7 KEY TRENDS DRIVING FUTURE APPRECIATION OF WINERY ASSETS IN THE OKANAGAN

Behind the operating business of Black Hills is a solid asset base which includes the vineyard land, the winery buildings, the winery and vineyard equipment, wine inventory, etc. Management of the Partnership feels that this capital asset base and the operating business will be subject to several market forces that are going to further increase their market value in the years ahead:

1. Growing consumption of BC wine- thanks to the exceptional interest in BC made wine, sales have grown by an average of 22% per year over the last three years.

2. Demographics drive future growth Demand for BC wine will continue to increase as the huge baby boom generation starts moving into their peak wine consumption years.



Per capita wine consumption is rising due to changes in consumer lifestyles and attitudes, including the widely reported health benefits or regular, moderate consumption of red wine. Further, these baby boomers have the affluence to purchase increasingly better wines. During the last five years, sales of wine priced about $25 per bottle have risen nearly 21% per year. This makes it the fastest-growing price sector in the wine market. This bodes well for high-quality, premium priced wines like Black Hills.



3. Changing economics: quality, price point, wine tourism & the Internet. There has been a significant improvement in the quality of wine coming from BC, as witnessed by the numerous awards won internationally. Higher quality wine means higher willingness of consumers to pay higher prices. Concurrently, there has been the rapid emergence of the “wine tourist” visiting the region that is generally price insensitive and buys directly
from the wineries they visit. In tandem with the internet revolution, a whole new generation of consumers can buy directly from their favorite wineries and have that wine shipped directly to their home in Canada. This has resulted in several operators such as Black Hills enjoying much higher than historical margins in the industry.

4. Growing # of wineries. The number of wineries in B.C. has grown from 32 in 1995 to 136 in 2007 with another 15 licenses outstanding. All of these new entrants to the marketplace have put huge increases on the demands for vineyard land and grapes grown in the province. As more of the baby boom generation is seduced by the romance of owning their own winery, demand is expected to increase further for winery and vineyard properties.



5. Baby boomer interest in owning homes with “vineyard landscaping”. The esthetic allure of having a quality vineyard on your property is clearly showing itself in lifestyle destinations like Naramata, Osoyoos, and Kelowna. This further increases the demand for vineyard land.



6. International buyers. Foreign buyers, particularly Americans and Europeans, have been active buyers in properties in the Okanagan. Management believes that as the international awareness of the emerging quality of BC wine grows, so too will an increased demand from Foreigners who will want to own their own vineyard properties. With the 2010 Winter Olympics coming, management anticipates that a positive spotlight will be cast on the region.

7. Tightening supply of land. The British Columbia Wine Institute (BCWI) estimates that there is a maximum potential of approx. 8,000 acres of land that are suitable for planting vineyards on. There are currently in excess of 7,000 acres planted which Management feels will put an upward pressure on land values as the grape industry approaches build-out.