Lamar Advertising is the largest pure play outdoor advertising company in North America with billboards in three quarters of the top 250 markets in the United States. The company reported in a conference call with investors on August 9, 2001 that advertisers are not spending as aggressively on outdoor advertising as they did in 2000. Lamar estimates that its occupancy rate for Poster Panels will be “in the low to mid 60%” range for 2001 compared to the mid70% range last year. Bulletins have held up better, with occupancy for the full year 2001 expected to be 75%-80% versus the 80%-85% last year.
The company sees continuing broad-based weakness in demand for Posters, with a somewhat better market for Bulletins. Even with widespread lower pricing for Posters, Lamar anticipates difficulty in selling its entire Poster inventory in the next few months. In the last half of the 1990s sign companies had advertisers waiting in line for available space. That has now changed, and greater sales efforts are required to bring in new advertisers when a billboard becomes vacant.
Lamar completed 78 acquisitions in the first half of 2001 for a total of $295 million. Although each transaction price was different, management estimates that the price of the total group of acquisitions was approximately 10.7 times forward EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) or a 9.3% cap rate. This translates to about 11 times to 12 times EBITDA for the trailing twelve months. More acquisitions are expected in the second half of the year, but the volume is likely to be lower.
With weaker demand for billboard space, most sign companies are seeing softer prices and many are experiencing lower revenue. This could lead more small companies to think about selling to the Big 3 (Clear Channel, Viacom, and Lamar). However, many sellers are not particularly happy to acknowledge that the values of sign plants are also softening. With revenue falling and risk rising, the value of billboards is likely to remain weak during at least the second half of 2001. Management at Lamar expects demand for billboards to continue to be vulnerable in the near term because the bottom of the market may not have been reached.