Today’s podcast guest is Jay Johnson, CFO of Lamar Advertising. Here’s what Jay said about out of home’s resilience, managing through covid, sustainable leverage, cyber risk and the acquisitions market.
Podcast: Play in new window | Download (Duration: 16:59 — 23.4MB)
What was your biggest surprise about out of home coming into the industry?
The resilience of the out of home industry and billboards in particular. You look at this past year it is simply shocking as you look at the rebound that has occurred in out of home…really a testament to the product that we provide…Having spent the last decade at lodging REITs you can imagine how that side is going right now…you just don’t see the same resiliency in other REIT asset classes as you’ve seen in out of home…
Responding to Covid.
…Lamar already had an existing playbook. We had gone through the global financial crisis and we had a lot of operating leverage to pull and so we began to draw on that experience during 08-09…It was all hands on deck. Everyone chipped in. We made some difficult decisions. One of the things that I’m proud of is that none of the named executives took a cash bonus last year. And I look at some of my counterparts in the lodging industry and I’m somewhat shocked at some of the retention bonuses and things that were paid so I think, you know, it really was a testament to the steady hand of the Reilly family as well. We’re in it for the long haul.
Sustainable leverage for an out of home company.
When you think about out of home we are closely tied to GDP and how the economy operates. And that leads to a little more of potentially volatility in our earnings. And so it would be very prudent to run lower leverage. From our perspective our target is between 3.5 to 4 times. We kicked above that for a moment in time during the pandemic. We finished Q1 right at 4 times. And really with a full year of covid 19 EBIDTA in our LTM calculation now that should begin to trend down for the balance of the year and we should finish the year handily below 4. So I think, I think, you know that we feel that operating below 4 times is optimal. It allows us to go through the cycle to do a number of things (1) to not have to issue equity which we did not have to do during the covid 19 pandemic, (2) to sustain out dividend which we were able to do, right, we did cut it but we sustained our dividend, and then (3) hopefully play a little offense when those times of disruption come about so we’re fans of lower leverage.
Jay, what risks are you thinking about right now?
Obviously financial risk, right. For me it’s about protecting the balance sheet. And I think we’ve done that….But aside from financial risk, we’re thinking about cyber. Right. That should be at the top of every management team and board’s mind with the things that are going on. We’ve all seen what’s happened with Colonial Pipeline in the last week. So we’re starting to think about, think very seriously about cyber and what that means and really what that means for our digital network. If there’s one that keeps me up at night…its cyber but we are doing our best and we’re mobilizing to take it head on.
On the acquisitions market and the lack of distressed sellers
…The pipeline is accelerating. Q1 was light. In the last several weeks we are starting to see more opportunities. But you hit something that’s really critical here. You look at our margins and you look at where Lamar operates. At the onset of covid 19 everyone thought that there would be distress amongst the middle market independent out of home operators. And quite frankly, they have done OK. They’ve done just as well as we have. You think about, if they are in our markets. And so you’re right, there is no distress, there is no gun to anyone’s head. And so I think a lot of potential sellers are taking the view I’ll wait until I get back to 2019 levels before I test the waters around potentially disposing of assets.
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