We expect OOH ad spend to accelerate, following new estimates of tax-enhanced GDP growth.
Anticipated Effects of the New Tax Bill on the OOH Industry:
Non-REIT out of home media companies will experience:
– Reduction in corporate tax rate from 35% to 21%;
– Ability to deduct full amount of capex for tax purposes for the next five years.
Advantages of REITs vs. C-Corps will be reduced given lower tax rate for C-Corps.
REIT dividends for shareholders continue to be treated as pass-through income at new lower rates:
– Given REIT benefits, it makes sense for OUTFRONT and Lamar to continue as REITs, but companies currently evaluating a possible REIT conversion may be less incentivized to do so, considering the reduced corporate tax rate.
While prior versions of tax bill explored the possibility of eliminating tax deduction for advertising, the current bill maintains it. This is a significant win both for the OOH industry and for the economy as a whole.
• Advertising is a key job creator – IHS found in 2015 that 14% of US jobs are related to advertising;
• Dis-incentivizing advertising would reduce the flow of information about products and services to consumers, likely causing consumer backlash and associated pressure on politicians.
Historical OOH Spend and GDP Growth:
In the past several years, out of home ad spend has generally grown at twice the rate of GDP growth.
Projected Boosted OOH Spend and GDP Growth:
The new bill is expected to boost real GDP growth during the 2018 – 2021 period.
Source: IMF, TPC, eMarketer, PJ SOLOMON estimates. (a) PJ SOLOMON OOH sector forecast assuming similar OOH / GDP correlated growth.
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