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Todd Sheppard
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Live Oak Bank

Winery & Vineyards: One Major Investment Company’s $81 Million Debacle

Investments in California wineries and vineyards have long been the Afghanistan for major investors. The field is enticing. The subject appealing. Especially so for investment managers who like what the British would call a “top drop.”

But like the British and a lot of other powerful and intelligent people over the ages who thought they could conquer the untamed land beyond the Khyber Pass, major investments in wine since the 1990s have suffered from low returns and bad timing.

The IPO boom of the 1990s (Beringer, Mondavi and others) found that wine company income statements and balance sheets didn’t make for a good share price run-up. Then they ran into a gathering glut and foundered on the rocks of the economic downturn at the beginning of the 21st Century.

With half a decade to forget all that, CalPERS took their caravan over the pass and so did multi-billion-dollar real-estate investment trust Entertainment Properties Trust (NYSE: EPR). And they’ve both been left shell-shocked and running for cover.

For more on CalPERS turned out, please see: Premier Pacific Vineyards Workers In Limbo Following CalPERS Termination

For EPR, wine investments have been an $81 million debacle that is likely to get worse. This according to public records and reliable sources.

EPR is a public real estate investment trust with $2.9 billion in assets, 68% of which are megaplex motion picture theaters, entertainment retail centers and other retail. Those investments have weathered the recession well, with increasing revenues and the company issuing optimistic guidance.

And while wine industry investments represent only about 5% of EPR’s  in assets, it is embarrassing that four of its of its six winery and vineyard investments — representing the vast majority of funds invested — have either gone under (Cosentino Winery, Havens Winery, Eos Estate) or are struggling to avoid failure (Ascentia).

Wine Industry Insight subscribers have previously been informed of the failures and continuing troubles of EPR’s clients, the true extent of EPR’s wine debacle has been scattered in fragments throughout EPR’s SEC filings.

Wine Industry Insight has spent more than 70 hours examining every one of EPR’s SEC filings since it entered the wine investing market in December 2006. This first article in a series has managed to piece together as complete a picture as possible from public filings that are often fragmented, inconsistent in presentation and incomplete with regard to its wine investments. WII sent an early draft of this article to Entertainment Properties Trust to seek comments. No reply was received by publication time. Any comments will be published if and when received.

QUIET SALES APPROACH ABANDONED

As reported by Wine Industry Insight in August 2009 EPR has been trying to rid itself of its wine industry properties for more than two years. (EPR Looking for Buyer or Partner As VinREITs Get Hammered). But, with an eye toward keeping prices up, it had been quietly circulated the offering of its properties.

Now, after having to write down tens of millions in winery and vineyard valuations, and sitting on a portfolio that is worth millions less than the purchase prices, EPR has hired multiple agents to market its white elephants as expeditiously as possible. According to its latest 10-Q, EPR has “engaged outside brokers to list all of its winery and vineyard properties for sale or lease with the primary focus on selling all of these assets within the next two years.”

CURRENT WINE INVESTMENT MELTDOWN RECALLS IPO BOOM/BUST OF 1990S

EPR’s entry into sale/leaseback financing of winery and vineyard real estate on Dec. 13, 2006 — Havens Winery — was heralded as a sign that the industry had come of financial age. Again.

That first acquisition was followed by a series of increasingly prominent sale/leaseback financings — Cosentino Winery in Napa, Eos Estate Winery in Paso Robles, and custom crushers Rb Wine Associates in Hopland — that generated a growing optimism that finance had finally recognized the value of the wine business.

The euphoria peaked in June 2008 when EPR funded, through sale/leaseback financings, the formation of now-troubled Ascentia Wine Estates through the $115 million roll-up deal of Geyser Peak Winery, Buena Vista Winery & Vineyards, Gary Farrell Winery and Washington state’s Covey Run/Columbia Winery.

The same brand of giddy optimism in the mid-1990s fostered a boom in winery public offerings — most notably Mondavi and Beringer — that cratered spectacularly over the next ten years.

Wine Executive News subscribers please click here to read this major 1,909-word article.

Also In This Article:

The full text of the following sections is available to subscribers of Wine Executive News.

  • INVESTMENTS: FIRST IN, FIRST OUT … FEET FIRST

  • CURRENT PORTFOLIO WORTH MILLIONS LESS THAN THE COMPANY PAID

epr-wineryvineyardportfolio-500px-notsubscriber1

  • VALUATIONS OF SUBSTANTIAL WINERY & VINEYARD PORTFOLIO PLUNGE 21%

  • BAD DEBT, WRITE-OFFS, COSTS & LOSES ALMOST EQUAL ASSET VALUE DECLINE

epr-misclosses-500px-notsubscriber1

  • EOS ESTATE WINERY COLLAPSE BIGGEST SINGLE WINERY HIT SO FAR
  • HAVENS & COSENTINO WINERIES

  • ASCENTIA RENT CONCESSIONS

  • BUYER FOUND FOR POPE VALLEY FACILITY ABANDONED BY PREVIOUS COSENTINO WINERY MANAGEMENT

EDITORIAL NOTE: In my several decades of financial reporting experience that includes TheStreet.Com, CBS MarketWatch, WallStreetJournal.Com, I have seen this sort of disclosure “hide and seek” most often played by penny-stock corporations trying to fulfill the very barest of legal disclosure requirements while obscuring their actual actions. At best, this should be beneath the dignity of a New York Stock Exchange Company like EPR.

At worst, these sorts of anti-transparent actions make it impossible for a retail investor to make an informed decision and thus benefit trading by insiders and by institutions whose analysts have received private briefings unavailable to the general public.

And despite all the details that are packed in here, the picture is still unclear and vague in parts. Unfortunately, this article contains 100 percent of what’s available which is about half of what should have been in the filings for a clear idea and the sort of proper disclosure and transparency that investors need to have confidence that they have enough data to make an informed purchase.

PREVIOUS WINE INDUSTRY INSIGHT COVERAGE OF ENTERTAINMENT PROPERTIES TRUST & WINE INVESTMENTS

WINE-RELATED ARTICLES ABOUT ENTERTAINMENT PROPERTIES TRUST

HAVENS WINE CELLARS (UNDER BILLINGTON MANAGEMENT)

COSENTINO WINERY (UNDER SOLDINGER MANAGEMENT)

EOS ESTATE

ASCENTIA WINE ESTATES

CARNEROS VINTNERS

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