Unlocking Billboard Value: The Power of Perpetual Easements in Out-of-Home Company Valuations

In a recent article posted from Billboard Insider it discusses the difference between EBIDTA and Billboard Cashflow in the context of valuing out-of-home companies and billboards. Out-of-home companies are typically valued at 8-12 times their Billboard Cashflow.

If you own an easement or the title to the land under a billboard, you have no lease costs for the billboard, which increases its cash flow and, in turn, its value. For example, a static billboard with an easement would be worth 27% more than one without an easement, considering the same 10 times Billboard Cashflow multiple.

Moreover, billboards with easements are likely to command even higher cash flow multiples due to their ability to mitigate business risk. The absence of concerns regarding lease renewals and the stability of lease expenses, thanks to the permanent easement, makes the asset less risky and more appealing to potential buyers.

Paul Wright, ASA, SignValue CEO, emphasizes the superiority of perpetual easements over leases in billboard transactions. Perpetual easements lead to increased cash flow by eliminating lease expenses, making billboards more valuable. Billboard buyers prefer perpetual easements due to lower termination risk and fewer conflicts with landowners, leading to higher prices. Wright states that “These kinds of investments have created a discrete market for billboard easements that is directly related to the annual billboard lease rate. Like other commercial real estate interests, investors can value future billboard lease income based on capitalization rates.” Overall, having a perpetual easement adds value and is considered preferable to having a billboard lease.