region. In some instances, recent data received in the course of our work is used to modify these figures.

Contractor proposals or actual cost experience may be available as part of the Association records. This is useful information, which should be incorporated into your report. Please bring any such available data to our attention, preferably before the report is commenced.

• Replacement vs. Repair and Maintenance. A Replacement Reserve Study addresses the required funding for

Capital Replacement Expenditures. This should not be confused with operational costs or cost of repairs or maintenance.

Page 59: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller - Dodson Associates, Inc. Attachments - Page E3 Appendix

5. DEFINITIONS Adjusted Cash Flow Analysis. Cash flow analysis adjusted to take into account annual cost increases due to inflation and interest earned on invested reserves. In this method, the annual contribution is assumed to grow annually at the inflation rate. Annual Deposit if Reserves Were Fully Funded. Shown on the Summary Sheet A1 in the Component Method summary, this would be the amount of the Annual Deposit needed if the Reserves Currently on Deposit were equal to the Total Current Objective. Cash Flow Analysis. See Cash Flow Method, above. Component Analysis. See Component Method, above. Contingency. An allowance for unexpected requirements. Roughly the same as the Minimum Recommended Reserve Level to be Held on Account used in the Cash Flow Method of analysis. Critical Year. In the Cash Flow Method, a year in which the reserves on hand are projected to fall to the established minimum level. See Minimum Recommended Reserve Level to be Held on Account. Current Objective. This is the reserve amount that would have accumulated had the item been funded from initial construction at its current replacement cost. It is equal to the estimated replacement cost divided by the estimated economic life, times the number of years expended (the difference between the Estimated Economic Life and the Estimated Life Left). The Total Current Objective can be thought of as the amount of reserves the Association should now have on hand based on the sum of all of the Current Objectives. Estimated Economic Life. Used in the Normal Replacement Schedules. This represents the industry average number of years that a new item should be expected to last until it has to be replaced. This figure is sometimes modified by climate, region, or original construction conditions. Estimated Remaining Economic Life. Used in the Normal Replacement Schedules, this term is the number of years until the current item is expected to need replacement. Normally, this number would be considered the difference between the Estimated Economic Life and the age of the item. However, this number must be modified to reflect maintenance practice, climate, original construction and quality, or other conditions. For the purpose of this report, this number is determined by the Reserve Analyst based on the present condition of the item relative to the actual age. Estimated Initial Replacement. For a Cyclic Replacement Item (see above), the number of years until the replacement cycle is expected to begin. Estimated Replacement Cycle. For a Cyclic Replacement Item, the number of years over which the remainder of the component's replacement occurs. Incremental Replacement Item. Incremental replacement refers to an inventory component that will be replaced in portions over the life of the study rather than in its entirety, as distinguished below, see Normal Replacement Item. Minimum Annual Deposit. Shown on the Summary Sheet A1. The calculated requirement for annual contribution to reserves as calculated by the Cash Flow Method (see above). Minimum Deposit in the Study Year. Shown on the Summary Sheet A1. The calculated requirement for contribution to reserves in the study year as calculated by the Component Method (see above). Minimum Recommended Reserve Level to be Held on Account. Shown on the Summary Sheet A1, this number is used in the Cash Flow Method only. This is the prescribed level below which the reserves will not be allowed to fall in any year. This amount is determined based on the age, condition, and replacement cost of the individual components. This number is normally given as a percentage of the total Estimated Replacement Cost of all reserve components. Normal Replacement Item. A component of the property that is replaced in its entirety. (As distinguished from an Incremental Replacement Item, see above.) Normal Replacement Schedules. The list of Normal Replacement Items by category or location. These items appear on pages designated. Number of Years of the Study. The numbers of years into the future for which expenditures are projected and reserve levels calculated. This number should be large enough to include the projected replacement of every item on the schedule, at least once. This study covers a 40-year period. One Time Deposit Required to Fully Fund Reserves. Shown on the Summary Sheet A1 in the Component Method summary, this is the difference between the Total Current Objective and the Reserves Currently on Deposit.

Page 60: REPORT FY 2015 BAYSHORE PROPERTY OWNERS ASSOCIATION · Description. Bayshore Property Owners Associationis a community association located on Bayshore Drive in Millsboro, Delaware.

Miller - Dodson Associates, Inc. Attachments - Page E4 Appendix

Reserves Currently on Deposit. Shown on the Summary Sheet A1, this is the amount of accumulated reserves as reported by the Association in the current year. Reserves on Hand. Shown in the Cyclic Replacement and Normal Replacement Schedules, this is the amount of reserves allocated to each component item in the Cyclic or Normal Replacement schedules. This figure is based on the ratio of Reserves Currently on Deposit divided by the total Current Objective. Replacement Reserve Study. An analysis of all of the components of the common property of the Association for which a need for replacement should be anticipated within the economic life of the property as a whole. The analysis involves estimation for each component of its estimated Replacement Cost, Estimated Economic Life, and Estimated Life Left. The objective of the study is to calculate a recommended annual contribution to the Association's Replacement Reserve Fund. Total Replacement Cost. Shown on the Summary Sheet A1, this is total of the Estimated Replacement Costs for all items on the schedule if they were to be replaced once. Unit Replacement Cost. Estimated replacement cost for a single unit of a given item on the schedule. Unit (of Measure). Non-standard abbreviations are defined on the page of the Replacement Reserve Inventory where the item appears. The following standard abbreviations are used in this report: EA: each FT: feet LS: lump sum PR: pair SF: square feet SY: square yard

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Miller - Dodson Associates, Inc. Attachments - Page E5 Appendix

What is a Reserve Study? Who are we?

What kind of property uses a Reserve Study? Who are our clients?

Who conducts a Reserve Study? Reserve Specialist (RS) what does this mean?

When should a Reserve Study be updated? What are the different types of Reserve Studies?

What is in a Reserve Study and what is out? Improvement vs Component, is there a difference?

What is my role as a Community Manager? Will the report help me explain Reserves to my

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What is my role as a Board Member? Will a Reserve Study meet my community’s needs?

Community dues, how can a Reserve Study help? Will a study help keep my property competitive?

How do I read the report? Will I have a say in what the report contains?

Where do the numbers come from? Cumulative expenditures and funding, what?

How are interest and inflation addressed? What should we look at when considering inflation?

A community needs more help, where do we go? What is a Strategic Funding Plan?

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