Viticulture Report
COLLIERS INTERNATIONAL NEW ZEALAND
RURAL & AGRIBUSINESS
MARLBOROUGH
VINEYARD VALUES
2016 OVERVIEW
MARLBOROUGH VINEYARD MARKET: STRONG
OUTLOOK
Over the past twelve months we have seen vineyard values rise sharply within Marlborough
– the centre of New Zealand’s wine industry – with around 23,000 hectares of developed
vineyard area. Vineyard values in other wine growing regions throughout New Zealand have
remained relatively static in comparison, with older vines being replanted or replaced by
alternative land uses occurring in Hawke’s Bay and Gisborne.
There is still a strong market preference for
Marlborough Sauvignon Blanc, with export markets
showing good growth. This has resulted in increased
demand for vineyards within Marlborough as the
supply of available land for vineyard expansion
becomes scarce within the region.
2016 TRENDS
• Sharp rise in values in
Marlborough
• Still preference for Marlborough
Sauvignon Blanc
We are seeing very active interest from existing
wine companies looking to secure vineyards to meet • Strong interest from existing
wine companies to secure
future growth, along with both onshore and offshore
vineyards to meet growth
investors taking advantage of strong yields that can
be achieved through vineyard leasing. These buyers
prefer larger blocks with a low proportion of non-productive assets, although we are now also
seeing smaller lifestyle type vineyards selling very well. Due to the good returns generated
over the past three years, there is a lack of listings available for sale which has led to a supply
/ demand imbalance and driven values upward.
Within the prime growing area of Rapaura and the Lower Wairau vineyard values range from
$175,000 - $250,000 per hectare. Mid-tier productive blocks within the Wairau and Southern
Valleys have been achieving $150,000 - $200,000 per hectare, while Awatere and Upper
Wairau sales range from $100,000 – $150,000 per hectare. The main determinates of value
are soils / contour, climatic conditions and irrigation, which ultimately drive the long-term
productive capabilities of each vineyard. Throughout Marlborough long-term average yields
can range between 6 – 16 tonnes per hectare depending on growing conditions and variety.
Vineyard values are closely related to the contract grape price paid to growers, which is
currently between $1,800 - $2,000 per tonne for Marlborough Sauvignon Blanc. The grape
price has risen by around $400 per tonne over the past four years, however, we expect this
to remain static for the coming year as a result of a large 2016 crop, with most wineries
operating at near capacity and increased stocks of wine to be sold in the coming year.
Prime winegrowing blocks in Rapaura
and the Lower Wairau attract prices in
the range $175,000 – $250,000/ha
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Mid-tier productive blocks within the
Wairau and Southern Valleys have been
achieving $150,000 – $200,000/ha
Awatere and Upper Wairau sales range
from $100,000 – $150,000/ha
Colliers International Rural & Agribusiness | New Zealand
New Zealand Wine in collaboration with the Ministry for Primary Industries (MPI)
produce a Viticulture Model Vineyard Benchmarking Report, which is compiled
from the results of data collected from interviews with contract grape growers and
winery operated businesses.
RURAL & AGRIBUSINESS
WORKING TOGETHER TO DELIVER THE MARKET
INFORMATION YOU NEED
Since 2012, Tim Gifford of Colliers International’s Rural & Agribusiness team has
provided a market value assessment of the model vineyard in order to analyse value
changes and return on capital.
TIM GIFFORD
Associate Director, Registered Valuer
B.Com(Ag) VFM, MPINZ, MNZIPIM
+64 27 460 0371
[email protected]
2016 MARLBOROUGH MODEL VINEYARD DATA
MODEL VINEYARD OVERVIEW
The Marlborough model remains at 30 producing hectares. For 2016, data was sourced from
38 vineyards compared with 31 vineyards in the previous year. Nine vineyards are located in the Awatere
Valley and 29 vineyards in the Wairau Valley. There are 29 contract growers and nine winery operated
vineyards in the monitoring group. Eight of the vineyards are 0–10 hectares, eight are 10–20 hectares,
thirteen are 20–50 hectares and nine are 50 hectares or larger.
The model vineyard assumes a central Wairau location with an average size modern dwelling, implement
shed / workshop and other vineyard improvements. The vineyard details are represented as follows:
PLANTING SCHEDULE
The Marlborough vineyard model plantings are summarised as follows:
Variety
Block Code
Age
Area
Sauvignon Blanc
A
2006
23 ha
Pinot Noir
B
2006
3 ha
Chardonnay Mendoza & Clone 15
C
2006
1.5 ha
Chardonnay - all
other clones
D
2006
0.5 ha
Riesling
E
2006
0.5 ha
Pinot Gris
F
2006
1.5 ha
Total
30 ha
Table 1: Planting Schedule
Plantings are assumed to include phylloxera resistant rootstock with a mix of clones selected to suit the
characteristics of each block.
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PRODUCTION: 2014-2016
MODEL BLOCK PERFORMANCE AT A GLANCE
We have been provided with the past
three years’ production records for
the Marlborough model vineyard as
presented in the benchmarking report.
Production figures are shown in the
table below:
•
Overall strong production
•
Very dry summer affected 2015 vintage
•
2014 and 2016 exceptional years with higher than
average yields
Variety
Area
2014
tonnes
2014
tonnes
/ha
2015
tonnes
2015
tonnes
/ha
2016
tonnes
2016
tonnes
/ha
Sauvignon Blanc
23.00
380
16.52
269
11.70
380
16.52
Chardonnay Mendoza & Clone 15
3.00
11
3.67
13
4.33
16
5.33
Pinot Gris
1.50
18
12.00
15
10.00
18
12.00
Chardonnay - all
other clones
0.50
6
12.00
6
12.00
7
14.00
Riesling
0.50
5
10.00
5
10.00
6
12.00
Pinot Noir
1.50
19
12.67
16
10.67
26
17.33
439.00
14.63
324.00
10.80
452.00
15.10
Grand Total
Table 2: Production summary
The pruning method used is a mix of three and four cane vertical shoot positioning (VSP)
style.
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FINANCIAL RETURNS: INCREASED PROFIT BEFORE TAX
We have used the Marlborough model vineyard benchmarking results as comparison for financial returns
within the region. The key parameters for the Marlborough model vineyard are summarised in Table 3
together with the implications on asset values. For the purpose of the assessed vineyard land value we
assume a well-located central-Wairau location.
Marlborough
10/11
11/12
12/13
13/14
14/15
15/16
Producing planted
area (ha)
30
30
30
30
30
30
Total yield (t)
363
290
365
439
324
452
Average return ($/t)
$1,350
$1,410
$1,720
$1,730
$1,810
$1,900
Net cash income ($)
$489,700
$409,200
$625,800
$763,000
$587,300
$868,800
$230,200
$229,400
$237,600
$289,300
$291,600
$313,300
$5,577
$3,230
$9,800
$11,277
$6,107
$14,823
Vineyard working
expenses ($)
Profit before tax ($/
ha)
Model vineyard
capital value (CV)
CV / planted ha
Capital value
movement
Return on capital
EBIT/CV
Total Vineyard
Return
RURAL & AGRIBUSINESS
MODEL VINEYARD RETURNS AND VALUATION
IMPLICATIONS
$4,650,000 $4,673,000 $4,927,000 $5,260,000 $5,640,000 $6,540,000
$155,000
$155,767
$164,233
$175,333
$188,000
$218,000
0.49%
5.44%
6.76%
7.22%
15.96%
5.58%
3.85%
7.88%
9.01%
5.24%
8.49%
5.58%
4.34%
13.31%
15.76%
12.47%
24.45%
Table 3: Summary of key viticulture sector statistics
Source: NZ Wine & MPI Viticulture Model Vineyard Benchmarking Report Marlborough 2016 and Colliers Rural & Agribusiness
Vineyard profit before tax has increased 142% from 2014/15 season of $6,107 per hectare to $14,823
in 2015/16, which is close to the 10-year high of $14,970 per hectare in 2008. Working expenses were
higher this year at $10,500 per hectare, with crop manipulation and powdery mildew control adding to
the overall expense.
OUR DISCOUNTED CASH FLOW (DCF) APPROACH TO VALUATION
The application of DCF analysis allows a forward looking approach to valuation, rather than relying
solely on market comparison with historical sales evidence. We use it to compare the potential returns
from a particular vineyard and the price paid in the market. This approach also allows for comparison of
vineyard values from differing localities for variation in yields and grape price using financial modelling.
We have tested the assessed capital value of the Marlborough model vineyard derived from the primary
method of valuation (direct comparison and summation) through the use of DCF analysis. The DCF
approach involves the discounting of the net cash flows predicted to be generated by the vineyard,
together with an assumed purchase at commencement and sale on conclusion, to assess the likely return
of the investment.
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The cash flows are discounted on an annual basis over the assumed cash flow period at an
appropriate rate to reflect the risk of and, therefore required rate of return of the project. The
net cash flow comprises the purchase price (outflow), cash inflows (grape sales) less the cash
outflows (operating expenses) over the forecast period, with the addition of the terminal value
(inflow) in the final cash flow period.
The projected income stream reflects the anticipated growth, or otherwise, inherent in a
property investment based upon the physical, tenancy or market characteristics related to
that property. The future values quoted for property, income and operational expenses are
projections only formed on the basis of information currently available to us and are not
representations of what the returns of the property will be as at a future date. This information
includes the current expectations as to property values and income that may not prove to be
accurate.
KEY DCF ASSUMPTIONS
We have prepared a 10 year cash flow projection for the model vineyard in which we have
assumed that the property is sold at the start of the eleventh year of the cash flow. The cash
flow has been prepared on an annual basis and is based upon the following assumptions:
• Inflation considerations are based on the New Zealand Reserve Bank consumer price
index (CPI) data, which since 2000 has averaged around 2.7%. This compares with
averages of 2.4% in the 1990s, and averages of over 11% for the previous two decades.
Since September 2002, the inflation target has been to keep inflation within a range of 1-3
per cent on average over the medium-term.
• Production levels are based on district averages for each variety and adjusted
for individual property attributes such as soils, climate, planting and management
considerations. We have estimated the production levels under assumed average efficient
management using long term average data. Actual production levels can vary significantly
due to climatic and management influences from season to season. Given the assumed
location and production history of the model vineyard we have adopted yield estimates
towards the top end of the district average as set out in the following table:
District Average
T/ha
Adopted Average
Yield T/ha
Sauvignon Blanc
10 – 16
14
Chardonnay - Mendoza & Clone 15
8 - 10
9
Pinot Gris
10 - 12
10
Chardonnay - all other clones
10 - 12
12
Riesling
8 - 12
10
Pinot Noir
6 - 12
10
Variety
Table 4: Yield information
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Colliers International Rural & Agribusiness | New Zealand
CPI for the term of the cash flow. It is reasonable to conclude that grape prices may rise or fall at
greater levels than those adopted. However, given we are in an active trading period coming off a low
base price, we regard CPI to be a reasonably sound basis for cash flow purposes. The table below
indicates historical grape prices and the price adopted for the varieties included in our DCF:
2006-15
($/t)
2011-15
($/t)
2015
($/t)
2016
($/t)
2017 Budget
($/t)
Sauvignon Blanc
$1,765
$1,490
$1,710
$1,805
$1,840
Pinot Noir
$3,030
$2,980
$3,220
$3,085
$3,210
Pinot Gris
$1,815
$1,780
$1,830
$1,885
$1,915
$1,955
$1,950
$2,200
$2,130
$2,250
$1,785
$1,715
$1,830
$2,000
$1,910
Riesling
$1,705
$1,620
$1,785
$1,775
$1,775
Weighted Average
$1,830
$1,605
$1,810
$1,900
$1,940
Variety
Chardonnay - Mendoza &
Clone 15
Chardonnay - all other
clones
RURAL & AGRIBUSINESS
• Grape prices are based on projections from historically received prices and increased by predicted
Table 5: Summary of Grape Prices
• Total operating expenses for a corporate style vineyard of the subject’s scale would typically fall in a
range of $9,000 to $10,500 per hectare dependent on the pruning and harvesting methods and spray
/ weed management requirements. We have adopted an average rate of $10,500 per hectare for the
model vineyard. Operating expenses have also been escalated at CPI for the cash flow period. This
allowance does not make provision for significant irrigation capital expenses to the property, hand
picking or major infrastructure upgrades.
• The terminal value has been estimated by escalating the assessed market value by forecast CPI.
In the absence of any alternative methods of assessment we believe this is likely to be the most
appropriate and, perhaps, conservative approach for the subject property given that we have recently
been through the bottom of a market cycle.
DCF OUTCOMES
Based on the above income and expenditure assumptions, forecast net income has been modelled for the
10-year cash flow period. The graph below summarises the estimated returns generated on a net income
basis:
600,000
600000
500,000
500000
400,000
400000
300,000
300000
200000
200,000
100,000
100000
$
year
year
1
2
3
4
5
6
7
8
9
10
Graph 6: Net Income
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VINEYARD VALUES: ALSO IN POSITIVE TERRITORY
$6,540,000 ↑
The assessed value of the vineyard equates to $6,540,000 and reflects the following:
Parameters
Assessment
Internal rate of return
9.72%
Price ratio (Adopted value : gross revenue in year one)
8.88
Direct comparison across net planted area only
$218,000 per hectare
Direct comparison across the entire property area
$195,224 per hectare
Table 7: DCF results
We have compared the Internal rate of return (IRR) with our analysis of similar vineyard sales.
The graph below demonstrates the range of IRR that have been calculated from vineyard sales:
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Graph 8: Sale Analysed IRR
The properties with a lower IRR are generally smaller blocks with a higher proportion of
non-productive assets or unplanted land which is not generating a return. The analysed IRR
can also relate to the climatic or other growing risks associated for a particular vineyard; an
investor maybe prepared to accept a lower rate of return for a vineyard with consistent and
reliable production or lower than average operating costs.
The resultant IRR of 9.72% in this instance is within acceptable market parameters, as shown
in the sales evidence, which franges between 8% to 12% for productive vineyards. In this case
the rate is towards the middle of the range and reflects the assumed premium location and
ability to produce consistent yields.
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WE HAVE THE
EXPERTISE
VALUATION | ADVISORY | SALES
Colliers International Rural & Agribusiness | New Zealand
The market value of the hypothetical Marlborough model vineyard has increased by around 16% since
June 2015 on the back of strong demand for productive vineyards throughout Marlborough. The 2016
season’s favourable climatic conditions resulted in an exceptional harvest with near record yields.
The high yields combined with very strong fruit prices has resulted in a sharp increase in vineyard
profitability.
Market activity is very strong at present as wine companies look to secure future supply and investors
are attracted to the potential returns available either through operating or leasing vineyards. We are
seeing an increase in vineyard development of bare land. However, in contrast to the speculative
development of the mid- to late-2000’s the development currently being carried out is largely by existing
wine companies to meet existing and future demand.
RURAL & AGRIBUSINESS
MODEL VINEYARD VALUATION CONCLUSIONS
Competition between buyers continues to drive values up in Marlborough, as a result of the constrained
supply of land suitable for vineyard development and the reduced number of vineyards listed.
A combination of very high operating profits combined with excellent capital appreciation has resulted
in exceptional returns for the Marlborough model vineyard. We expect a static grape price combined
with a return to long-term average yields, which will see returns for 2017 being down on the past year,
however, we predict the strong demand for Marlborough vineyards will continue.
Exceptional
conditions
Record harvest
yields
Strong market
activity due to
expansion
plans/intentions
High operation
profits and
excellent capital
appreciation
Model vineyard
value ↑ ~16%
WE WELCOME YOUR FEEDBACK. FOR MORE INFORMATION OR WITH ANY ENQUIRIES, PLEASE
CONTACT:
TIM GIFFORD | +64 27 460 0371 | [email protected]
colliers.co.nz/rural | 0800 697 872 | [email protected]
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COLLIERS INTERNATIONAL | NEW ZEALAND
RURAL & AGRIBUSINESS | VITICULTUR
VALUATION & ADVISORY
Our experts have been active in the viticulture sector for 20 years and have seen
it through multiple cycles and changing market conditions.
MA
I NS R
IG
T
KE T
H
With the viticulture sector becoming ever more complex and global in nature,
there is an increased requirement for comprehensive information and rigorous
reporting by owners, investors, financial institutions and regulators. We
understand these different levels of reporting and how to drive improved returns
on investment.
A commitment to an accountable service, delivered with integrity, honesty and
transparency at all times is fundamental to our approach as we strive to create a
long term value for our clients through provision of the highest quality professional
market-focused valuation advice.
O
CT
S E HIC
P
RA
G EO G
We base our advice on robust analysis of the data and include all aspects of
any viticulture enterprise – from straightforward land and assets valuations,
through financial performance and management practices, to vertical integration
structures and brand recognition.
COMP
CLIE
SERV
We offer a depth of senior personnel and resources both across New Zealand and
Australia. Our commitment to service excellence, coupled with our unparalleled
market intelligence continues to differentiate us as a valuation firm of choice.
R
AL A N
CO D
VE
R AG E
TIM GIFFORD
JOHN DUNCKLEY
Associate Director, Registered Valuer
B.Com(Ag) VFM, MPINZ, MNZIPIM
Director, Registered Valuer
B.Com (Ag), Dip Prof Urb, FNZPI, FNZI
+64 27 460 0371
[email protected]
+ 64 21 326 189
[email protected]
Tim has 14 years property valuation experience. He
resides in Marlborough and has knowledge of all of
the main wine growing regions in New Zealand. In the
past 18 months Tim’s viticulture work has included
more than 4000 ha of vineyards with a combined
value in excess of $275 million. He has done
valuations for financing, transaction advice and rental
purposes for a number of clients, including most major
banks.
Tim offers our clients excellent technical skills and
market knowledge, together with a sound appreciation
of both private and public sector imperatives.
John has been actively involved in the property
industry as a valuer for more than 40 years. He has
20 years experience in the viticulture sector valuing
over 10,000 ha of vineyards throughout New Zealand
and experiencing a wide range of market conditions
and growth cycles.
John provides investment advice for purchase,
sale, rental of existing going concern vineyards and
wineries and proposed greenfield developments. He
is regarded as a leading valuation practitioner in New
Zealand and has served the profession as a chairman
and representative to the various industry boards and
organisations.
COLLIERS INTERNATIONAL NEW ZEALAND | VITICULTURE
RE TEAM
AGENCY
IST
A L T IS E
R
SP
EX ECI
PE
R
UT A N G
IO E
NS
PLETE
ENT
VICE
LL
F U SOL
OF
We have a focused viticulture sales team specifically covering Marlborough,
Hawke’s Bay, Wairarapa and Nelson but with the ability to market vineyard and
wine company assets anywhere in New Zealand.
We work closely with the Colliers rural valuers as well as the viticulture team at
Colliers Australia, which is the market leader in that country.
As many of the leading companies have extensive operations on both sides
of the Tasman, Colliers Rural & Agribusiness is very well placed to provide
seamless services to those key industry players. Our local knowledge and global
connections are also highly valued by clients at the boutique end of the scale.
With this knowledge and expertise, our viticulture team is able to provide effective
solutions – from straightforward disposals and acquisitions to more complex
restructuring projects including sale and lease back transactions.
With its extensive global reach and experience of collaboration on cross-border
transactions, Colliers International Rural & Agribusiness has easy access to
overseas investors and corporates who have an interest in participating in the
New Zealand wine sector.
MIKE LAVEN
HADLEY BROWN
Viticulture Assets Agency
Director, Rural Sales
Commercial Consultants Ltd, Licensed
under REAA 2008
+64 21 681 272
[email protected]
CRHB Ltd, Licensed under REAA 2008
+64 27 442 3539
[email protected]
Mike has over 35 years experience in real estate,
principally as a consultant and broker in the commercial
property sector in the United Kingdom, Asia and New
Zealand. He has also undertaken several real estate
developments including a number of wine and tourism
projects in New Zealand.
Hadley has extensive experience in the rural and
viticulture sectors. He has held a variety of roles
within these sectors both in New Zealand and abroad
and has an astute understanding of both the practical
and business aspects of these industries.
As a former director of one of Hong Kong’s leading
real estate firms, Mike has developed a strong network
of corporates, family offices and high net worth
individuals, and he continues to inform and advise them
on New Zealand market investment opportunities. Mike
is based in Wellington, working with clients New Zealand
wide.
Hadley’s years of specialised experience in rural
property sales have resulted in an outstanding track
record of more than $150 million in sales, a large
portion of which have been viticultural sales across
Hawke’s Bay, as well as a large client base that spans
the globe. These results place Hadley in the top tier of
agents nationwide and have given him a reputation as
one of the leading agents in his field.
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RURAL & AGRIBUSINESS
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This document has been prepared by Colliers International for advertising
and general information only. Colliers International does not guarantee,
warrant or represent that the information contained in this document is
correct. September 2016