Paul Wright says out of home company values run about 10.5 to 11 times cash flow and five to five and a half times revenue, with multiples often spiking in recessions.
Paul Wright says values are rising on strong fourth-quarter revenue growth as advertisers shift dollars away from radio, television and newspapers, though he is watching the soft first quarter.
Paul Wright sees Landmark Infrastructure as a threat but less of one than he feared, since it mainly seeks margins through long-term leases, though he warns it gains leverage near 600 leases.
Billboard values climb as ad dollars flee legacy media
Billboard values are rising, with out of home companies averaging about 10.5 to 11 times cash flow as advertisers move money out of broadcast and print. Paul Wright argues a mild recession would not dent that, because buyers read lower earnings as temporary. What separates one asset from another is mostly lease costs and market size.
Takeaways
Out of home trades near 11x cash flow. Paul Wright puts the average for out of home companies at 10.5 to 11 times cash flow and five to five and a half times revenue. Values are rising on strong fourth-quarter revenue growth, though he is watching the traditionally soft first quarter.
Advertisers are shifting budgets from legacy media. Paul calls the latest ad spend data the first clear sign that dollars are leaving broadcast and print for out of home. Groups from those ancillary media are also showing strong interest and moving investments into billboards.
Recessions tend to push multiples up. Buyers treat lower earnings as temporary, so multiples spike in downturns. Because cash flow and revenue move together, clients who expect multiples to fall are surprised. Paul expects a mild recession, citing a CEO survey that sees softening starting in the fourth quarter of 2020.
Lease costs and market size drive value. Lease costs, which show how much revenue goes to landowners, remain a primary driver. Among roughly 200 ranked markets, smaller ones can be worth a turn or two less unless fast growth offsets it. Wood plants are often over-discounted by half to three quarters of a point.
Easements outprice signs because landowners bear less risk. A billboard easement is a generally perpetual right to operate a sign on a property. It is valued by capitalising lease income after deducting 8 to 10 percent for expenses. Easements and leases typically trade at higher multiples than the signs themselves.
Landmark Infrastructure is a manageable threat. Landmark held up to 613 leases or easements as of December 2018 and avoids leases paying under $300 a month. Paul says it mainly plays margins on long-term leases. At around 600 leases it gains bargaining power if many expire together.
Pennsylvania ruling should only nudge lease costs. A Pennsylvania court held that billboard lease income can count toward a landowner's property value. Dave Westburg hopes it is overturned on appeal because higher property taxes would make leases more expensive. Paul expects overreaction and only marginal increases.
How sellers can maximize value
Get multiple offers by going through a broker.
Organise financials and leases before going to market.
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On this episode 2
Show 1
Renegotiate high-rate leases, which are usually a key factor in sale negotiations.
Convert monthly display contracts to four-week periods. This adds a period each year and can generate an additional 8% in revenue.
Quick verdicts on the big operators
Lamar is well managed and conservative.
OUTFRONT Media has not cut operating expenses as much as Paul expected after becoming a REIT.
Clear Channel Outdoor is in transition and may split into international and domestic businesses. Dave says its leverage of about seven to one is unsustainable and should be four or five.
Paul likes what Link Media Outdoor, a Boston Omaha subsidiary, is doing.