Insider is republishing an interview with Paul Wright because Wright’s insights are timeless. Paul and Jeff Wright own Signvalue.com, the industry’s leading billboard valuation firm. Signvalue.com should be in your bookmarks because it lists dozens of billboards for sale in the United states. Paul Wright has published the best book on the billboard business. It’s called Billboard Appraisal: The Valuation of Off-Premise Advertising Signs and is a must read for anyone active in the business.
1. Paul, what made you and Jeff start SignValue?
We worked on a lot of projects involving eminent domain in Arizona and spent years compiling research and data about the value of billboards. In the late 1990’s there were very few appraisers who would work for billboard companies and government agencies alike. Appraisers and consultants still tend to cater to one or the other (private or public). We recognized a need for a completely independent appraisal and consulting firm that would work for sign owners, landowners, banks, government agencies and anyone else who needed appraisals, opinions, consulting and expert witness testimony. To us, “independent” means we will work for anyone who needs an honest opinion of value or honest advice.
2. What services can SignValue provide to a billboard operator who wants to sell signs?
We offer Sale Consulting services to clients who are interested in selling some, or all, of their billboards. We collect all of the documentation that buyers demand through the due diligence process and prepare a customized marketing plan to help owners sell their signs at an optimal price. We can match investors and banks with sign owners to help them keep the signs they have worked so hard to build. Every billboard seller has a slightly different motivation for selling. Maybe they want to retire, consolidate their inventory, raise capital or buyout a partner, but what they all have in common is the need for honest professional service.
3. What trends have you seen in sign values?
Digital LED signs are the real popular trend affecting sign values right now, but a lot of the focus is on the advertiser and their flexible use of the technology. Digital billboards have much higher cash flow margins than Vinyl billboards, so they can have significantly higher values. We routinely see Digital billboards that generate 75% or 80% cash flow after all of their operating expenses. We have also seen some inventory consolidation and exchanges in the last few years that make billboard operators more efficient. For billboard operators, a penny saved truly is a penny earned. Rates and occupancy suffered in 2008 and 2009 and had a very mediocre rise in 2010, 2011 and 2012 and values have followed closely behind. Some feel that there was a total “reset” in values after the recession, but we have not seen a significant decline in transaction prices or multiples.
4. What trends are you seeing in billboard regulation?
Government agencies have definitely started to allow far more digital signs in the last few years. Like most things that people fear, the fear of Digital billboard blight or dangerous distractions has turned out to be far greater than the reality. Technology seems to polarize people, they seem to be excited by it or frightened of it. Government agencies are quickly realizing that there is nothing to be afraid of with this new technology.
Government agencies have also been trying to leverage their authority for additional revenue. Cities and Counties are allowing new off-premise signs in exchange for lucrative development/permit fees. For example, in Miami Wallscape owners have to pay the city $1.00 per square foot of sign, per month for the right to operate their signs. The City also has advertising content review fees to check the copy before it is installed. Other cities charge “development” fees to billboard operators who want to put up new signs.
5. What’s the single biggest driver in the value of a billboard?
Annual cash flow is the single biggest driver of value in a billboard. Value starts with revenue and expenses will show all of the good and bad parts of operating a sign, but what is left at the end of the day is cash flow. We look at cash flows to estimate values based on expected rates of return and lenders look at cash flows to decide if it will cover their loan payments (debt service).
One of the biggest features of a sign that should be considered when valuing a billboard is probably the circulation that the location delivers for advertisers. There are always exceptions to this rule like strong demographic areas, unique landmarks and supply/demand issues, but advertisers will always pay more to reach more people. Billboard operation is still a relatively simple model in that respect. It’s still location, location, location.
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