Five Questions For Paul Wright

SignValue, Inc. is the leading valuation and advisory firm in the country located in Mesa, Arizona.  They operate the signvalue.com website listing dozens of billboards for sale around the United States.  Paul Wright is an expert on trends in the billboard industry and a certified appraiser.  His book  Billboard Appraisal: The Valuation of Off-Premise Advertising Signs is a must read for anyone active in the business.  You can learn more about the book here.  He also publishes a free weekly email newsletter on industry trends.

1.  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!

Discussions to Limit Deductibility of Advertising Will Hurt Billboard Companies

There is a move afoot in Congress to limit the tax deductibility of advertising.  Here are articles from Ad Week and CommLawBlog.

If enacted this will raise the cost of buying billboard advertising by 34% because your clients won't be able to expense the purchase on their taxes.

How many of your existing clients would leave if you raised your rates by 34% tomorrow?

What sort of out-of-home advertising deals are hard to finance?

I've made lots of out-of-home advertising loans over the past 15 years but there are several portions of the industry I avoid, including:

Loans to floating billboards.

Loans to finance vehicles with billboards on them.

Loans to finance gigantic advertisements on fields outside airports which are capable of being viewed from the sky.

Loans to finance in-store advertising above checkout stands.

Each of these sectors is a one of a kind business model.  I avoid one of a kind business models for two reasons.

First,  I can't easily value a one-of-a-kind business.  I have a good feel for outdoor billboard values from years of lending.  There is a liquid trading market.  Right now you can go to Sign Value  or Outdoorbillboard.com and find dozens of signs for sale in each state of the country.  No such market exists for floating billboards or gigantic ads on fields outside airports.  If I can't place a value on the collateral I will probably get talked into advancing too much money against the collateral.

Second, it's hard to know how to fix a broken one of a kind business.  If I have a billboard client in trouble and I have to take over the company I know what I have to do to fix things because all billboard companies look alike.  Leasing and sales are the same regardless of where you are located.  I can always find personnel to fix the problem.

New SEC Rules Won't Make It Easier To For Small Billboard Companies To Raise Money

On September 30, 2013 the SEC eliminated an 80 year old rule which prohibited companies from soliciting investments via public advertising.  This is a good thing, right?  Nothing can stop your small billboard company from placing a banner on its website saying "Investors Wanted" or from putting up an "Investors Wanted" sign on a billboard you own in order to obtain capital to grow faster.

Not so fast.

The new 506(c) rule says you can only accept money only from an "accredited investor", that is, a person with a single income above $200,000, a married income above $300,000, or a net worth (excluding the value of a home) above $1 million.

The accredited investor rule is nothing new.  Any company raising money from private investors had this restriction in the past.  Put here's the kicker.  Under the original rule 506,  accredited investors self-certified. You asked them if they were accredited they filled out a form saying they were and that was that.  You took their word for it and didn't pry.

Under the new rules you must verify that anyone who gives you money is an accredit investors by getting w2's or an income tax return or bank and brokerage statements or a letter from that investor's CPA or attorney.  Welcome to the nanny state.

There have been several articles in the press by angel investors who've said this will have a chilling effect on capital raising.  My company has decided to continue raising money under the old 506 rule and to forego public advertising in order to protect the privacy of my investors.  Here's an article which explains why the new rules will help wall street more than main street.