Valuing vineyard properties

In keeping with other sectors of the real estate market vineyards have traditionally been valued on the basis of their surface area, prices being quoted per hectare or per acre (1 hectare = 2.47 acres).  The SAFER, who gather statistics for vineyard transactions in France, publish the average price per hectare for the different appellations while headline transactions, such as the 2006 acquisition of Chateau Montrose by the Bouygues family, are frequently used to calculate unofficial per hectare values. In the case of Chateau Montrose this was approximately two million Euros per hectare, based on the reported purchase price of 140 million Euros for the 67 hectare estate. However, in most instances the purchase price includes not only the vineyards but also the buildings and equipment, which are by no means insignificant for an estate such as Chateau Montrose. When Chateau Lascombes was sold earlier this month, for a sum believed to be in the region of 200 million Euros, reported that this “includes the chateau building, all land and equipment, and around €50m of stock.”

It is therefore important to distinguish between the value of the vines and the other assets that are included in a sale. For example, when Chateau Montrose purchased a 22-hectare parcel of vines from their neighbour Chateau Phélan Ségur in 2010, they are reported to have paid 900,000 Euros per hectare, much less than the two million Euros per hectare that the Bouygues brothers paid in 2006. In this instance they were buying only vineyard land, whereas their initial purchase of Chateau Montrose included other tangible assets, such as the buildings and equipment, as well as intangible assets such as the estate’s name and reputation. Nevertheless, the average price per hectare for vineyards in the Saint-Estèphe appellation was 350,000 Euros per hectare in 2010 according to the SAFER. The fact that Chateau Montrose paid almost three times as much for this parcel of vines reflects the commercial worth of the land and the fact that this is higher for a classified estate given the higher prices fetched by their wines. The 2010 release price en primeur for Chateau Montrose was 132 Euros (ex Bordeaux) compared to 27.60 Euros for Chateau Phélan Ségur, nearly five times as much.

A vineyard acquisition typically involves the purchase of a business as a going concern so the current or potential viability of the activity should also be taken into account. However, in practice, for the majority of winemaking estates the price is based on a valuation of the tangible assets: the vineyard, the buildings and the viticultural and winemaking equipment, with the stock usually subject to separate negotiation. Although land values refelct the commercial viability of winemaking in a given area intangible elements, such as goodwill, are either not accounted for at all in the purchase price or are, at best, reflected in the buyer paying a small premium to the value of the assets. However, for larger and more prestigious estates it is the business as a whole that is valued rather than its assets.

Liv-ex, the fine wine exchange, recently published an article entitled “Valuing the great estates of Bordeaux – who is in the €50m club ?”. In it they valued just over 50 Bordeaux estates based on a multiple of “total income achievable”. They calculated the latter figure using current trading prices of recent vintages (first and second wines) and data on the amount of cases produced in order to come up with the total market value of each estate’s annual production. They then divided this figure by 1.5 to take account of negociant and wine merchant margins. The multiple they applied to this figure was based on an analysis of recent transactions involving major Bordeaux estates. They divided the reported purchase price by the “total income achievable” figure for each estate at the time of the sale and found that the average multiple was fifteen. Although, as Liv-ex point out themselves, there are some weaknesses in this model (not least the lack of publicly available information), it does at least provide a basis for valuing the top estates that is closer to the methods used to value other businesses. The recent sale of Chateau Lascombes for a reported 200 million Euros seems to have validated their methodology: when updated with corrected production figures, their valuation was €200,184,000 (see Liv-ex blog).

In the majority of cases a relatively simple calculation based on asset values should at least provide a basis for negotiation although, as in any transaction, the price paid will ultimately come down to how much the buyer is willing to pay and how keen the seller is to sell. Nevertheless, when dealing with the top estates of Bordeaux a more sophisticated form of valuation is required. To use an extreme example, the Chateau Pétrus vineyard extends to just over 11 hectares, there is no chateau and the cellar is a relatively modest building (although it is currently being expanded). Were it ever to be sold the price would be many times the value of its assets: approximately €33 million for the vineyard (at €3 million per hectare) and little more than €5-10 million for the buildings and equipment. According to Liv-ex Chateau Pétrus is currently worth fifteen times as much, at €663 million, although this is a snip when compared to the €3.7 billion at which they value Chateau Lafite Rothschild.

Alexander Hall