Vineyards · Cost Approach Year 0 1 2 3 Land $10,000 Land Prep $915 Development $8,553 $634 Cultural $136 $441 $1,648 $2,308 Harvest $150 $250 Overhead $79 $159 $170 $170

Vineyards

Virginia VineyardsVirginia Vineyards Association

Tony Correia, ARA, MRICSCorreia-Xavierincorporated

March 5, 2010

Virginia Wine Grapes3,000

B i A

2,500

Bearing Acres

2,000

Acr

es

1,500

1,0002001 03 05 07 20092001 03 05 07 2009

Virginia Wine Grapes3,000 3.5Bearing Acres vs.

Yields / Acre

2,500 3

Yields / Acre

2,000

Acr

es

2.5

Yie

lds

1,500

A

2

Y

1,500 2

1,0002001 03 05 07 2009

1.5

Virginia Wine Grapes

8,000

9,000Total Grape Production

(tons)

6 000

7,000

8,000

5,000

6,000

3,000

4,000

1 000

2,000

1,0002001 03 05 07 2009

Virginia Wine Grapes10,000 $1,700

Price per Ton

8,000 $1,600

6,000 $1,500

4,000 $1,400

0

2,000

$1 200

$1,300

Total Grape Production (tons)0

2001 03 05 07 2009$1,200

VineyardsVineyards• How much are they worth?• How much are they worth?• And Why?And Why?• And Who Cares?• And How can you possibly

l h k itt ?value such pesky critters?

Why Appraisals???• Why does anyone need an Appraisal?• Why does anyone need an Appraisal?

– Financing, lender’s collateralFi i l R ti (I t ti l St d d )– Financial Reporting (International Standards)

– Sale or PurchaseDi i l i V l– Disputes involving Value

• Dissenting Shareholders, DivorcesEminent Domain• Eminent Domain

– Taxes • Estate Planning Minority DiscountsEstate Planning, Minority Discounts• Allocations for Income Tax Depreciation• Property Tax Assessment Appealsp y pp• Capital Gains Calculations

Vineyard ValuationVineyard Valuation

What drives the Value of a Vineyard?y

Wine Prices drive Grape Prices which

drive Vineyard Values

Vineyard CharacteristicsVineyard Characteristics

• Location:• Location:– Region (Temperature)– District (State)– AppellationAppellation– American Viticultural Area (Federal)

Virginia Wine Regions and A ll i (AVA )Appellations (AVAs)


• Climate:• Climate:– Temperature (Maximums and

Minimums)– Precipitation (Quantity and Timing)– Microclimate– Mesoclimate– Mesoclimate


• Soils:• Soils:– General Characteristics– Fertility– LimitationsLimitations– Erosion


• Water:• Water:– Source, Cost and Timing– Permits, Licenses, Reservoirs– Distribution SystemDistribution System– Frost Protection

Drainage– Drainage– Erosion


• Location:• Location:– Support Systems, Proximity to Vendors,

Management, Labor, Wineries or Crushing Facilities, Other Vineyards

– Alternative Uses (Homesites, etc.)– CompetitionCo pet t o

Vineyard Characteristics• Vines (Living Improvements)

Varieties (Clones)–Varieties (Clones)–Rootstock

S i l t d it d–Spacing, plant density and populationP d ti (P i–Production (Per acre or vine, trends)A d C di i–Age and Condition

–Negative (Phylloxera, Pierce’s Disease, Nematodes)


• Non Living Improvements:• Non-Living Improvements:–Trellis Systems–Irrigation Systems

Frost Protection–Frost Protection


• Other Considerations:• Other Considerations:– Estate being Appraised– Partial Interests: (Leasehold, Leased

Fee, Undivided)– Topography, terrain, access– Zoning (Winery potential?)– Zoning (Winery potential?)– Grape Contracts

L i L i L i– Location, Location, Location

Appraisal MethodologyVi dVineyards

• Sales Comparison Approach:• Sales Comparison Approach:– Unit of Measure

• Price per Acre• Price per Ton?Price per Ton?• Price per foot of Cordon ??

Characteristics Compared– Characteristics Compared

–HOMESITES

Components of Value; Vineyard EstateVineyards

29%

H itHomesite37%

Land34%

Appraisal MethodologyAppraisal Methodology

• Cost Approach:• Cost Approach:– Land as Capital Cost (Return on, or

opportunity cost of land)opportunity cost of land)– Area and site specific costs– Entitlements– Cost of Capital (WACC)– Entrepreneurial Profitp– Depreciation (Living vs. non-living)– “Mature” vs “Developed”

Cost ApproachY 0 1 2 3Year 0 1 2 3

Land $10,000Land Prep $915Development $8,553 $634Cultural $136 $441 $1,648 $2,308Harvest $150 $250Harvest $150 $250Overhead $79 $159 $170 $170Total Hard Costs $11,130 $9,153 $2,602 $2,728

Less; Crop Revenue $750 $4,500Net Hard Costs $11,130 $9,153 $1,852 ($1,772)Cost of Capital (Prior) $1 113 $2 185 $2 602Cost of Capital (Prior) $1,113 $2,185 $2,602Cost of Capital (Current) $458 $130 $136Total Cost of Capital $1,571 $2,315 $2,738Total Cost $11,130 $10,723 $4,167 $966Cumulative Cost $11,130 $21,853 $26,020 $26,986

Vineyard Cost Components

$30,000 Overhead

$25,000Trellis

Vines

$15 000

$20,000Vines

Water System

$10,000

$15,000Water Source

$5,000Ld Prep

Land$0

1

Land

Valuation for Financial ReportingPer Acre 30 Acres

Vines $4,840 $145,200, ,Trellis System $5,750 $172,500I i ti S t $3 600 $108 000Irrigation System $3,600 $108,000Wells & Pumps $1,240 $37,200Roads, Fences $540 $16,200Land Improvements $490 $14 700Land Improvements $490 $14,700Land $10,000 $300,000Total $26,460 $793,800

Appraisal Methodology

• Income Approach;• Direct Capitalization

– (Owner Operator vs. Leased):( p )• IRV; Value = Income ÷ Rate

– Grape Price Trends Market DemandGrape Price Trends, Market Demand– Price vs. Production

• (Subject’s history, age, condition)(Subject s history, age, condition)

–ContractsC l l h d h d– Cultural, harvest and overhead expenses

Direct Capitalization

Per Acre 20 Acres

Yield (tons) 4.5 90

Revenue @ $1 500/T $6 750 $135 000Revenue @ $1,500/T $6,750 $135,000

Less; Total Expenses $4,463 $89,270

Net Income $2,287 $45,730

C i i @ 8 % $28 81 $ 1 629Capitalized @ 8 % $28,581 $571,629

Appraisal Methodology

–Discounted Cash Flow Analysis–Discounted Cash Flow Analysis•Discount (Yield) Rate?

R = Yield - ∆Value Growth?Value Growth?Income Growth: Grape Price Trends?

Trend AnalysisTrend Analysis

• Market Trends:• Market Trends:

–Industry CyclesIndustry Cycles–Consumer Preferences; Media–General Economic Trends– Global Factors??

Discounted Cash Flow AnalysisYear 0 1 2 3 4

i ld ( )Yield (Tons) 0.5 3 4.5

$ / Ton $1,500 $1,500 $1,500

Revenue $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

Terminal Value, @ 8% = $28,581, @ ,

Net Cash Flow ($11,130) ($11,488) ($2,762) $29,409

IRR = 6.5%

0 1 2 3

$23,000

$28,000

Resale at end of Yr 3

$18,000

$23,000 Resale at end of Yr 3

I t l R t f R t

$8,000

$13,000 Internal Rate of Return6.5%

($2,000)

$3,000

($7,000)

($2,000)

Development Costs($12,000)

Summary:Summary:Wine Prices driveWine Prices drive

Grape PricesGrape Prices which drivewhich drive

Vineyard ValuesVineyard Values

PerceptionsPerceptions“ I ft d h t th“…I often wonder what the

Vintners buyOne half so precious as the

Goods they sell.”y

The Rubaiyát of Omar Khayyáme uba yát o O a ayyáSeventy-First Quatrain

First Edition of the Translationby Edward Fitzgerald

Tony Correia, ARA, MRICSTony Correia, ARA, [email protected] ; [email protected]

707 933 9915707.933.9915Owner, The Correia Company

www.calwineland.com

Founder; Correia Xavier incFounder; Correia-Xavier, inc.www.c-x.com

Contributing Editor; Wine Business Monthlywww winebusiness comwww.winebusiness.com

Thank You!!!Thank You!!!

AndAnd DrinkDrink More

VirginiagWine!!!

Documents

Vineyards · Cost Approach Year 0 1 2 3 Land $10,000 Land Prep $915 Development $8,553 $634 Cultural $136 $441 $1,648 $2,308 Harvest $150 $250 Overhead $79 $159 $170 $170