1. The Wine Cycle, and Where we are Today ASA No Cal December 10, 2009 Tony Correia, ARA, MRICS

2. …I often wonder what the Vintners buy One half so precious as the Goods they sell. The Rubaiyát of Omar Khayyám Seventy-First Quatrain First Edition of the Translation by Edward Fitzgerald

3. Manic-Depressive Wheel of Fortune Copyright 2005 Turrentine Brokerage All Rights Reserved DEMAND EXCEEDS SUPPLY EXCEEDS DEMAND

4. Wine Business Monthly October 2001

5. The Wine Cycle; California Chardonnay This Time, Its Different….???

6. "Those who cannot remember the past are condemned to repeat it," Santayana's Law of Repetitive Consequences

7. Is the Cycle Broken??

8. Is The Wine Cycle Broken? Nope, its Global

9. WHATS DOWN THE ROAD FOR GRAPE GROWERS? The Future Wine Sales??

10. The Wine Cycle Quality, and the Perception of Value, Continues to be the key to Survival, Today, and Success, Tomorrow.

11. 2009 Crush Spot grape market was dead last half of the growing season. Note; Spot market is NOT the whole grape market, many grapes were sold under long-term contracts Wineries which were suffering slow sales did not buy grapes, some actually sold grapes in competition with growers Some Wineries are doing quite well, but had their grape supplies secured, so also did not buy grapes

12. 2009 Crush Some Growers custom crushed their unsold grapes, and now waiting to sell their bulk wine, hoping for a stronger market Imports hitting some segments HARD (Some Bulk Imports have TRIPLED) Industry is holding its breath, waiting for 4 th Quarter wine sales results

13. Is the Sky Falling? How would you feel if the world was falling apart all around you, Pieces of the sky were falling in your neighbors yard, But not on you…. Before Believing Danny Flowers

14. California Wine - Cheap is Chic C onsumers Buying Down –(Short or Long Term Phenomenon?)

15. 2007 Isnt this a lovely wine?? Parker 95. $350 a bottle… What a cool guy!!!!

16. 2009 Isnt this a lovely wine?? Costco. $15 a bottle… What a cool guy!!!!

17. California Wine - Cheap is Chic Consumers Buying Down –(Short or Long Term Phenomenon?) Impact on Growers? – Can I sell my grapes? – At what Price? – When will I get paid? – And WILL I get paid?

19. Wine prices drive grape prices which drive land and vineyard prices, ergo…

20. Vineyard Markets –Credit available, but only for qualified, solid borrowers, FOCUS ON CASH FLOWS DEBT SERVICEABILITY –Buyers waiting on the sidelines; One persons problem is anothers opportunity.

21. Financial stress already apparent in many markets Vineyard values tend to be sticky Good properties are always good properties, Napa Valley is still Napa Valley. Best properties in best areas most insulated from stress. Marginal properties, and secondary or tertiary areas, feel impact if/when grape prices slide and growers suffer losses. Vineyard Markets

22. Whats planted in California, stays in California Few new plantings in the past 3-5 years, and few expected for several more.

23. Wine Grape Acres (1,000s) Whats planted in California, stays in California

24. Non-Bearing Acres as % of Total

25. New Acres as % of Bearing

26. Pinot Noir; Total Non-Bearing Acres

27. Pinot; Non-Bearing Acres as % of Total Acres

28. Real Estate Markets? So, what does this mean to vineyard and winery markets? Some background, concepts, and history

29. Can an Ag Business have Value? Example: Kosta – Browne Winery High end Pinot Noir producer 11,000 cases a year, –all sold direct to consumer No owned vineyards; buy grapes No owned winery facility; building and equipment leased Note: Ten years ago, both Kosta and Browne were waiting tables…started this venture with their tip money…

30. Example Kosta – Browne Winery Acquired Fall 2009 Sale reported at Somewhat less than $40 million

31. Asset Leasing Models; REITs Vintage Wine Trust Launched March 2005, liquidated 2008 High rental rates VINREIT High profile industry player High rental rates Some signs of stress appearing (Cosentino, Havens)

32. Vineyard Investment Models Premiere Pacific Vineyards Business model: CALPERS funding; buy superior sites, develop top-end premium vineyards. Original plan was to sell vineyards as they matured, but that has not met with success, so plan has morphed towards leasing, but also little success with that model. Silverado Partners Buy vineyards; or buy or lease land and develop vineyards. Coastal concentration. Add value.

33. Vineyard Value Components

34. Vineyard Value Components (Central Coast)

35. Valuation for Financial Reporting

36. –Discounted Cash Flow Analysis

38. Total Value of Estate Winery Property : $6,500,000

39. Total Value of Winery Facility : $3,764,120

40. The California Vineyard Market Central Valley North Coast Central Coast

41. Where are we? Were in the Wine Business, in California.

42. Central Valley Low cost grapes for low cost wines – Cheap is Chic Few, Big, grape buyers Big Grape Growers Water!!

43. WATER ? Severe Water Shortage in both Federal and State Central Valley Water Projects Supplies in many Coastal Areas dependent on captured rainfall or fragile groundwater aquifers

44. Fresno & Madera County Wine Grape Vineyards

45. Fresno & Madera County Vineyards vs. Thompson Seedless Prices

46. Fresno & Madera County Vineyards vs. Average WINE Grape Prices

47. Fresno & Madera County Vineyards vs Top Varieties Rubired French Columbard

48. Lodi – Delta Area 20% of Total State Production - Chardonnay 27% (10+ Million Cases @ $5+/bottle) - Cabernet 26% - Zinfandel 34% (10+ Million Cases @ $4+/bottle) - Pinot Grigio/Gris 38%

49. Lodi Area Wine Grapes Vineyard Values vs Average Grape Prices Zinfandel Chardonnay

50. Coastal Markets Market Perceptions Markets are based on Perceptions

51. Market Perceptions 2009 Sellers think its still 2007. Buyers are thinking its the 30s.

52. 2009 Vineyard Markets Few Sales Few Sellers Fewer Buyers Crowded Sidelines, waiting…

53. North Coast Residential still soft True Trophy properties relatively insulated Market on PAUSE in last quarter 2008 and first quarter 2009. Vineyard buyers, and lenders, looking at Operating Economics Capital, Credit issues?

54. Napa Valley strong demand for the best A+ properties in the best locations – Oakville is always Oakville. High percentage of winery owned vineyards and contracted grapes Marginal areas still suffer

55. Napa County Open Land

56. Napa Vineyard Values vs. Price Chardonnay Cabernet

57. Napa Vineyard Values; Regions

58. Sonoma County good demand for good properties in good locations more, smaller, independent growers Residential Soft Segmented Markets tied to varieties –Russian River Valley– Pinot & Chardonnay –Carneros – Pinot & Chardonnay –Alexander Valley – Cabernet –Dry Creek Valley – Zinfandel –Sonoma Coast – Pinot More 28% of total State Pinot Production

59. Sonoma Vineyards vs Grape Prices

63. Mendocino Co. Vineyards vs Grape Prices

64. Lake Co. Vineyards vs Grape Prices

65. Monterey County Economies of Scale > Large, efficient vineyards Chardonnay 90,000 tons, @ $1,200 a ton 48% of total County Production 16% of total State Production Six Million Cases @ $12/bottle

66. Monterey County Values vs. Price

67. San Luis Obispo & Santa Barbara Counties, Values vs. Price Pinot Noir Chardonnay

68. Summary: Wine prices drive grape prices which drive land and vineyard prices

69. Pieces of the Sky… Wine prices under pressure from slow sales; and Buying Down Grape prices under pressure So…… Land, vineyard and winery prices?

70. The Future? WARP! W ine A sset R ecovery P rogram Cash for Cab?

71. Thank You!!! And Drink More California Wine!!!