Effective Gross Income Multipliers (EGIMs) have been recorded over many years from actual market data. The average EGIM paid for billboards and billboard companies rose to a record high of almost 6 times annual income in 1998, after averaging between 3 and 4 during the previous 20 years. Industry executives report that between 1997 and 2000 some of the largest outdoor advertising companies in the United States paid multiples over 10 for highly desirable sign plants. The average EGIM has remained at a high level for the past few years. Three of the factors that led to higher prices were: 1) the expectation that demand for billboards would exceed supply in the future; 2) the low cost of capital; and 3) the decisions of large media companies to own out-of-home displays.
As shown in the chart below, the jump in the average multiple for 1997 was the largest one-year increase in the data. The decline in 1999 was the first significant reduction in multiples since 1992, but it was followed by a return to the 6x area in 2000. The limited supply of billboards nationwide may keep multiples at or near the averages seen in the late 1990s.
Additional Market Information
Sales of certain real estate parcels can be used to determine the value of a billboard. Sign companies sometimes buy the real property beneath their signs in order to stop making lease payments and secure permanent availability of the location. After such a site is purchased, the sign owner might turn around and sell all of the land except a small footprint for the billboard. Or the sign owner might sell the entire parcel after recording a perpetual easement to ensure continued tenancy. In these types of transactions the market value of the land can be deducted from the total price paid by the sign company and the difference might be one perspective on the value of the billboard site. The cost of constructing the sign can be added to the site value to estimate the total value (land and improvements) of the billboard. The value of the permit would also have to be considered. The final result can then be compared to current advertising rates to derive the estimated EGIM.
