How does Vintage Wine Trust underwrite sale-leaseback transactions?
What is "Rent Coverage Ratio?"
How do we interact with lessees during the lease, and what on-going operating and financial information does VWT need to receive from sellers and lessees?
Is the annual rent under the lease fixed for the term of the lease?
Why should I sell and lease back a vineyard or other real estate asset to Vintage Wine Trust when I can borrow at a lower rate than your lease rate?
Does the lessee have the option to either renew the lease at the end of the term of the lease, or not to continue operating the vineyard?
How does Vintage Wine Trust underwrite sale-leaseback transactions?
Vintage Wine Trust performs complete due diligence on each acquisition for vineyard operating cash flow, lessee credit worthiness, and environmental review. Vineyard operating cash flow is based on a block-by-block analysis of historical yields, existing varietals, spacing, rootstock and clone, soils, location, and planting dates. Based on the end use of the grapes, we project grape prices based on our judgment of the relevant grape pricing mechanism, e.g., District Average prices for branded wineries, and existing contracts, District Average and spot market prices for independent grape growers.
Lessee credit worthiness is based on a review of historical financial statements of the lessee and our projections as to the impact of grape pricing trends on the financial position of the lessee.
Environmental reviews are performed on each potential acquisition with a minimum of a Phase I report.
What is "Rent Coverage Ratio?"
Rent Coverage Ratio is a measure of a lessee’s operating cash flow (EBITDA) from a vineyard relative to the annual rent due under the lease. We look for a minimum Rent Coverage Ratio of 1.5 for an independent grape grower and 1.2 for a branded winery which uses the fruit from the vineyard in its branded case goods. Rent Coverage Ratio is a tool we use in valuing and negotiating the purchase price of a property.
How do we interact with lessees during the lease, and what on-going operating and financial information does VWT need to receive from sellers and lessees?
Lessees provide us with quarterly financial statements, annual viticulture plans and quarterly operating reports for the vineyard. In addition, we meet with lessees annually to discuss their annual viticulture plan and projected capital expenditures, and we retain third-party viticultural consultants to provide on-going status reports.
Is the annual rent under the lease fixed for the term of the lease?
Annual rent under the lease is fixed for the initial term of the lease, subject to an annual increase tied to the Consumer Price Index, or on a pre-agreed basis.
Why should I sell and lease back a vineyard or other real estate asset to Vintage Wine Trust when I can borrow at a lower rate than your lease rate?
VWT pays you 100% of the fair market value for your property, whereas, typically you can only borrow up to 60-70% of the value. The remaining 30-40% that we finance represents your equity in the property, which you cannot access through traditional loan financing. The cost of equity capital from our sale-leaseback transaction is lower than the cost of alternative sources of equity capital, if it is available at all for private companies. The release of trapped equity from real estate assets provides you with capital to invest in higher-returning activities in your business.
Does the lessee have the option to either renew the lease at the end of the term of the lease, or not to continue operating the vineyard?
Yes, the lessee has the right to elect at the end of the initial term of the lease, and at the end of each lease extension to either extend the term of the lease (for up to three extensions), or not to continue operating the vineyard and thereby terminate the lease.