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Billboard Valuation: An Overview
De-mystify the billboard
Discuss applicability of three approaches to value
Discuss sources/methods of multipliers and cap rates
Discuss site value attributes/features
Discuss the perspective of the Billboard Company
Case Study in Billboards
Welcome to Indiana
Lets talk cost and construction
How many consider yourself handy? Could you build the structure shown at the upper left? Simple; basic materials; dont appear overly complex How much do you think it would cost?If we could build it, how could these possibly be of value.
Wooden BillboardsSingle-Faced, Wood Difficult to build large or high Material does not have structural strength Typical sizes are 12 feet high, with the top about
25 feet above the ground. Have angled supports at the rear Costs range from $10,000 to $20,000
Double-faced, Wood Twice the price of single-faced because structure
becomes more complicated. Structure for double-faced must be smooth on
both sides. Costs for double-faced boards with the same
dimensions as above range from $20,000 to $40,000.
Wooden Billboards Contd
Steel Monopole BillboardsSteel billboards Supported by one steel post, Considerably more expensive Typical face dimensions range from 12-by-25
feet to 20-by-50 feet. The 40-foot-high billboards range from $40,000
for the smaller boards to $90,000 for the largest. Adding 10 feet of height adds about $10,000. Placing the pole at one end instead of the
middle requires a stronger structure and adds another $10,000.
Double-Faced, Steel, Monopole Adding a second face requires a slightly stronger
structure but does not greatly increase the cost. Smaller boards increase about $10,000, larger
boards increase less than $5,000. (already have a stronger structure).
Steel Monopole Billboards Contd
Steel Multi-post Billboards Supporting with several steel posts increases the
cost, but decreases the cost of the board structure Overall slightly less expensive than monopole Boards range in cost from $30,00 to $70,000,
(slightly less than the corresponding monopole boards.)
Double-faced boards also less expensive than monopole
Can be arranged in a V-shaped format for better visibility from both directions and for more stability.
Costs range from $60,000 to $90,000.
Steel Multi-post Billboards Contd
So the Cost is the Value, right?Wrong.
3 Broad Steps in the cost approach are:
Estimate the replacement cost new of the improvements Estimate the loss in value from all forms of depreciation, deduct
the total amount of depreciation from the replacement cost new (MISSING)
Estimate the value of the land as if vacant and add the land value estimate to the depreciated cost value to arrive at the total property value (MISSING)
Depreciation estimates are difficult and often applied incorrectly. Most important aspect missing is LOCATION, LOCATION, LOCATION.
Cost in the investment sense does not equal value. The following illustration makes this clear (a PRADA store built in a remote spot in a
desert). This building is likely not worth the cost to replace it.
Only applicable if: it is new, represents the highest and best use of the site, and provided its construction is justified by the expected returns which it will produce.In all other cases its value must be discovered by some other process...
This leaves the Sales Comparison Approach and the Income Approach.
Site Value, Bundle of Rights
Factors important to site:
Key metrics: Gross Rating Points, Daily Effective Circulation, Frequency, Reach, Orientation, Approach, etc
All have visibility and location as key elements. Traffic Count and LOCATION LOCATION LOCATION! Primary preference is FEE SIMPLE; Secondary interest is EASEMENT,
Last is LEASE. This order of preference has direct relation to value. Sample Optimal Spacing at 65mph:
8 seconds uninterrupted viewing. Yields spacing of 763
More on INDY
Sales Comparison Approach
Reliability of the Sales Comparison Approach is greatly diminished if substitute properties are NOT available Scarcity of Asset.
Motivations of transactions Geographic Diversification Spatial Monopoly Operating Efficiencies
Many appraisers use a GRM in a Sales Comparison Approach, this should be cautioned as this is an Income based comparison and if not properly adjusted quantitatively, should be left to the Income Approach.
Quantitative vs. Qualitative Analysis.
Application of approach should ALWAYS mirror that of the market participant. Where does that leave us?
The INCOME APPROACH
Whats the difference between these?
The answer. Not much:
Either can be used by an owner Both require incentive to build/buy In both cases incentive is driven by positive
return off/on investment Both require tenant/user (income) Both require maintenance (operating expenses)
Potential Gross Income $14,300
every 4 wks at $1,100
Vacancy Rate 10% $ 1,430
Effective Gross Income $12,870
Ground lease (Est. 20% EGI) $ (2,574)
Other expenses (Est 15% EGI) $ (1,931)
Net Operating Income $ 8,366
Capitalized at 10% Value = $83,655
Potential Gross Income $14,400
monthly rent at $1,200
Vacancy Rate 10% $ 1,440
Effective Gross Income $12,960
Taxes/Insurance (Est. $100 ea/mo) $ (2,400)
Other (LawnSewerTrash) $ (2,000)
Net Operating Income $ 8,560
Capitalized at 10% Value = $85,600
Sources of Rates/Multipliers
Two common multiples in this industry apply to Revenue and to Earnings. The multiple of revenue is known as the EGIM, (Effective Gross Income
Multiplier). The multiple of earnings is simply an EBITDA multiple, as typically seen in
business valuation. So how do we determine and apply the appropriate Rate or Multiplier?
Comparable Sale Extraction 10K Data Cap Rate surveys for similar investments Multiples in the past few years have tended to be 8X to 12X. The average multiple of forward EBITDA is about 10X by Lamar.
Ultimately the use of a rate/multiplier MUST be extracted from the BILLBOARD market.
Factors driving Rates/Multipliers The appropriate multiple relates more to:
The companys fit into its existing portfolio. Signs in or near major markets with premium sites. Regions with strong economic fundamentals. Where there is restrictions on new permits/high barriers to entry. High traffic counts, good visibility of sign faces, and low competition
from other companies.
Case Study 16 Billboards
The following is presents a summary of 16 billboards.
Lets assume the following fictional scenario:
All signs owned by one sign company
All signs are to be acquired by State Department of Transportation for new interstate along an existing state highway corridor with expanded r/w limits.
All signs are subject to Eminent Domain
Case Study Gross IncomeWhat do we take away from this?
1. A high degree of variability in rent per face ($245-$1,555)
2. Clustering of/by class3. Mean of $752, median of $7314. Excluding 6 outliers, Mean of
$7255. Single Face/Board signs
command higher average rents (mean $952) while those with 3-4 signs command lowest (mean $415); may indicate oversaturated site.
Careful in extrapolating too much from this information.
Est. Gross Inc./Structure
Inc/FaceGross Inc / Face / 4 wk
A 1 1 $ 11,700 $ 11,700 $ 900
B 1 1 $ 14,400 $ 14,400 $ 1,108 C 1 2 $ 6,368 $ 3,184 $ 245
D 1 1 $ 12,000 $ 12,000 $ 923
E 1 2 $ 12,700 $ 6,350 $ 488
F 2 4 $ 29,679 $ 7,420 $ 571
G 1 1 $ 15,600 $ 15,600 $ 1,200
H 1 1 $ 20,211 $ 20,211 $ 1,555
I 1 1 $ 12,420 $ 12,420 $ 955
J 1 3 $ 13,716 $ 4,572 $ 352
K 1 2 $ 16,018 $ 8,009 $ 616
L 1 1 $ 10,686 $ 11,000 $ 846
M 2 2 $ 22,600 $ 11,300 $ 869 N 1 1 $ 6,650 $ 6,650 $ 512
O 1 4 $ 16,714 $ 4,179 $ 321 P 1 1 $ 7,400 $ 7,400 $ 569
Mean $ 14,304 $ 9,775 $ 752
Case Study Ground Rent
What do we take away from this?
1. Highest ground lease at 24.1% may represent highest threshold in market
2. Payer/Tenant will always attempt to pay as little as possible.
3. Little relationship between number of faces.
4. Those with multiple boards had a mean ground rent of 22.4%. Why?
5. What market ground rent?
# FacesEst. Gross
Lease ExpAs a % of PGI
A 1 1 $ 11,700 $ 550 4.7%
B 1 1 $ 14,400 $ 1,728 12.0%
C 1 2 $ 6,368 $ 700 11.0%
D 1 1 $ 12,000 $ 2,400 20.0%
E 1 2 $ 12,700 $ 2,400