According to our database of transactions in billboards, prices declined for the second straight year in 2003. The average multiple of gross effective income dropped from 5.73X in 2002 to 5.12X last year. Declines were also observed for the past two years in the median multiples.
Billboard prices peaked in 1998 according most measures, but prices were also high in 2000 and 2001. Either one of those years may have been the recent high point in prices, depending on whether the average or the median multiple is used. The median reached its recent peak in 2000 and the average hit its high point in 2001.
The declines in 2002 and 2003 are the result of various factors. First, spending on advertising has been weak since the recession began and investors have not been eager to buy billboards. Until buyers see that ad spending will be strong, they are likely to remain reluctant to commit capital to buy more signs. The outlook for ad spending has resulted in a general decline in price multiples for these assets. The second reason for lower multiples is that the major billboard companies have not been aggressive acquirers. Clear Channel and Viacom have not shown much interest in increasing their inventory, and Lamar has slowed the pace of its acquisitions. When the largest buyers become more cautious, prices tend to decline.
Lower prices are not logical considering changes in the capital markets. The cost of borrowed capital has been declining for the past few years and is at the lowest point in decades, as evidenced by mortgage and other lending rates. This would seem to push prices for billboards higher because buyers can borrow money so cheaply. However, even low borrowing rates cannot overcome the tepid outlook for revenue growth.
The number of transactions has also been declining. Our database includes 35 transactions in 2000 and 37 the following year. By comparison, the number dropped to 17 in 2002 and just 14 have been collected for 2003. While there are obviously more transactions occurring than included in our database, the change in numbers is a good indication that fewer deals are being done.