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 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

8 Sheet Poster Panels Typical size 6’ x 12’ Smaller Streets Pedestrians & slow moving vehicles Typical size 6’ x 12’ Smaller Streets Pedestrians & slow moving vehicles Not illuminated Called “junior posters” Screen printed on paper and pasted Not illuminated Called “junior posters” Screen printed on paper and pasted

30 Sheet Poster Panels Typical size 12’ x 24’ Heavily traveled streets May be illuminated Message changes in 30 day cycles 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” Message computer printed on paper and pasted Sold by “showing”

Rotary Bulletin Sizes 10’6” x 36’, 14’ x 48’, and 20’ x 60’ Illuminated Message computer printed on vinyl and stretched over display 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 Extensions can be added Rotary bulletins change in 60 day cycles Permanent bulletins on 6 month to 1 year agreement

Spectacular Large custom sizes Major metropolitan areas Special displays and extensions Large custom sizes Major metropolitan areas Special displays and extensions Heavily trafficked areas Long term contracts High production costs (extra) Heavily trafficked areas Long term contracts High production costs (extra)

Changeable Message Sign (Trivision) Changeable message sign Rotating slats Changeable message sign Rotating slats Changing placards Rotating cubes Changing placards Rotating cubes

Changeable Message Sign (Digital) Changes in light configuration or light colors A number of messages in cycle Changes in light configuration or light colors A number of messages in cycle FHWA recommends 8-second static message time FHWA recommends 8-second static message time

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) 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) NAHBA 2009

Gross Rating Points (Total Rating Points) One gross rating point = 1% of trade area population viewing subject billboard during 24 hour period 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 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 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 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 NAHBA 2009

Sign Ordinances 1. No restrictions (almost unheard of) 2. Cap and replace 3. Cap and abandon 1. No restrictions (almost unheard of) 2. Cap and replace 3. Cap and abandon NAHBA 2009

The appraiser must comply with “Uniform Standards of Professional Appraisal Practice” (USPAP) Appraiser must consider: 1. Cost Approach 2. Income Approach 3. Sales Comparison Approach 1. Cost Approach 2. Income Approach 3. Sales Comparison Approach to arrive at final estimate of Market Value

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) 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) NAHBA 2009

Cost Approach: Cost to enter outdoor advertising market – Lowest Indication of Market Value NAHBA 2009

Income Approach: Best indication of market value for a single sign 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. 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. NAHBA 2009

It is the billboard’s advertising revenues that generate all the money flow – no billboard, no money 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 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 NAHBA 2009

Once the expense ratios are gleaned, the analysis can be applied to the specific site 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, and b) 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. 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 NAHBA 2009

Sales Comparison Approach (Gross Rent Multiplier): Best indication of market value for group of signs (Industry consolidation pushed gross rent multipliers upward) 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 NAHBA 2009

The goal is to arrive at fair market value of all compensable interests taken NAHBA 2009

Questions? NAHBA 2009