Boston Omaha co-CEO Adam Peterson stressed the importance of managing lease costs in a recent Motley Fool Interview.  Boston Omaha is invested in the out of home business via ownership of Link Media Outdoor.

When Motley Fool asked Peterson what steps the company is taking to exchange short term pain for long term gain Peterson  said this.

We’ve always overinvested and we still do on like an overhead level in our real estate team. We probably have a large real estate team relative to competitors. The reason why is because the ground lease on the billboard business is probably the most important variable of all the differentiates. We want to own more and more of our ground and we want to negotiate leases that don’t grow as fast and cost us our revenue. We’ve overinvested there and so that’s an expense item and we’ve done that hugely in insurance, too. We’re not a company on quarterly reports that cares what the expense is. We’re thinking everything is an investment, what this might pay off 3-5 years out. That’s a billboard example.

On lease costs as a % of revenue and the importance of owning land under billboards

On a cash basis it’s down to 18% or 19%. You got to remember if that scales to some extent, some of the leases, and then now we own more and more of the land. As the revenue grows, even if we don’t negotiate another deal, you would think that would slowly go down over time because the other fixed piece, so it pays off forever. That’s why it’s so important to invest in up front even though it might make your overhead look high.

Billboard Insider’s take: We’re not surprised that Boston Omaha focuses on out of home easements and lease costs.  Real estate is one of the company’s investment sectors along with out of home and broadband and insurance.  Owning land under billboards is a great strategy in a world where out of home is a gdp plus business.

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