• Paul Wright on the tax law and billboard values.

    SignValue’s Paul Wright is an expert in valuing out of home advertising companies.  Insider asked Wright for an update on billboard values.

    With the changes in income tax law coming in 2018, do you anticipate a shift in focus to property valuations?

    We are cautiously optimistic that the dramatic reductions in corporate tax rates will encourage additional investment, which will stimulate the overall economy.  However, we’re concerned that the stimulation won’t be enough to replace the economic drag caused by a considerable loss in tax revenue to local governments.  If the stimulus does not overcome the drag, taxing authorities may place a stronger emphasis on underlying property tax values.  Sign owners could see more scrutiny of their self-reported cost values.  We are developing a Billboard Cost Calculator to help sign owners and Assessors value sign structures.  We anticipate it becoming the standard for valuing billboard structures nationwide.

    Insider is constantly asked what billboard easements and billboard leases are worth.  Any thoughts?

    As you know, billboard sales that include a structure, permit and land interest (easement, lease or land) are based on multiples of net revenue and cash flow.  Billboard easements and leases are valued based on net leased capitalization (cap) rates.  We look at three sources for net leased cap rates: 1) national investor surveys, 2) local retail net leased sales (Walgreens, CVS, AutoZone, Starbucks, etc.) and 3) local billboard easement sales.  There are minor expenses that need to be deducted for things like accounting, legal, management and taxes.  We routinely see cap rates between 4% and 8% and values in a very wide range between $50,000 and $2,000,000 depending on the sign location, type, market, etc.

    What impact, if any, will the recent Tax Law have on out-of-home valuations?

    The new tax law is likely to increase the number of transactions between buyers and sellers we see in the next 18 to 24 months.  The multiples being paid for billboards are likely to tick up as well.  We don’t anticipate a significant increase across the board because there will also be a gradual rise in interest rates and possibly a shift in property tax values and rates.  That said, good signs in growing markets, with low land lease costs, probably will be where the highest multiples are paid.

    The President of the Dallas Federal Reserve Bank has predicted three interest rate increases during the next year.  What impact will interest rates have on out-of-home valuations?

    Higher interest rates will have a negative and mitigating effect on out-of-home values.  Hopefully, interest rate increases won’t outpace the benefits of lower corporate taxes.  There is a lot of private equity and other investment capital sitting on the sidelines that will be affected only indirectly by higher interest rates.  We’re optimistic about the long-term future of out-of-home and think the industry will benefit from the coming changes in the interest and tax landscape.


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