General Outdoor Advertising Pty Ltd v Chief Executive, Department of Transport and Main Roads
[2012] QLC 51
•20 September 2012
LAND COURT OF QUEENSLAND
CITATION:General Outdoor Advertising Pty Ltd & Anor v Chief Executive, Department of Transport and Main Roads [2012] QLC 0051
PARTIES:General Outdoor Advertising Pty Ltd
[ACN 010 347 798] trading as GOA Billboards
and
Poster Display Co Pty Ltd [ACN 052 544 911]
(applicants)
v.
Chief Executive, Department of Transport and Main Roads
(respondent)
FILE NO:AQL042-11
DIVISION:General Division
PROCEEDING: Originating Application to determine compensation under the Acquisition of Land Act 1967
DELIVERED ON: 20 September 2012
DELIVERED AT: Brisbane
HEARD ON: 7, 8 November 2011; 23, 24 April 2012
Submissions received and decision reserved 16 August 2012
HEARD AT:Brisbane
MEMBER:Mr WA Isdale
ORDERS:1. Compensation is assessed at One Hundred and Eleven Thousand, Five Hundred and Seventy-Eight Dollars ($111,578) in respect of the land compulsorily acquired.
2.Interest is payable at the rate adopted for the relevant year in the table of interest rates published by the Land Court and calculated in accordance with s.28 of the Acquisition of Land Act 1967.
3.Any application for costs is to be filed and served within 14 days of this decision. Any response to such an application is to be filed and served within 14 days thereafter.
CATCHWORDS: ACQUISITION OF LAND – BILLBOARDS
Acquisition of Land Act 1967, s.12(5)
Island Estates Pty Ltd v The Council of the Shire of Redland, Land Court, Brisbane, 4 July 1985
APPEARANCES: Mr PJ Favell of counsel, instructed by Mr C Castrisos, solicitor, H Drakos & Co for the applicants
Mr DA Quayle of counsel, instructed by the Crown Solicitor, for the respondent
Background
The respondent, acting pursuant to the Acquisition of Land Act 1967 (the Act) acquired some land for road purposes on 21 September 2001.[1] The land was described as Lot 1 on RP191099, Title Reference 7162 Folio 56, County of Ward, Parish of Moffatt and having an area of about 324 m². The applicants claim an interest in the land on the basis that the second applicant was lessee of a lease over the land. It is not in dispute that:
(a)each claimant had an estate or interest in the resumed land within the meaning of s.12(5) of the Act. Accordingly, there was an interest for which compensation may be claimed.
(b)the second applicant, Poster Display Co Pty Ltd was the lessee of the freehold land resumed.
(c)the second applicant owned a billboard sign on the land that was resumed.
(d)the interest of Poster Display Co Pty Ltd has no value. The claim by General Outdoor Advertising Pty Ltd (GOA) is of value as it was the licensee of the sign and operated the business of renting it.
(e)the billboard that was on the resumed land was constructed around 1991 in the shape of a wedge with two sides, each 12.6 m by 3.3 m on which advertisements could be placed. The advertising was illuminated. One side of the sign was operated as one advertising space and the other side was divided vertically into two equally sized areas that could be separately let.
(f)due to the resumption of the land on which the sign had stood, the applicant GOA lost the sign and its revenue-earning capability.
(g)On 20 May 2010 the respondent paid an advance on account of compensation to GOA. The payment of $81,500 was composed of the respondent’s estimate of compensation, $47,575, disturbance items $7,500 and interest of $26,425 from the date of resumption to 20 May 2010.
(h)the claim for disturbance items has now been agreed between the parties in the sum of $6,116 so there is no need for the Court to determine this aspect. What remains to be determined is the value of the sign.
[1] Queensland Government Gazette, 21 September 2001, page 165.
The proceeding
The Originating Application commencing this litigation was filed on 11 February 2011. The parties each engaged experts and each provided a valuation of the loss suffered. Both experts adopted the same valuation method, capitalising the maintainable net earnings of the sign.
The areas of dispute
The parties disagreed as to the amount of the maintainable net earnings and the capitalisation rate that should be applied to the earnings in order to arrive at the loss suffered. In calculating the net maintainable earnings the parties disagreed on how “contra” should be treated. Similarly, there was disagreement on how “bonus” periods of sign occupancy should be considered.
Contra
The meaning of “contra” is explained in the affidavit sworn on 1 November 2011 by Deb Langham, Chief Financial Officer of GOA.[2] A contra deal is when GOA provided advertising billboard space in return for goods or services of equal value.[3] These transactions were usually not recorded in the financial records prior to the introduction of the Goods and Services Tax (GST).[4] Records of such deals may have been destroyed.[5] Post the GST in July 2000 the contra transactions needed to be recorded for taxation purposes.[6]
[2] Exhibit 1, Tab 11.
[3] Exhibit 1, Tab 11, paragraph 7.
[4] Exhibit 1, Tab 11, paragraph 8.
[5] Exhibit 1, Tab 11, paragraph 11.
[6] Exhibit 1, Tab 11, paragraph 15.
Bonus
Some exposure on a sign, including the sign on the land that was resumed, might be included in a package of advertising provided to a client in order to make it more appealing to them.
The sign in its context
Chris Tyquin, joint managing director of GOA, swore an affidavit on 31 October 2011. Mr Tyquin describes GOA as the largest privately owned billboard company in Australia with over 300 billboards from the Gold Coast to Cairns.[7] Billboard bookings can be from a week to a year, with most for three or less months.[8] The billboard was on a single pole, elevated beyond the visual clutter of its surroundings and illuminated from dusk until midnight. It was in a growing area and obtaining billboard permits was becoming increasingly difficult, limiting supply as demand increased.[9] When outdoor advertising of tobacco products was stopped by law on 31 December 1995 there was a major collapse of demand for outdoor advertising.[10] Contra deals are important to the business and assist in establishing lasting business relationships.[11] The company has a policy of not having blank or out-of-date material on signs. The threat of resumption restricted GOA’s ability to rent the space for longer terms but it could be used for contra or bonus deals.[12] The Notice of Intention to Resume was received on 6 February 2001.[13] The sign was eventually scrapped.[14] The potential loss of the sign was known in March 1999[15] when the Main Roads Department issued a public consultation newsletter. This introduced uncertainty into the time for which the sign would be existing and a previously more lengthy rental of the sign to Leighton Properties was reduced to six months.[16]
[7] Exhibit 1, Tab 10, paragraph 9.
[8] Exhibit 1, Tab 10, paragraph 5.
[9] Exhibit 1, Tab 10, paragraph 15.
[10] Exhibit 1, Tab 10, paragraph 25.
[11] Exhibit 1, Tab 10, paragraphs 26 and 27.
[12] Exhibit 1, Tab 10, paragraph 29.
[13] Exhibit 1, Tab 10, paragraph 36.
[14] Exhibit 1, Tab 10, paragraph 38.
[15] Exhibit 1, Tab 10, paragraph 23.
[16] Exhibit 1, Tab 10, paragraph 24.
Adverse affect on the revenue caused by the foreshadowed resumption
The applicants claim that the looming resumption of the land caused uncertainty which adversely affected the revenue-earning ability of the sign. In view of this, it is argued that the actual financial performance of the sign in the three years prior to the resumption, the data which was available to the valuers, does not properly disclose the sign’s value. The applicants’ business valuer, Mr Wright, of Gil Wright & Associates, used the method of assuming a 100% occupancy of the site to calculate future maintainable gross income[17] and then deducting 20% to allow for vacancies, bonus use and contras.[18]
[17] Transcript (T) day 1 (1), page (-) 82 Line (L) 14 and Exhibit 1, Tab 8, page 30.
[18] T1-84, 1-85.
The applicants’ valuer’s method
Mr Wright described his method in the following passage of his evidence:[19]
[19] T1-84 L35 to 1-85 L58.
“MR FAVELL: Okay. Now, you were, I think, just explaining to his Honour what you meant by contra bonus and vacancy allowance and how you got to 20 per cent?-- Okay.
So, that - can I redirect you back to that?-- Yes, by all means.
Thank you?-- I need to find a table in my report, because it’s-----
Well, if you look at page 10?-- Ten, thank you. Okay. The - this particular document was produced in 2007 by access economics. It's information that's generally provided by the major players in the industry and what it does, it identifies the revenue by state and by income stream that the industry takes note of, and in there, you'll see under "Revenue by Source" at the bottom of the fourth - third paragraph, "Media Revenue", then it goes down, you note at the bottom, "Not for Profit"?
Yes??-- "Government", et cetera.
And the relevant column is "Queensland"?-- And the relevant column is "Queensland".
Yes? --Then you go to "Charity" and you'll see in there that it talks about donations, free advertising space, in kind services and other donations.
Yes?-- Now that's an indicator of what the State does as a general principle. Now when you do all the numbers on those, you'll find that for the State of Queensland, it'll be about seven or eight per cent of that income stream and expenditure, or income street (sic), is directed into those areas. So that's about seven or eight per cent of my 20 per cent that I adopt. I've been doing this sort of work for a long time and my understanding and knowledge of this industry is that a general criteria is that when they particularly look at a site, they will say, "rent", "term of lease", "what can I sell it for", "occupancy level, 90 per cent". They allow a 10 per cent simple analysis, if you like, or rule of thumb, as to the amount of occupancy space - the vacancy rate that they'll have on the site. So I've taken the seven or eight per cent, which is made up of in trade, or - or in kind, which is contra donations, free advertising space, and then taken up the none for profit. I've taken up all those figures and I've taken them as a percentage of the gross income for the State at that particular time, and you'll find out it runs around that seven to eight per cent. Right, so that's seven per cent of the income stream as a standard. Then 10 per cent on top of that gives me 17 or 18 per cent. I've adopted 20, which is a little bit of a, if you like, a conservative position, say instead of saying 18 per cent or 17.8, I've said, "Right; the industry standard is that for Queensland plus 10 per cent". That's my 20 per cent; combination of none for profit, bonuses, contra and - and vacancies. That's how I've arrived at it.
MR FAVELL: Right; so you've explained that, and then what you've done is you've taken away that from-----?--From my gross.
-----your hundred per cent occupancy; you've reached a future maintainable advertising revenue; you've then deducted expenditure-----?-- Yes.
-----and you've arrived at the future maintainable net income?-- Yes.
That's so. Then you apply, and this is an area where you differ from Mr Calabro, a capitalisation rate of 9 per cent; is that so?-- I do.
And he adopts a capitalisation rate of 19 per cent?-- Yes, I do.
Can I take you to page 39 of your report, and there I think you will agree you've set out the application of the capitalisation rate-----?-- Mmm.
-----to the estimated maintainable net profit to get the valuation of $314,809?-- I do.”
At the date of resumption, the lease for the sign had nearly 20 years left to run[20] as renewal options were at the choice of the lessee.[21] Mr Wright considered it as being “virtually as if its an in perpetuity site”.[22] In order to arrive at the 20% allowance for contra, bonus and vacancy, Mr Wright used information produced by Access Economics. He considered the yearly revenue in the outdoor advertising industry in the period 1997-2008[23] and information drawn from a table published by Access Economics in relation to outdoor media in 2007. He referred to the column of information relevant to Queensland. Mr Wright said that the amount shown under the heading “Charity” for Queensland, which is broken down into amounts for “Donations, Free advertising space, In-kind services and Other donations” was “about seven or eight percent” of the income. The total under this heading is $581,678 from a total income of $6,400,000.
581,678 x 100 = 9.0887187%
6,400,000 1
The actual calculation supports 9%. I note that this amount is shown under the rubric of “Charity” and includes donations and “Free” advertising space. It is clear from the evidence of Mr Tyquin that bonuses were not charitable in their intent but part of business arrangements. Leaving out donations, the calculation becomes:
557,098 x 100 = 8.7046562%
6,400,000 1
While this still supports more than the “seven or eight percent” allowed it is clear that, in this, Mr Wright has clearly disclosed his method and applied it conservatively. He has attempted to capture the contra and bonus type activities from the information available to him. The difficulty, as I have noted, is that it is assumed that “Free advertising space” is equivalent to the bonuses.
[20] T1-83 L42.
[21] T1-83 L38.
[22] T1-83 L45.
[23] Exhibit 1, Tab 8, page. 9.
Mr Wright then says that in this industry “They” allow a general “rule of thumb” of 10% for vacancy rate. He has added 10% and 7 or 8% and come up with a conservative figure of 20% allowance for the vacancy rate. “That’s how I’ve arrived at it”.[24]
[24] T1-85 L32.
Mr Wright has proceeded on the basis that in this industry there is a “rule of thumb” of a 10% vacancy rate on signs and that in the material published in 2007 it was shown that there was then 7% or 8% of the overall revenue attributed to free advertising space and in-kind services, which he has assumed to be equivalent to bonus and contra. The definition of “outdoor media” in the Access Economics table is not provided so the extent of comparability with the sign in this case is not able to be assessed. The representativeness of this 2007 year material to any other year and its comparability to when the land was resumed in 2001 are not known beyond the yearly revenue comparison for the period 1997-2008.[25] Revenue from large format outdoor signs Australia-wide has been provided for the years 2003, 2004 and 2005. This material provides a comparison from year to year but only in regard to revenue for the outdoor advertising industry in the whole of Australia. Mr Wright considered the impact of the Sydney Olympics[26] and growth in the industry[27] which are illustrative of influences felt across the whole industry. What must be valued in this case is the loss due to the deprivation of a particular sign. An industry rule of thumb vacancy rate and a Queensland-wide 2007 year derived rate for free advertising and in-kind payments are being relied upon by Mr Wright. In his affidavit, Mr Tyquin states that “there are few outdoor industry signs and none of the double sided 12.6 x 3.3 m size signs in the Brisbane-Beenleigh Road Corridor or in the vicinity of the Bethania sign site”.[28] Applying his method, and 9% capitalisation, Mr Wright valued the loss at $314,809.
[25] Exhibit 1, Tab 8, page 9.
[26] Exhibit 1, Tab 8, page 8.
[27] Exhibit 1, Tab 8, page 11, 12.
[28] Exhibit 1, Tab 10, affidavit of Chris Tyquin sworn 31 October 2011, paragraph 17.
The respondent’s valuer’s method
The respondent’s expert evidence of valuation was provided by Mr Norbert Calabro of Calabro SV Consulting. Mr Calabro based his valuation on what the particular sign in issue earned in the three years preceding the resumption less what it cost to operate in that period. Mr Calabro estimated the gross revenue at $25,898, the expenditure incurred in order to earn that revenue at $16,440 with the resulting annual net income of $9,458. Applying a 19% capitalisation rate resulted in a value of $49,780.
Mr Calabro was of the view that contra and bonus arrangements were made “because the space was vacant”[29] and should not be taken into account when assessing the income earning capacity of the sign as they do not reflect its true earnings and can distort the occupancy rate.[30]
[29] Exhibit 1, Tab 9, page 10, paragraph 6.4.
[30] Ibid.
Mr Calabro has examined each lettable area of the sign. He has described them as 0003/1 for the side having one lettable area, the whole face, and 0002/B and 0002/0 for the side divided into two lettable areas.[31] He notes the following in respect of the period January 1993 to August 2001:
[31] Exhibit 1, Tab 9, page 5, paragraph 5.3.
Face 0002/B
·vacant 30% of the time
·used as contra for 13.6% of the time by a company called Myflowers which was owned by the same interests as GOA. The only evidence for this contra was an invoice from GOA dated 30 June 2002, after the resumption, for “contras” in August and September 2000 and January to April 2001. Mr Calabro ignored these contras[32]
[32] Exhibit 1, Tab 9, page 10-11, paragraph 6.6.
·used as “bonus” in May to August 1998 and for “profit share” in January and February 1998
Face 002/0
·vacant for 12 months out of 44
·“contra” to Myflowers for four months, February to May 2001
·“bonus” for four months[33]
Face 003/1
·vacant for 10 months out of 44
·“contra” for 10 months including three months to Myflowers
·“bonus” for four months[34]
[33] Exhibit 1, Tab 9, page 10-11, paragraph 6.7.
[34] Exhibit 1, Tab 9, page 12, paragraph 6.8.
In estimating the sustainable revenue, Mr Calabro has treated “contra” periods as if the sign was unoccupied and bonuses as reducing the average monthly rental of the space, such that, for instance, a client paid for a month and got a month free.[35] By his reckoning, the average occupancy of the signs over the period for which information was available was:[36]
[35] Exhibit 1, Tab 9, page 12, paragraph 6.7(c)(ii).
[36] Exhibit 1, Tab 9, pages 13, 14, paragraphs 6.10(a), 6.11(a), 6.12(a).
0002/B 56.82%
0002/0 59.09%
0003/1 51.14%
His estimated sustainable annual revenue for the sign faces was:[37]
0002/B $ 7,869
0002/O $ 5,933
0003/1 $12,095
$25,897
Mr Calabro has accepted the annual operating costs of the sign which have been provided to him, they total $15,855.[38] The calculation of the annual net income is:
$25,897[37] Exhibit 1, Tab 9, pages 13, 14, paragraph 6.9.
[38] I have adjusted this figure to take into account an error. The licence fee payable to the local government for the site was found to be $65 and Mr Calabro had used $650 in his calculation. See Exhibit 4, page 39, paragraph 7.1.
- $15,855
$10,042
The capitalisation rate
Mr Calabro has chosen 19%. His reasons are:[39]
·Yields on freehold investment property at the time were between 8% to 12%
·Government bonds were yielding 5.9% and sound non-government securities 8%
·Equity risk discounts average 6% to 8% above the risk-free rate
·The industry is mature and dominated by a few large providers
·The history of revenue from the sign
·The local government’s policy of not granting new licences
·Yields from the sale of outdoor signs by the Queensland based company Bailey Outdoor. Those ranged from 12.5% to 25% with an average of 17.22%
[39] Exhibit 1, Tab 9, page 16, paragraphs 8.4 and 8.5.
With net estimated earnings of $10,042 and a capitalisation rate of 19% this method results in a value of $52,853
($10,042 ÷ 19) x 100 = $52,853
Mr Wright has adopted a capitalisation rate of 9%.[40] In this regard he has considered:
·The good location of the sign
·The premium above risk free investment in Treasury Bills. With the 10 year bond rate between 5% and 6% the expected return would be in the range of 11% to 12%. Adopting the Capital Asset Pricing Model[41] the rate to apply would be between 8% and 9.25%. He has adopted 9%.[42]
[40] Exhibit 1, Tab 8, pages 30 to 38.
[41] Exhibit 1, Tab 8, pages 33, 34.
[42] Exhibit 1, Tab 8, page 35, third paragraph.
Mr Wright had regard to the decision of then President of this Court, Mr WFG Smith in Island Estates Pty Ltd v The Council of the Shire of Redland.[43] In that case, one of the owners of the resumed land had a billboard erected on the land. The billboard advertised its real estate agency business and it paid no rent for the use of the sign. The compensation claim included the loss of use of the sign. Both valuers adopted the capitalisation method of valuation and disagreed as to the sign’s rental potential and the appropriate capitalisation rate.[44] The learned President expressed the view “that evidence of preparedness to pay particular sums by way of rents is akin to offers to purchase properties and carries as little weight as evidence of value”.[45] In that case the sign bore the one advertisement at all relevant times. The President’s comment resonates with the difficulty in arriving at the sign’s estimated sustainable revenue in the present case. The valuations before the President were prepared by Mr Michael Slater, for the applicant, and Mr Alan Kirby, for the respondent. The President formed the view that Mr Slater’s estimate of a 6% yield was too greatly influenced by his belief that the billboard was at least as good an investment in real estate as a prime central business district property in view of its security of (the attainable, if notional) income, no vacancy factor, shortage of supply and good demand for billboards. At the time, yields of 6% were current in the Brisbane Central Business District.[46] In view of the location at the outskirts of the Cleveland business district and the necessity, as here, to obtain an annual licence, the investment could not be as secure as one made in central business district prime property. The President noted that Mr Kirby’s opinion that a 10% yield was applicable was influenced by the fact that a renewable licence was required. As none had been refused to date and in view of the rental increase factor of 12.5% per annum, the President decided to adopt a capitalisation rate of 9%.[47]
[43] Land Court, Brisbane, 4 July 1985, A84-62, unreported.
[44] Land Court, Brisbane, 4 July 1985, A84-62, unreported, page 4.
[45] Land Court, Brisbane, 4 July 1985, A84-62, unreported, page 5.
[46] Land Court, Brisbane, 4 July 1985, A84-62, unreported, page 6.
[47] Land court, Brisbane, 4 July 2985, A84-62, unreported, page 7.
Mr Wright’s calculation
Mr Wright, applying his method, calculated future maintainable advertising revenue from the sign at $45,120 with expenditure of $16,787 needed to earn that, yielding a future maintainable net income of $28,333. With a capitalisation rate of 9% this results in a value of $314,811[48]
($28,333 ÷ 9) x 100 = $314,811
[48] Exhibit 1, Tab 8, pages 39-39.
The use of sets of signs to determine the capitalisation rate
The two valuers’ disagreement concerning the capitalisation rate became focused, in the evidence, on how the rates which they applied could be drawn from or supported by the sales of comparable signs. Mr Calabro used sales of signs by Bailey Outdoor.[49] The range of yields was 12.5% to 25%, the average being 17.22%. Mr Wright criticised the variable size and quality of location of this range of signs and selected a more restricted group of “super signs” that he maintained were more properly comparable to the subject sign.[50] He made his comparison using these signs and his existing method of assuming them to have 80% occupancy.
[49] Exhibit 1, Tab 9, page 19, paragraph 10.7(iv) and Appendix 5.
[50] Exhibit 4, page 15, the table.
The reduction of revenue due to the roadwork scheme
Mr Wright was of the view, supported by the evidence of Mr Tyquin[51] that anticipation of the resumption, once known from the March 1999 newsletter issued by Main Roads,[52] reduced letting prospects for the sign.[53] The difficulty with this is that it is very hard to quantify this effect, if indeed it exists. Mr Tyquin stated that in the mid 1990s bookings were for three, six or 12 months[54] and that evolved to short term bookings. The minimum went from three months to one month when computer-generated sign-writing allowed the “skin” of the signs to be more quickly replaced.[55] Mr Wright, in Exhibit 4, sets out an e-mail exchange between Mr Tyquin and Mr Bob Borger, formerly of Leightons.[56] Mr Borger states that Leightons would have continued advertising on the billboard had it not been resumed. I accord it little weight as it occurred in January 2012, while this case was being heard and is far from contemporaneous with the events, is not sworn and occurred in the context of the compensation claim.
[51] Exhibit 1, Tab 10, affidavit of Chris Tyquin sworn on 31 October 2011, paragraph 23.
[52] Ibid.
[53] See also Exhibit 1, Tab 11, affidavit of Deb Langham, sworn 1 November 2011, paragraphs 25, 26.
[54] T1-44 L30-L42. Compare the affidavit of Deb Langham at paragraph 25. Where there is a difference I prefer the evidence of Mr Tyquin, the Joint Managing Director of the business.
[55] T1-44 L30-L42.
[56] Exhibit 4, pages 10, 11.
Mr Wright prepared a further report[57] in which he, inter alia, referred to “the well-established fact that the ability of General Outdoor Advertising to sell the Bethania sign advertising space was being adversely affected by the whole of the ongoing roadworks and resumption process”.[58] As I have indicated, if this can be said to be established, and I am not satisfied on the evidence that it has been, then the quantum of the affect has not been persuasively demonstrated by evidence. Mr Wright compares Mr Calabro’s valuation of the subject sign unfavourably to a sign on the Deagon Deviation and one on Old Cleveland Road at Capalaba. These have sale prices, respectively, of $577,583 and $358,533 and gross revenues, respectively, of $111,870 and $87,300. They do not , in my view, represent a useful comparison to the subject sign with its gross revenue estimated by Mr Wright at $45,180 and calculated by Mr Calabro at $25,479. These last two figures are a little different to those related earlier in these reasons but are used by Mr Wright in this comparison. The differences are not of significance.
[57] Exhibit 4A.
[58] Exhibit 4A, page 10.
Mr Calabro joined issued with a report which became Exhibit 5. He pointed out that the two signs referred to had not been built as at the date of resumption and that the new signs have much higher income.[59]
[59] Exhibit 5, page 5.
In a further report,[60] Mr Calabro concludes that by applying a lower capitalisation rate to the subject sign than to the superior signs on the Deagon Deviation and on Old Cleveland Road, Capalaba, Mr Wright’s valuation inflates the value of the subject sign. Mr Wright’s comparison table[61] shows the capitalisation rate derived from the sales of these two more recently constructed signs as 12.5% while the rate determined from Mr Wright’s valuation of the subject sign is 9.34%.
[60] Exhibit 5A.
[61] Exhibit 4A, page 10.
Conclusion of the maintainable net earnings
This figure was arrived at by Mr Wright on the basis of a vacancy rate he described as a rule of thumb and a 2007 Queensland-wide rate of free advertising space and in-kind provision of supply. This is not an attractive means to value this sign as opposed to making a statement about averages. It is a method akin to valuing specific land by reference to an average increase in the value of land generally. Mr Wright has used it in order to avoid the perceived effect of the roadworks and looming resumption, which he describes[62] as “well established fact”. In view of the evidence of Mr Tyquin[63] and the view I have taken of the e-mail from Mr Borger I am not satisfied that this is a satisfactory basis for Mr Wright’s conclusions. This is in view of the assumptions which the method requires and which I have examined. I do not accept that the circumstances of this case justify departing from the information that was available in relation to the income actually earned by the sign and its periods of vacancy. I accept and prefer the method utilised by Mr Calabro and his conclusions in relation to the periods of vacancy of the three parts of the sign, accepting, as I have done, that this is not able to be directly attributed either wholly or to any calculable extent to the knowledge that the land was to be resumed.
[62] Exhibit 4A, page 10 and Exhibit 1, Tab 8, page 37 dot point 6.
[63] T1-44 L30-42.
Conclusion on the appropriate capitalisation rate
In this, like Mr Wright, I have been assisted by the decision of President Smith in Island Estates Pty Ltd v The Council of the Shire of Redland. The risk should be assessed as greater than with risk-free Treasury Bills as the site requires a renewable licence, expected to be granted, but is subject to the effect of changes in laws, for instance the loss of tobacco product advertising revenue. The sign was in a good location in a growth area. As Mr Calabro noted, yields on freehold investment property at the time were between 8% and 12% and equity risk discounts were averaging 6% to 8% above the risk-free rate. The sign had a relatively long and secure leasehold tenure. Taken together, these factors in my view support a capitalisation rate in the range for freehold investment property, of 8% to 12% at the time. I adopt 9% as best reflecting the relative security of the tenure and the other factors to which I have referred. I am fortified in this view by the analysis of Mr Wright[64] who uses the ten year Government Bond rate of 5% to 6% and applies a premium for risk which takes into account those risks specific to the business and those affecting the economy more generally.[65] He has adopted a premium for risk above the risk-free rate, arriving at an expected market return rate of 11% to 12%. He has adopted the Capital Asset Pricing Model[66] to arrive at a rate between 8% and 9.25%, applying 9%. As I have indicated, the relative security of this leasehold takes it into the range of the yields able to be expected on freehold property investments rather than into the range of equity risk discounts of 6% to 8% above the risk-free rate as referred to in Mr Calabro’s report or higher, where Mr Calabro has placed it. He made use of a range of signs sold by Bailey Outdoor.[67] This was a 2004 sale of 15 signs where, for example, a sign with a tenure of three years and another with 23 years both showed a 12.5% equivalent capitalisation rate, indicating that there may be other factors influencing this. Mr Wright was of the opinion that only some of the signs were comparable to the subject sign. Mr Calabro does point out that the capitalisation rate of these signs ranged from 12.5% to 25%, with an average of 17.22%.[68] I have referred earlier to the lack of utility of averages in the present inquiry and find the capitalisation rates of the signs in this sale unhelpful since the characteristics of each sign would be important to a useful assessment of the rates derived. The examination that was conducted of the signs on the Deagon Deviation and on Old Cleveland Road is illustrative of this.
[64] Exhibit 1, Tab 8, page 35, (b).
[65] Exhibit 1, Tab 8, pages 33, 34, 35.
[66] Exhibit 1, Tab 8, page 33.
[67] Exhibit 1, Tab 9, appendix 5.
[68] Exhibit 1, Tab 9, page 19, 10.7 (iv).
Calculating the value of what was resumed
Taking the net estimated yearly earnings of the sign as calculated by Mr Calabro’s method, which I have accepted is $10,042 and applying the capitalisation rate of 9% results in a value of $111,578
($10,042 ÷ 9) x 100 = $111,578
I accordingly find that the value of the estate or interest in land which the claimant lost due to the resumption was $111,578.
Interest
In its Originating Application filed on 11 February 2011 the applicant sought interest. It is reasonable to award interest so as to preserve the value of the compensation. Interest should be payable at the rate adopted for the relevant year in the table of interest rates published by the Land Court on its website (the applicable rate). The applicable rate, for each calendar year, is:
2001 5.75%
2002 5.75%
2003 5.25%
2004 5.50%
2005 5.25%
2006 5.50%
2007 6.00%
2008 5.75%
2009 5.00%
2010 5.50%
2011 5.00%
2012 4.00%
Interest is payable at the applicable rate on $111,578 from the date of resumption namely 21 September 2001. The necessary adjustments will have to be made to take into account the advance that has been paid. Interest will be payable until and including the day immediately preceding the date on which payment of the remaining balance is paid.
Costs of this proceeding
Any application for costs is to be filed and served within 14 days of this decision. Any response to such an application is to be filed and served within 14 days thereafter. Costs will be required to be determined in accordance with s.27 of the Act.
Orders
1.Compensation is assessed at One Hundred and Eleven Thousand, Five Hundred and Seventy-Eight Dollars ($111,578) in respect of the land compulsorily acquired.
2.Interest is payable at the rate adopted for the relevant year in the table of interest rates published by the Land Court and calculated in accordance with s.28 of the Acquisition of Land Act 1967.
3.Any application for costs is to be filed and served within 14 days of this decision. Any response to such an application is to be filed and served within 14 days thereafter.
WA ISDALE
MEMBER OF THE LAND COURT
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