One in four Billboard Insider readers bought a billboard easement in the past year and one in four Billboard Insider readers intend to buy an easement during the next year.  Here’s a short course in creating value with billboard easements.

What’s an easement?  

Billboard attorney Marnie Christine Cody Ware describes a billboard easement as a legal contract that gives the granteee of the easement rights to operate a billboard on property that is owned by someone else. A billboard easement should document a bundle of rights that include, at a minimum, land use for the billboard and utilities, access and egress to the billboard, and preservation of the billboard’s visibility to its target market. A visibility easement typically includes a defined visibility triangle which describes the area and airspace across the property that must remain clear of obstructions so that the billboard can be seen by passing traffic.

An all or nothing investment

You should think of an easement as an all or nothing proposition.  It’s worth 100% if the title is clear and it’s a good location and its well documented and has visibility and access protection.  It’s worth nothing if it’s a poor location and the billboard comes down or construction ruins visibility or there are title issues.   Read OOH Lawyer Jennifer Sloane on Protecting Your Easements.    Out of home investment banker Chris Stark of Stark Capital Solutions tells Billboard Insider that a poorly drafted or executed easement can hold up an M&A closing.

What out of home companies think of easements.

Landmark Infrastructure wants to buy billboard easements, especially with leases greater than $300/month.  Lamar wants easments, especially under digital billboards or static billboards which it wants to convert to digital.  OUTFRONT and Clear Channel are not interested in easements because of financial constraints.  The CEO of one large independent out of home company told Billboard Insider he doesn’t like easements because you can’t depreciate them.

Easements reduce the economic risk of your business.

Easements help to lower the economic risk of your business.  If you buy an easement under a billboard you have permanently eliminated an expense of your business.  You get this savings regardless of how the economy is doing.  For this reason Billboard Insider thinks that you should be willing to accept a slightly lower return on the purchase of an easement than on a digital billboard conversion or on a new static billboard.  The cashflow created by the digital billboard conversion or static billboard will depend on how the economy does.  The lease saving from an easement is locked in now matter how the economy does.

Easements increase your margins.

Lease costs average 15-20% of revenues at most out of home companies so an out of home company which owns easements under all of its billboards will have a cashflow margins with is 15-20 percentage points higher than a company which owns no easement.   Allison Outdoor CEO Claude Dicks told Billboard Insider: “My grandfather always said you can’t control sales, but you can control expenses…Our goal is to not have our expenses increase as much as our revenue…We’re setting some pretty strong goals for the upcoming year. We’re working on one that pretty much fell into our laps. Our rent with this one gentleman doubled and he wanted to sell the property and he wanted the money from the easement…We feel over time we can create a better bottom line…

If you own lots of easements you might want to unbundle when you sell your company.

Billboard Insider knows several operators who have purchased land, developed a billboards, created an easements with leases under the billboards land and the billboards.  They get to keep the lease income forever.  It’s a retirement strategy.  Another reason to unbundle is that the parts can be worth more than the whole.  Billboard easements trade at a 2-3 times higher cashflow multiple than billboards because you don’t have to do as much to earn the money.  So if your your billboards are worth 10 times billboard cashflow, your easement portfolio might be worth 12-13 times cashflow.  Easements may also attract real estate industry buyers (think Landmark Infrastructure) who will pay a high multiple.

But there can be benefits to selling the billboards and easement together.

Billboard Valuation expert Paul Wright of SignValue says easements may be worth more than billboards but there can be benefits to selling your billboards and easements together: “Many times, the fact that there is an easement included it will 1) drive up interest in a sign, 2) reduce the amount of time it takes to sell the sign(s) and 3) increase the multiple that buyers are willing to pay. In other words, depending on a sellers motivations, sometimes selling more quickly and creating more market demand is worth more than the incremental increase in total value.”

Want to learn more about billboard easements?  Purchase Billboard Insider’s Guide to Leases, Easements and Real Estate.   The Guide costs $79.95 and is available in ebook format.  You can purchase and download your digital copies of the Guide by clicking on this LINK.  If you need help purchasing your copy of the Guide contact johnweller@billboardinsider.com.

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