Vineyards
Virginia Vineyards
Association
Tony Correia, ARA, MRICS
Correia-Xavier
incorporated
March 5, 2010
Virginia Wine Grapes
3,000
B
Bearing
i
Acres
A
Acres
2,500
2,000
1,500
1,000
2001
03
05
07
2009
Virginia Wine Grapes
3.5
Bearing Acres vs.
Yields / Acre
2,500
3
2,000
2.5
1,500
2
1,000
1.5
2001
03
05
07
2009
Yields
Y
Acres
A
3,000
Virginia Wine Grapes
9,000
Total Grape Production
(tons)
8,000
7,000
6 000
6,000
5,000
4,000
3,000
2,000
1 000
1,000
2001
03
05
07
2009
Virginia Wine Grapes
10,000
$1,700
Price per Ton
8,000
$1,600
6,000
$1,500
4,000
$1,400
2,000
$1,300
Total Grape Production (tons)
0
$1 200
$1,200
2001
03
05
07
2009
Vineyards
• How much are they worth?
• And Why?
• And Who Cares?
• And How can you possibly
value
l such
h pesky
k critters?
itt ?
Why Appraisals???
• Why does anyone need an Appraisal?
– Financing, lender’s collateral
– Financial
Fi
i lR
Reporting
ti (I
(International
t
ti
l St
Standards)
d d )
– Sale or Purchase
– Disputes
Di
iinvolving
l i V
Value
l
• Dissenting Shareholders, Divorces
• Eminent Domain
– Taxes
• Estate Planning
Planning, Minority Discounts
• Allocations for Income Tax Depreciation
p y Tax Assessment Appeals
pp
• Property
• Capital Gains Calculations
Vineyard Valuation
What drives the Value
of a Vineyard?
y
Wine Prices drive
Grape Prices which
drive Vineyard
Values
Vineyard Characteristics
• Location:
– Region (Temperature)
– District (State)
– Appellation
– American Viticultural Area (Federal)
Virginia Wine Regions and
A
Appellations
ll i
(AVA
(AVAs))
Vineyard Characteristics
• Climate:
– Temperature (Maximums and
Minimums)
– Precipitation (Quantity and Timing)
– Microclimate
– Mesoclimate
Vineyard Characteristics
• Soils:
– General Characteristics
– Fertility
– Limitations
– Erosion
Vineyard Characteristics
• Water:
– Source, Cost and Timing
– Permits, Licenses, Reservoirs
– Distribution System
– Frost Protection
– Drainage
– Erosion
Vineyard Characteristics
• Location:
– Support Systems, Proximity to Vendors,
Management, Labor, Wineries or
Crushing Facilities, Other Vineyards
– Alternative Uses (Homesites, etc.)
– Competition
Co pet t o
Vineyard Characteristics
• Vines (Living Improvements)
–Varieties
Varieties (Clones)
–Rootstock
–Spacing,
S
i
plant
l t density
d
it and
d
population
–Production
P d ti (P
(Per acre or vine,
i
trends)
–Age
A and
dC
Condition
di i
–Negative (Phylloxera, Pierce’s
Disease, Nematodes)
Vineyard Characteristics
• Non-Living
Non Living Improvements:
–Trellis Systems
–Irrigation Systems
–Frost
Frost Protection
Vineyard Characteristics
• Other Considerations:
– Estate being Appraised
– Partial Interests: (Leasehold, Leased
Fee, Undivided)
– Topography, terrain, access
– Zoning (Winery potential?)
– Grape Contracts
– Location,
L
i
L
Location,
i
L
Location
i
Appraisal Methodology
Vi
Vineyards
d
• Sales Comparison Approach:
– Unit of Measure
• Price per Acre
• Price per Ton?
• Price per foot of Cordon ??
– Characteristics Compared
–HOMESITES
Components of Value; Vineyard Estate
Vineyards
29%
Homesite
H
it
37%
Land
34%
Appraisal Methodology
• Cost Approach:
– Land as Capital Cost (Return on, or
opportunity cost of land)
– Area and site specific costs
– Entitlements
– Cost of Capital (WACC)
– Entrepreneurial
p
Profit
– Depreciation (Living vs. non-living)
– “Mature” vs “Developed”
Cost Approach
Y
Year
Land
0
1
$915
Development
Cultural
$136
$8,553
$634
$441
$1,648
$2,308
$150
$250
Harvest
Overhead
$79
$159
$170
$170
$11,130
$9,153
$2,602
$2,728
$750
$4,500
$9,153
$1,852
($1,772)
$1 113
$1,113
$2 185
$2,185
$2 602
$2,602
$458
$130
$136
$1,571
$2,315
$2,738
Less; Crop Revenue
Net Hard Costs
3
$10,000
Land Prep
Total Hard Costs
2
$11,130
Cost of Capital (Prior)
Cost of Capital (Current)
Total Cost of Capital
Total Cost
$11,130
$10,723
$4,167
$966
Cumulative Cost
$11,130
$21,853
$26,020
$26,986
Vineyard Cost Components
Overhead
$30,000
Trellis
$25,000
Vines
$20,000
Water System
$15 000
$15,000
Water Source
$10,000
Ld Prep
$5,000
Land
$0
1
Valuation for Financial Reporting
Per Acre
30 Acres
Vines
$4,840
,
$145,200
,
Trellis System
$5,750
$172,500
I i ti System
Irrigation
S t
$3 600
$3,600
$108 000
$108,000
Wells & Pumps
$1,240
$37,200
Roads, Fences
$540
$16,200
Land Improvements
$490
$14 700
$14,700
Land
$10,000
$300,000
Total
$26,460
$793,800
Appraisal Methodology
• Income Approach;
• Direct Capitalization
– ((Owner Operator
p
vs. Leased):
)
• IRV; Value = Income ÷ Rate
– Grape Price Trends,
Trends Market Demand
– Price vs. Production
(Subject’s
s history, age, condition)
• (Subject
–Contracts
– Cultural,
C l
l h
harvest and
d overhead
h d expenses
Direct Capitalization
Per Acre
20 Acres
Yield (tons)
4.5
90
Revenue @ $1
$1,500/T
500/T
$6 750
$6,750
$135 000
$135,000
Less; Total Expenses
$4,463
$89,270
Net Income
$2,287
$45,730
C i i
Capitalized
@8%
$28 81
$28,581
$ 1 629
$571,629
Appraisal Methodology
–Discounted Cash Flow Analysis
•Discount (Yield) Rate?
R = Yield - ∆
Value Growth?
Income Growth:
Grape Price Trends?
Trend Analysis
• Market Trends:
–Industry
Industry Cycles
–Consumer Preferences; Media
–General Economic Trends
–
Global Factors??
Discounted Cash Flow Analysis
Year
0
1
Yield
i ld (Tons)
(
)
$ / Ton
Revenue
2
3
4
0.5
3
4.5
$1,500
$1,500
$1,500
$750
$4,500
$6,750
Expenses
$11,130
$11,488
$3,512
$3,672
$4,463
Net Op Income
($11,130)
($11,488)
($2,762)
$828
$2,287
8%
=
$28,581
,
Terminal Value,, @
Net Cash Flow
($11,130)
($11,488)
IRR =
6.5%
($2,762) $29,409
0
1
2
$28,000
$23,000
Resale at end of Yr 3
$18,000
$13,000
I t
Internal
l Rate
R t off R
Return
t
6.5%
$8,000
$3,000
($2,000)
($7,000)
Development Costs
($12,000)
3
Summary:
Wine Prices drive
Grape Prices
which drive
Vineyard Values
Perceptions
““…II often
ft wonder
d what
h t the
th
Vintners buy
One half so precious as the
Goods they
y sell.”
The
e Rubaiyát
uba yát o
of O
Omar
a Khayyám
ayyá
Seventy-First Quatrain
First Edition of the Translation
by Edward Fitzgerald
Tony Correia, ARA, MRICS
[email protected] ; [email protected]
707 933 9915
707.933.9915
Owner, The Correia Company
www.calwineland.com
Founder; Correia
Correia-Xavier,
Xavier inc
inc.
www.c-x.com
Contributing Editor; Wine Business Monthly
www winebusiness com
www.winebusiness.com
Thank You!!!
And
Drink
More
Virginia
g
Wine!!!