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National Alliance of Highway Beautification Agencies 12 th Annual Educational Conference on the Control of Outdoor Advertising. August 8-12, 2009 Branson, Missouri NAHBA 2009. The Outdoor Advertising Industry and the Valuation of Billboards. RODOLFO J. AGUILAR Ph.D., PE/PLS, AIA, ASA, MAI.

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slide1

National Alliance of Highway Beautification Agencies12th Annual Educational Conferenceon the Control of Outdoor Advertising

August 8-12, 2009Branson, Missouri

NAHBA 2009

the outdoor advertising industry and the valuation of billboards

The Outdoor Advertising Industry and the Valuation of Billboards

RODOLFO J. AGUILAR Ph.D., PE/PLS, AIA, ASA, MAI

8 sheet poster panels
Typical size 6’ x 12’

Smaller Streets

Pedestrians & slow moving vehicles

Not illuminated

Called “junior posters”

Screen printed on paper and pasted

8 Sheet Poster Panels
30 sheet poster panels
Typical size 12’ x 24’

Heavily traveled streets

May be illuminated

Message changes in 30 day cycles

Message computer printed on paper and pasted

Sold by “showing”

30 Sheet Poster Panels
rotary bulletin
Sizes 10’6” x 36’, 14’ x 48’, and 20’ x 60’

Illuminated

Message computer printed on vinyl and stretched over display

Extensions can be added

Rotary bulletins change in 60 day cycles

Permanent bulletins on 6 month to 1 year agreement

Rotary Bulletin
spectacular
Large custom sizes

Major metropolitan areas

Special displays and extensions

Heavily trafficked areas

Long term contracts

High production costs (extra)

Spectacular
changeable message sign trivision
Changeable message sign

Rotating slats

Changing placards

Rotating cubes

Changeable Message Sign(Trivision)
changeable message sign digital
Changes in light configuration

or light colors

A number of messages in cycle

FHWA recommends 8-second static message time

Changeable Message Sign(Digital)
daily effective circulation dec

NAHBA 2009

Daily Effective Circulation (DEC)
  • 12 hours (unilluminated – 6:00 am to 6:00 pm)
  • 18 hours (illuminated – 6:00 am to 12:00 midnight)
  • 24 hours (illuminated – 6:00 am to 6:00 am)
gross rating points total rating points

NAHBA 2009

Gross Rating Points(Total Rating Points)

One gross rating point = 1% of trade area population viewing subject billboard during 24 hour period

relocation appropriate when

NAHBA 2009

Relocation Appropriate When:
  • 1. Sign can be relocated within remainder
  • 2. Sign can be relocated on another parcel within trade area which became available as a result of taking
relocation not appropriate when

NAHBA 2009

Relocation Not Appropriate When:
  • 1. Sign can be relocated in a different trade area
  • 2. Sign can be relocated in the same trade area where an outdoor advertising structure could be erected unrelated to taking
sign ordinances

NAHBA 2009

Sign Ordinances
  • 1. No restrictions (almost unheard of)
  • 2. Cap and replace
  • 3. Cap and abandon
slide14
The appraiser must comply with “Uniform Standards ofProfessional Appraisal Practice” (USPAP)Appraiser must consider:
  • 1. Cost Approach
  • 2. Income Approach
  • 3. Sales Comparison Approach

to arrive at final estimate of Market Value

market value components

NAHBA 2009

Market Value Components
  • 1. Bonus value of ground lease (capitalized difference between market rent and contract rent)
  • 2. Value of Structure
  • 3. Value of permit (no permit, no sign)
slide18

NAHBA 2009

In The Appraisal Journal of April 2003, Dwain R. Stoops, MAI discusses the application of “the Money Trail” method of analysis to track the revenue generated by off-premise outdoor advertising billboards. Whereas the money trail method is a legitimate analysis tool for valuation purposes, Stoops applies it incorrectly to off-premise signs, as he does not differentiate the revenue attributable to the rental of the sign’s face from revenue generated by non-space leasing activities, such as production-related sales and expenses.

slide19

NAHBA 2009

Each billboard is an income producing property.Clearly, if there is no sign, there is no income. Therefore the issue at hand for the appraiser is to correctly identify and separate the revenue stream into its real estate and non-real estate components.

it is the billboard s advertising revenues that generate all the money flow no billboard no money

NAHBA 2009

It is the billboard’s advertising revenues that generate all the money flow – no billboard, no money
slide21

NAHBA 2009

All sign sites are unique, and the specific revenue from an individual sign site is identifiable and useful for both the income approach and the sales comparison approach

slide22

NAHBA 2009

To properly assess the expenses attributable to an individual sign site, an examination of the local plant expense-to-income ratios is necessary, as individual expenses attributable to a specific sign site are difficult, if not impossible to obtain due to the typical operations of local sign plants

slide27

NAHBA 2009

The space-generated revenue, net of agency commissions, flow to:a) The lease fee owner as ground rent (Lessor) typically 18% of space sales less agency commissions, andb) The leasehold owner (Lessee), as a return on and a return of the Lessee’s investment in the signs, leases and permits, and to defray expenses to maintain and operate the signs, - typically between 45% to 55% of space sales less agency commissions, but including lease expense.

slide28

NAHBA 2009

The resulting net operating income (NOI), or EBITDA (earnings before interest, taxes, depreciation and amortization) is capitalized at a market-derived capitalization rate to arrive at the subject’s indication of market value from the income approach

slide29

NAHBA 2009

Sales Comparison Approach (Gross Rent Multiplier): Best indication of market value for group of signs(Industry consolidation pushed gross rent multipliers upward)

slide30

NAHBA 2009

Space sales less agency commissions, which constitute the billboard’s effective gross rent (EGR), multiplied by the market-derived gross rent multiplier (GRM); yield the subject’s indication of market value from the sales comparison approach