Hoya Capital recently published an informative article in Seeking Alpha on billboard REITs, titled “Billboard REITs: We’re Paying Attention (Lamar Vs Outfront)“. It covers the basics of the out-of-home industry and it outlines both its benefits (such as the regulatory barriers to entry, the potential for digital billboards, and the low maintenance capex) and its risks (primarily advertising cyclicality).
A few points that SignValue would like to highlight is the major billboard companies’ performance, billboard REIT dividend, and billboard REITs serving as a hedge against inflation.
Investors have rewarded Lamar’s focus on its traditional billboard business (89% of their assets are billboards), paying back the company with an average yearly total return of 14.7%, in contrast to the average general REIT return of 6.7% in the same time frame. Outfront has had a much greater exposure to transit advertising and has only produced 3.0% in annual returns through the same duration. Both REITs have shown markedly better performance than Clear Channel, whose high debt burden and similar transit-focused portfolio have weighed it down.
The average dividend yield for Billboard REITs is 4.9% compared to the average for REITS at 3.6%. Analysis from Billboard Insider believes that this is due to the fact that billboard assets require lower maintenance costs compared to commercial buildings. Billboard companies are typically acquired at a 10-12 times multiple of billboard cashflow, which is equivalent to an 8-10% cap rate, whereas commercial real estate is usually purchased at a 5-7% cap rate, which translates to 14-20 times cashflow multiple. The higher the cashflow multiple to purchase an asset, the less the dividend will be naturally.
While the billboard industry is susceptible to economic downturns like everyone else, the OOH industry is remarkably resistant to inflationary pressures. Hoya Capital states Billboard REITs’, “growth profile […] is especially compelling for REITs trading with 4.5%-6% dividend yields and with a rather unique investment characteristics as one of the least-sensitive REIT sectors to interest rate movement and the single-best sector in our Inflation Hedge Factor metric”. Billboard land leases are usually long-term contracts (5-15 years), and ad contracts are short-term (1-12 months), leading to ad rates outpacing lease payments due to inflation. This dynamic serves are a reliable and unique hedge against inflation.
Learn more about OOH assets by emailing firstname.lastname@example.org or calling 480.657.8400!