The quickest way to destroy the value of a billboard is to agree to a bad lease with a high fixed minimum lease inflator. Inflation has averaged 2%/year for the past 10 years. Outdoor revenues have grown at approximately 1.8%/year for the past 10 years. If you agree to an annual lease increase of more than 2%/year your billboard cashflow and billboard values will decline.
Here’s an example of how you can get into trouble with a two sided 14 by 48 static billboard which is generating $2,000/month in revenue. Lease expenses start at a reasonable 20% of revenue but increase by 5%/year. By the end of year 10 lease expenses are a high 31% of revenue. Sales expense is 20% of revenue and electricity is $100/month. The monthly cashflow of the sign declines from $1,100 at closing to $879 at the end of 10 years due entirely to increased lease costs. The value of the sign declines by 20% from $132,000 at closing to $105,000 at the end of 10 years due to the impact of lease increases.
| Year | Rev | Lease Exp | Sales | Electricity | Cashflow | Lease Exp/Rev | Value (10x cashflow) |
| 1 | $2,000 | $400 | $400 | $100 | $1,100 | 20% | $132,000 |
| 2 | $2,000 | $420 | $400 | $100 | $1,080 | 21% | $129,600 |
| 3 | $2,000 | $441 | $400 | $100 | $1,059 | 22% | $127,080 |
| 4 | $2,000 | $463 | $400 | $100 | $1,037 | 23% | $124,434 |
| 5 | $2,000 | $486 | $400 | $100 | $1,014 | 24% | $121,656 |
| 6 | $2,000 | $511 | $400 | $100 | $989 | 26% | $118,738 |
| 7 | $2,000 | $536 | $400 | $100 | $964 | 27% | $115,675 |
| 8 | $2,000 | $563 | $400 | $100 | $937 | 28% | $112,459 |
| 9 | $2,000 | $591 | $400 | $100 | $909 | 30% | $109,082 |
| 10 | $2,000 | $621 | $400 | $100 | $879 | 31% | $105,536 |
