The Billboard Insider Podcast
00:02:25 · Dave Westburg, John Weller
[00:02:25] S0: John, as senior banker to the out of home business, how how do you evaluate the industry from, the standpoint of of of being a senior lender? [00:02:38] S1: Well, you know, one thing I'll do initially is I'll point out a difference, which is, you know, lot of commercial banks don't understand the outdoor business. And as a result, they tend to shy away from it. We specialize in out of home and that's because we understand the business and have lots of years of experience in it. So the things we really appreciate about the outdoor industry is one, it has growing revenue. As most of our listeners know, outdoor has the best growth trend of traditional media, and it's making, you know, strong roads on even digital advertising. It has barriers to entry. And, you know, as a lender, you like that because it means that you limit competition. The industry is regulated, so the playing field is limited. And that does help greatly also with market values because it's harder to enter into a market. [00:03:32] S0: I recall seeing a street authority article that called out Lamar today, pointing out just that barriers to entry, which mean once you have a permit to operate a billboard, it is probably not gonna be subject to a competing company building just down the street.
00:03:48 · John Weller, Dave Westburg
[00:03:48] S1: Absolutely. And while the business, you know, certainly has its complexities, it's a relatively simple business model and is one that can be adjusted or someone, you know, if there's a change in the marketplace or there's a change in the economy, it's pretty easy to shift to accommodate whatever, you know, obstacles you might run into. And it's a liquid market. And by that, we mean it has good steady collections. Typically, the customers pay very well, in particular local and regional customers, as a lot of our listeners know. I mean, we're really blessed with the fact that we don't run into a lot of bad debt issues, and that other than national business, and of course, every advertising related business has the same issue with national business where you have to wait a little bit longer, local and regional business tends to pay on a very timely basis. One of the things I say about the industry that I enjoy, I say it's both boring and dynamic. It's boring because of its consistency of cashflow and it's dynamic because of digital and the possibilities that come from digital. And the last thing is from a perception standpoint, it's really in the traditional media market, the perception of outdoor is one where there's a lot of possibilities. Now with the move into digital, the banking community is becoming more aware of outdoor and the possibilities that are available to the industry. [00:05:18] S0: So that's the upside. How about the risks?
00:05:18 · Dave Westburg, John Weller
[00:05:18] S0: So that's the upside. How about the risks? [00:05:22] S1: Well, like any business, there are some risks. And you know, the most obvious ones are the cancellation of the lease, where obviously that can be a significant issue for an operator and also for a lender as they look at it. Interest rate risk, and that's something that's becoming a little more prevalent as the Federal Reserve has raised their rates over the last year or so. And as those interest rates increase, it makes it more difficult to service debt. Regulatory risk is one, and obviously think just the other day, or it might've been yesterday or today, we published an article on it's the Thomas case, right Dave? That's Correct. Yeah, that's just been heard. And that's a significant regulatory case that may have impact on our industry. So as a lender, we're watching that closely. [00:06:12] S0: Well, just a little aside, the Thomas case, if Thomas wins, it could potentially moot an entire regulatory apparatus for out of home, which includes just compensation protection, validation of permits, and you could open the way to a much more stringent and draconian form of regulation. My sort of view of Thomas is better the devil you know than the devil you don't, and system works the way it is, and I'd probably prefer it not get overthrown.
00:06:12 · Dave Westburg, John Weller
[00:06:12] S0: Well, just a little aside, the Thomas case, if Thomas wins, it could potentially moot an entire regulatory apparatus for out of home, which includes just compensation protection, validation of permits, and you could open the way to a much more stringent and draconian form of regulation. My sort of view of Thomas is better the devil you know than the devil you don't, and system works the way it is, and I'd probably prefer it not get overthrown. [00:06:42] S1: As this case goes on, I mean, one of the strengths of the industry that I didn't mention earlier is that we're fortunate that we have such a strong national organization that lobbies and and deals with legal issues like the Outdoor Advertising Association of America. Actually, the Out of Home Advertising Association of America. Yes. As they just had a name change. Some other things that we look at from a lending standpoint are build risks. You know, just because you have a permit doesn't necessarily mean it's a good board to build. You know, it's an understanding of picking a quality site and also, understanding how to market that site to maximize the value out of it. It also is part of the build risk. It's you get good quality lease terms as part of that. And then the other thing that we're concerned to us is potential for general market downturns. You know, those tend to affect all industries, but obviously that has some impact on revenues. And we wanna feel as a lender that we're working with operators who understand what changes are necessary to make if you get into a down market.
00:07:49 · Dave Westburg
[00:07:49] S0: And you clearly can see in a down market, out of home is cyclical. I think I looked at the last three recessions and out of home is sort of three X the economy. So if the economy goes down a percent, out of home goes down 3%. It was down 3% in the nineteen ninety two recession, it was down a percent after the two thousand and one nineeleven event, and it was down almost 20% in the great recession of two thousand and nine. John, where are you seeing demand from out of home advertisers for loans right now?
00:08:22 · John Weller, Dave Westburg
[00:08:22] S1: Well, that's an easy one. I mean, I'd say number one on the list are digital sign conversions. You know, we have a lot of smaller operators as well as large operators who have great locations that they're looking to upgrade to digital. And as they get their permitting issues taken care of and ordinance issues with cities, we've had a lot of operators who've come to us to help them to finance taking one of their best static signs and converting it to digital. As a lot of us know, this has been a very active acquisition market and not only with some of the larger outdoor operators, but also smaller ones too. And so we've come alongside several outdoor companies who've looked to do small add on acquisitions that are a good strategic fit for their business. And we've been involved in those situations. And then of course it's just general growth. Sometimes the best value you can create for a sign is when you can identify your own site, get it permitted and construct it yourself. And typically we work with our existing customers to help them with maybe some add ons to their existing line to help them as they're looking at new builds. [00:09:29] S0: John, what determines the debt capacity of an out of home advertising company? In other words, if I own an out of home advertising company, I wanna grow, I wanna borrow some money from my lender, what is a reasonable debt limit?