All right. Well, good morning. My name is Jason Bazinet. I'm the media and entertainment analyst at Citi. Very happy to have Scott Wells, CEO of Clear Channel Outdoor. Scott, thank you for joining us.
Thanks for having me, Jason. It's great to be here and, great to be joining everybody this morning.
Yeah. maybe I think you wanna give a few prepared remarks just to get us started, sort of set the stage.
Yeah.
We can turn over to Q&A.
I appreciate the opportunity to just make a couple of comments to start, and welcome to everybody in the room and anybody listening on the webcast. Thanks again for having us. It's great to have a chance to talk about our business. I think it's a really interesting time to be talking about our business, given all the uncertainty in the world and all the questions that are on people's minds. Hopefully we'll be able to address people's questions over the course of this session. For those of you who don't know Clear Channel, we're a global out-of-home player. We participate in billboards, street furniture, airports principally, some other asset classes around the world, but those are the principal assets we participate in.
We're the only global player that is scale in both Europe and the U.S., which is a unique feature of our business. We were a division of iHeartMedia until 2019, and as part of their bankruptcy restructuring, we were spun to their creditors. That actually is how we arrived at having the debt profile that we have today. You know, obviously at that point, nobody had any idea COVID was coming. Nobody had, you know, any of the intel of how the world was gonna evolve over the next couple of years. It took, you know, what was a heavy debt load and made it a little bit more concerning because of the dynamic in COVID, and I'm sure we'll talk a little bit more about that.
That's obviously one of the big things that we're working on, you know, as a company to address. In 2019 when we separated, we made a big point that we were gonna focus on the U.S., and we actually announced at the end of 2021 that we were going to make an effort to divest our European assets. We chose at that time to look to move the whole platform, so all of the countries that we were in Europe. That process was moving along nicely until, you know, the Ukraine war broke out. It became considerably harder to look at a whole platform deal at that point.
We kind of worked it for a few more months, but it became clear there wasn't a deal that was gonna be advantageous to our shareholders. We pivoted to look at individual market divestitures, and shortly before the end of last year, we announced our first one of those, for those of you who haven't seen that yet. We divested Switzerland. We signed a deal to divest Switzerland for about $92 million, which is about a 9.5x multiple of their EBITDA contribution. It's a deal that we think will be the first of a few more to come.
What our goal here is to really put the European platform on a sustainable and frankly, more attractive footing than the business that we were looking to sell at the beginning of 2022. It should create more optionality. The business, you know, should be able to generate more operating cash flow for itself, which we can use to bring down debt in Europe and potentially downstream. When deal-making environments improve, we can divest it and actually use it to bring down.
You know, it may not be hugely deleveraging, but the business that will be attractive to a degree that it should be, you know, a good transaction for us to do versus, you know, something that might have been able to be done, you know, in the midst of the Ukraine war. That's what's going on in Europe, but we do have active dialogues going in multiple other countries, and we'll be updating, you know, appropriately on that as things play out.
Shifting to the U.S., which is our focus and which is what we think our future is, we're at the forefront of the digital transformation of the out-of-home business in the U.S., and that's, you know, most obviously in the media itself, you know, the actual digital conversion of signs. It's a lot more than that because what we're aiming to do is bring speed, insight, flexibility, more like what advertisers expect in a digital media. We're deep into that process. We actually spent a lot of time in September taking our investors through a pretty detailed run-through of the business and where we're headed. If you haven't looked at that, I'd encourage you to take a look at that on our IR site.
I'm not gonna go deep in it here because I don't wanna, you know, take the whole time. It's an involved story. It really does touch every aspect of the business, and it is important. I guess the last thing I'd like to do is just talk a little bit about how we believe we're well-positioned versus other media right now. You know, thinking about where we were before COVID, the dialogue we were having with marketers at that time, one of the things we were hearing a lot about was how people were overexposed to digital media. One of the big things that was happening in that window was actually taking companies that had invented their businesses entirely on the back of social media and taking them nationally.
That was a huge trend during 2019 and into the early part of 2020. We were getting a ton of credibility because we had had a lot of great examples of how that was, how that was playing out. COVID, you know, obviously came. People objected to the idea of out-of-home because, well, everybody's gonna be in their houses. But outside of China, that was only true for a couple of weeks. Despite that, you know, marketing being marketing, you know, we all wrestled a long time until the vaccines came out and things came through. The industry was down, you know, in the high 30s, low 40s %. It was a very, very tough stretch.
The good news is that we've recovered from that, you know, fully and are seeing growth. This digital media overexposure, I think we're seeing the beginning of it right now as digital media wrestles with the marketplace, and we are not seeing the same sort of headwinds. I'm sure we'll talk more about that as well. You know, I think linear TV's challenges are well documented. We can deliver a lot of the things that linear TV can, particularly in terms of reach, and so that's a big tailwind for us.
We have an opportunity where we had a lot of marketers who did pull out during COVID and then tried to come back, what they discovered is that, A, they couldn't get the signs that they'd had before COVID because somebody else had bought them, B, if they did wanna get those signs and they were dogged in pursuing them, they had to pay quite a bit more than what they were paying before. On top of that, they discovered a number of marketers have shared with us how their brand statistics suffered as a result of them pulling back from out of home.
We have a very nice dynamic going on right now of a bunch of very committed customers who very much believe in what our medium does because they had an object lesson of what happened when they pulled back. That's a tailwind. Despite the rate increases that I referred to, we're still the most efficient medium for reaching people, and so that is a tailwind. I think finally, the thing I'd just say is at some level, you have to look at the actual results as opposed to the theory. The reality is we've been being told since March that doom was on the horizon, and we have performed. Not every media can say that. I guess I would just urge investors to think less about, is it an ad-exposed business?
Is it a heavily debt-driven business? Look more at what the actual performance of the business is, because that will be what ultimately creates value in the, in the medium term. I'm not sanguine, and I'm not at all saying there aren't challenges in the macro and that there's no trouble on the horizon. I would just urge folks, 'cause I reflect on some of the conversations I was having with people back in March and April of 2022, and at the time talking about, "Hey, the business is actually performing. We're actually seeing good customer activity. We actually have these tailwinds that I just described." Yet, you know, our stock has been punished terribly.
It's a very difficult thing, you know, on a very personal level to explain to executives whose compensation is tied up in stocks when they're hitting their targets and their shares are down, like what ours are. I'll get off my personal side, but that is a very real thing, and it does not make a lot of sense to us when we look at how we're positioned. That's where I'll leave it is we're very optimistic about the future of this business. We think we have the right team. We think we have great assets. We're in the middle of this digital transformation that is only making the business more productive and more effective. I think one of the things I'm looking to do in 2023 is talk a lot more about how we're driving productivity in this business.
You read everywhere about how productivity is down, productivity is down. Our productivity is up, you know, 30%-40% since 2015. I don't think there's a lot of businesses that can describe that. What I'm describing to you is a business that is operating at a very high level and is defying all of the macro gloom and doom discussion. We shouldn't be, you know, throwing it in a bucket with, you know, every troubled asset that there is out there, because we lack imagination. That's my. I'm a little scrappy this morning, Jason.
No, no, it's good. It's good. Got your coffee.
I'd love to dive in and talk a little bit about, you know, what questions you have on your mind.
Well, let me just, I wanna touch off what you said about sort of the different cadence that we're seeing across digital media and linear TV and outdoor. I would even throw in the ad agencies that have done remarkably well.
Yeah.
I mean, this is at least, I'm maybe I'm just the dumbest guy in the room, but, like, the most confusing ad environment that I've ever seen. I mean, can you just put a few more words around what is it that's allowing outdoor to outperform some of these others? Or what's causing the strength in the ad agencies? I mean, is this like a national versus local? Is it Apple dynamics? Like, what is the-?
Well-
Maybe it's a complicated narrative, and there's no simple.
We're seeing a fundamental shift, and all the things that you named are adding to it.
Okay.
I think the agencies, at least partly, are benefiting from the data and analytic acquisitions that they made years before COVID.
Okay.
Because they used the time during COVID to integrate those. You know, let's be honest, where the world was trending right as we were going into COVID is a lot of big platforms, I won't name names, but they were taking their customers direct.
Yes.
That was a bad thing for the agencies. I think with the rise of some other alternatives in the digital space, and also with the reality is that the Apple dynamic has contributed greatly to cost of acquisition going through the roof using the social media play. You couldn't build those businesses that I was talking about we were helping get mainstream in 2019. You couldn't build those businesses today because the cost of acquisition is so high relative to where it was on digital. So as that cost of acquisition gets higher, the agency's role in helping identify how to get to your audience gets more important. I think that's what's going on. I think out-of-home is benefiting partly from that, and I think partly out-of-home is benefiting just from the snapback from COVID.
Mm-hmm.
I mean, you've been watching this industry long enough. You know how long it took for the business to recover from the Great Financial Crisis. What you saw with COVID is we went down really dramatically as an industry, but then we rebounded just as dramatically. It's partly from the lessons that we learned during the Great Financial Crisis. I mean, we have a lot of people on the team who were here during that time, and there was a lot of stuff people tried during the Great Financial Crisis that didn't work.
You throw on top of it, you've got all these other confounding factors of liquidity sloshing around the world, low interest rates for a long time, inflation up. Like, there's a lot of things that are contributing. You know, in the grand scheme, inflation probably helps out-of-home more than it hurts because we tend to be on long-term contracts for the bulk of our costs.
Yeah.
We tend to be on shorter contracts for our revenue. That's a dynamic that plays in. I wish I could explain to you why the market is behaving the way it is, but there are a lot of factors and a lot of distortions contributing to it.
You mentioned earlier since March of last year, people were talking about doom and gloom and a recession. I think one of the challenges for anyone here that lived through the COVID recession and go back and look at their model or go back to the GFC and look at their model, you almost have to go back two decades plus.
Yes
to have just a plain vanilla recession. Okay? You know, even my model for the guys I've covered forever doesn't go back that far. We just lean on, you know, Magna or some sort of top-down.
Yeah.
I would love your perspective. If we go into just a plain vanilla recession, how would you expect the top line to fare for your firm?
Yeah, I mean, it's interesting. I do think first and foremost, it will not be remotely like what happened in COVID.
Right.
The reason that it won't be remotely like it is that the people who will drive the revenue learned things, and they're still fresh in their memories 'cause we're still having conversations with people about what happened to their brand statistics. I mean, we have some scale advertisers coming back to us in 2023 who had been gone since then, and it's been because of those specific things that are coming into play. You should not have your baseline macro turmoil be 2020 'cause that was truly a black swan from an out-of-home perspective, not to, not to mention all the, all the other things that I'm not qualified to opine on.
If you look back at those recessions, if you look back at the early eighties, if you look back at 1990-1991, if you look back at 2000, 2001, 2002, out-of-home typically pauses during downturns. It doesn't typically regress a lot. Obviously that was different in the Great Financial Crisis, and it was very different during COVID. The reason for that is that we do tend to have a decent part of our business on long-term contract, and we tend to be parts of campaigns that advertisers don't necessarily cut first. They tend to be baseline elements of the campaigns.
That's somewhat different now than during those earlier recessions because with the advent of so much digital, you know, we're almost 40% digital in our digital in the medium, not in the, like, digital media sense, but in the digital signs. Those tend to have shorter contracts and those will be more volatile. We saw with programmatic, which is our newest channel to market, that was very volatile during COVID. Programmatic will be volatile. Digital will be volatile. The longer-term campaigns tend to be stickier. You know, to the degree that we have a macro downturn, our expectation would be that it will be one where it'll be a modest dip or a pause in growth as opposed to a big step back. We have the tools in the toolkit.
If things look worse than that, we certainly have the tools in the toolkit to adapt pretty swiftly as it goes. I would think our top line, you know, we're not gonna see anything remotely like we saw in COVID. You know, the great financial crisis is a, you know. At the time, it was extraordinary in its magnitude. It was very small relative to COVID for us. I would expect that we won't see anything like that either.
Okay. Pause.
Pause.
That's good. At some level, when I think about your business or just the industry, the outdoor business, it's simple, and then you scratch beneath the surface, and it suddenly gets really complicated, right? There's national, local, and there's different mix of, you know, traditional billboard versus transit, and there's different, you know, digital rates of digital conversion.
Sure
of your assets. If an investor is sort of looking at sort of a number of outdoor stocks that they could buy, and they're just trying to pick, you know, the attributes that, you know, are probably gonna perform better or outperform, what would be the things that you would point to that say where Clear Channel sort of is ahead of the pack? Where are there potential risks when you sort of look at your mix on those three things?
Yeah, I mean, it's a great question because there really are just the four of us, right? You have JCD, which is a completely diversified global player but not very exposed to the U.S. You have Lamar and Outfront, which are essentially U.S. only companies, and then you have the differences between large market, small market. I mean, I think I'd boil it down to, while we have Europe and while we have that part of the exposure, you know, we have a broader base and broader, you know, in-investment opportunity. I think the number one differentiator for us is how far ahead in the game we are on particularly the use of data. I think our understanding and utilization of data and the degree we're working with advertisers and their first-party data is a differentiator that's an opportunity.
You know, an opportunity that's also a threat is we are truly a public LBO, so it's not for the faint of heart. When you have a capital structure like we have, as we grow and as we, you know, evolve, we're going to deliver massive returns to the equity holders. That obviously comes with the risk if you worry on the other hand. To that, I'd say the flip side of that, and this is, this is true of all the U.S. players that have billboards, we do have a very ready source of cash available in the event that we have to break glass to work through it. So, you know, if your strategy is like a loan-to-own strategy, it's probably not the best play in this industry because the assets we have are not replaceable.
You can't just build them starting today. This is particularly true of U.S. billboards, and they are very valuable in the open market. To the degree that you're inclined to the loan-to-own path, I'd urge you to think about looking somewhere else because that's not likely to work here.
Okay. Can you talk about. Yeah, I think that clock might-
I think that clock might be the, not the clock we were.
Yeah, I think that clock is off.
Okay. We're we still have time?
I think so.
Okay.
I think.
Yeah. It's like the red light is flashing.
All along.
Somebody didn't like the loan-to-own comment, you know. Anyway.
You touched on liquidity and breaking the glass. Can you just touch a little bit on the liquidity that you have today and how you sort of think about it if the downturn gets worse?
We have robust liquidity as it is. I think, you know, our last report was at the end of the third quarter of 2022, we had a little more than $320 million of cash, then another $200 million of revolver capacity available to us, about $500 million of liquidity. What I'm referring to in the whole loan-to-own strategy is that even today, if we wanted to, if you look at the multiples that people are paying for U.S. out-of-home billboard businesses, that's where there would be liquidity that would be available if we needed it. That's the emergency break glass. I'm not in any place. You know, nothing's off the table, the last thing that I wanna do is go sell more U.S. businesses. We went through that with iHeart in 2015.
You saw how effective we were at raising liquidity in a very short period of time with a clearly distressed parent. Yet the prices we got were very good and, you know, it's a shame that that got used the way that it got used. You know, that wasn't my call, and it is what it is. It didn't end up helping us. If we'd held onto those assets, they'd probably be generating about $80 million of EBITDA for us today.
Hmm.
That would be awfully helpful. That'd be like another turn of debt.
Yeah
. almost, that we would have down. Like, the idea of accessing liquidity in the US markets is not particularly attractive, especially when you think about, likely tax leakage. Part of how we did those deals in 2015, part of why they were so good from a cash perspective is we had a lot of NOLs that we used. You know, those NOLs got eaten up in the iHeart restructuring, and so we don't have a big pool of NOLs that we'd be able to cover those. Those businesses have been around a long time.
Okay.
The basis, you know, again, I don't wanna get into 'cause it's different in every market, and it'll confound everyone. The point to take is that they are businesses that have inherent value that is not easy to reproduce.
Right.
we would be able to access that in a, in a crisis situation. We could do that.
Okay. Yeah.
Please.
Yeah. I mean, I sense your frustration. You're like, "Wait, we're executing. We're doing what we want. The stock's not working." The manager's getting frustrated, like.
Yeah.
What else.
It's a good summary.
Believe me, I think everyone gets that same frustration in their own life.
Of course.
What is in your control? 'Cause basically you're doing what you can and in the sense of, okay, people may worry, well, we're worried about a recession, and you've kind of talked through why you think you'll be able to.
Yeah
. defensive. As you sit around with your management team and think about 2023, it's not like you say, "Well, we did everything wrong last year. Let's do it better.
Right
. what do you do in 2023 that you think changes the narrative with
I appreciate that question. It's a great question. I think the key is that we continue to perform. First and foremost, you know, we continue doing the digital conversions that we say we're gonna do. We continue to drive productivity. We continue to bring our yields up. This is true globally, not all of these things are just U.S. only. A lot of it is just running a good business. I mean, I feel like when we report our 10-K, I feel like that's going to be a very good statement of a company that had a ton of external distractions, but actually just performed.
You know, we were in the midst of trying to divest half of our revenue, and yet the division that was up for being divested brought its EBITDA back within a gnat's eyelash of 2019. That's not too bad. I think that there are things to build on from that, and you compound. Continue to execute is the first thing. I think the second thing, and this is probably the biggest thing in my perspective, is I need to help our investors understand Europe the way I understand Europe. Europe is not a big, bad, amorphous thing. There are some wonderful businesses in Europe. By doing what we're doing with the portfolio, we're gonna end up in a position where we can produce financial statements that you all are gonna be able to understand and see that alongside me.
That is something that I'm very tangibly gonna work on now. Is it all gonna be done in the first half of the year? You know, no, probably not. Will the roadmap be more clear? You know, absolutely. I think the last piece of the puzzle is we have to figure out how to message to folks our conviction that we need to bring, you know, our debt multiple down. I feel like we talk about it all the time, but people don't believe us. You know, they think because we've been thwarted by things that we've gotten distracted, and we've gotten more excited about our digital transformation story than our debt reduction story. It's not true. Debt reduction is unquestionably the biggest value driver that we've got.
To get to that, we have to be where we're producing, you know, free cash flow over and above. I think the way that ends up playing out is. I mean, you already. This is one of the reasons why we started producing AFFO, which I know is a question that's on your mind, is that as an entity, the U.S. creates a lot of cash. That cash just gets taken to pay interest. As we grow that base, and as we start to have, you know, people believe that there is a growth story, that we're gonna be able to continue to be a GDP plus grower, we can make progress on that. Is the Street gonna be patient enough for us to get to that with the raised interest rates?
You know, that's a big question, and that's something that every business that has a lot of debt, you know, has to deal with. At some point, if you think about the lines we're trying to deal with, there's a line about being a U.S. taxpayer. At some point, we become a U.S. taxpayer because we run out of Net Operating Losses and how things play out. It is critical that we be a REIT by the time that line plays out. For that to happen, we can't have the big exposure to Europe. Europe needs to be resolved in, you know, call it a three or four-year time horizon to where it's at least in a state that we could.
I mean, the thing about the way we're approaching Europe is it creates optionality for us to do a lot more than just sell it to a private equity fund. I'll just leave it at that without getting too far over my skis. So that is something. That's a line that has to be resolved. The biggest line is the line around when debt renewals have to happen. We have a good window of time right now, but every year that passes, we get closer to where we're gonna have to refinance that debt or do something with that debt. All of those things are working in consideration as we work our way through this.
What I can tell you is that in 2023, we're going to make progress against all three of those, you know, storylines, if you will. Does that answer your question?
Can I just ask one follow-up on that?
Please.
You said when the 10-K comes out, that's gonna sort of advance the ball in terms of the Street's understanding. Was that just code for Q4 results, or is there something in the K that you think will sort of help elucidate?
Well, we committed in our investor meeting to reporting a whole bunch more detail-.
Yeah
. than what we do.
Yeah.
That detail, I can't go chapter and verse in all the pieces. I would encourage people to take a look at our Investor Day, 'cause we kind of showed some of it.
Yeah
already. The K will be an important step, but I don't wanna oversell.
No, no, I got it.
. we gotta close the books.
Understood
. get an audit and, you know, get all the other. There's a lot of financial gnome work to be done, in the next couple of months.
That's great. I guess our thesis that we have about sort of outdoor is inflation is actually, you know, your sector's a pretty good place to be in in an inflationary environment because It's not an auction. You're actually setting the rates for, you know, the assets that you have.
There's a decent amount of your cost structure that's more fixed, that may not have the same sort of inflationary cost pressures. Do you agree with that sort of thesis, that inflation, all things being equal, is sort of more good than bad?
Well, I'd never say inflation is more good than bad because of all the other things that it does.
Okay.
What it does to consumers, what it does to, you know, it distorts also. You're not gonna get me to say inflation is good.
Okay.
What I'll tell you is that inflation in the U.S. is not a significant challenge. The reason for that is what I mentioned in the opening comments of our contracts with landlords tend to be longer term, and our contracts with our customers, our advertisers, tend to be shorter term. We can adjust the pricing, while our major costs remain somewhat stable. That's not to say we don't have a bunch of shrinking violets as landlords.
Yeah
. there's always a dialogue, and these are people that were helpful to us during COVID in a lot of situations.
Yeah.
It's less true in Europe that that's the case, and it's less true in the airports that that's the case because those tend to have percent revenue shares.
Sure.
And so the costs tend to
Move.
You know, we've gotten questions as our airport business has resurged coming out of COVID, and it's had just some amazing quarters. We've gotten questions from investors about, "Well, your site lease is going way up." Well, it's not that the site lease is going way up. It's just that the percentage, you know, as airports grows, the money goes out the door fast with it. Yeah, we feel like we can manage inflation. I mean, our employees, like employees everywhere, are very aware of the inflation, and so we have to take that into account. Employee costs are a, you know, smaller part of our cost structure than our site lease, which has stickiness to it.
Okay. One of the things that's always confused me a little bit about the industry is sort of the relatively slow pace of digital conversions. Meaning that it feels like we've just been doing this very gradually over many, many years. Can you just talk about, given that the IRRs are so robust, why it's so slow for both, you know?
Yeah. I mean, it is a regulatory factor at root. I mean, we say that in our earnings calls, and I just don't think our investors believe us. I think our investors. The reality is there are a lot of independent operators who are doing everything they can to do digital conversions. It's not like, you know, we and Outfront and Lamar control the pace of digital conversions in the country. It's the city, municipality, and state regulators that control this. I talked about this for those of you who came to dinner last night. You know, we have markets in the U.S. that are more than 60% digital revenue, and we have markets that are zero. Some of the markets that are zero will always be zero.
Many of the markets that are lower are in the process of expanding, and we expect it'll expand. You know, if you take Los Angeles is easy because it's so big, but Los Angeles has 80 different municipalities. You have to. You can get an ordinance that crosses over to a degree in Los Angeles, but you're going to deal with up to 80 different municipalities as you sort that through. It's a lot of time on target work. Minneapolis-Saint Paul is 44. Not nearly as big a city, but almost as much complexity. You have to work your way through these approval processes to get permits. It's part of the secret sauce that makes our companies valuable.
It's part of why we're able to charge what we're able to charge for our assets, is because it is hard work to get. This is not a, you know, weekend project for somebody of like, "I'm gonna go get a permit and put up a billboard." It is a very involved process. So that's really what drives it. I don't think us or any of our competitors have ever pulled our feet. We've probably had relative emphasis on it at different times. I mean, frankly, if you look at Clear Channel, we were all in and aggressive on this in our portfolio early on, we continue to have a higher percent of revenue digital. If we could have gone faster, we would have.
It's dictated by just the frictional things that get in the way of permitting.
Again, maybe this is too simple, but if I was sort of thinking about digital conversions, right? I would sort of have this database, and I'd sort of rank, you know, the most traffic is number one, and all the way at the bottom is the most rural, sort of low traffic, right? I'd have some revenue that I could get from a digital conversion, and then it would seem like the cost to do the digital conversion would roughly be the same no matter which billboard I'm converting, right? There'd hit some crossover point where the math sort of wouldn't make sense, right? As I got more and more rural. How far sort of down that trajectory do we think we are?
We've got a lot of assets that are still attractive.
Okay.
I mean, it's less than 5% of our assets.
Okay
. at the billboard level are converted.
Okay.
There's a long way to play in this as it evolves.
The IRRs may get worse, but they'd still be very attractive IRRs.
I mean, we've been waiting for them to get worse. We watch it like a hawk. We just haven't seen it. Of course, we have bad deals. Of course, we have things where we got the lease wrong. You know, there are examples where things were not done right, and they didn't deliver. There are also examples of things that delivered way over the charts, including in some places that you'd categorize as rural-
Hmm.
. where you happen to be at an interesting. Here's an interesting sidebar comment. I was just talking with my Northern California team not too long ago, and I was asking them, "Okay, so what's gonna happen when the electric car mandate happens?" I might be giving away a trade secret here. They said, "Well, everybody's gonna go to Nevada to buy cars and then, you know, bring them back here to title them." Well, that had never occurred to me. For the California Legislature, you know, earmuffs. I mean, I didn't just say that. The point of that is that if you in fact believe that that's what's gonna happen, you should be developing signage along that corridor.
Hmm
. that today would be largely rural.
Right.
You might be able to get some good deals.
Mm-hmm.
Anyway.
Yeah
I've given a development tip to you on this.
it's a very local business.
It's a very local business. The reason that we continue to have the robust local operations is that you need to be able to understand stuff like that.
Yeah.
I don't know that that's gonna actually be an opportunity.
Mm-hmm.
I'm sure the Legislature will figure out some way to close that loophole.
Yeah.
But, um-
No, but it's a good anecdote.
That's the kind of thing. That's what our cities are all trying to do. Our branches are all looking at, you know, are we growing to the north? Are we growing to the west? What are the suburbs today that are gonna be downtowns tomorrow?
Right.
How do we get a foothold? 'Cause it's a very dynamic business. It's the thing, it's the paddling of the duck under the water.
Right
. that I think most of our investors don't really understand is that very often. You know, Orlando decided to elevate their central highway a few years ago. That impacted like 80 of our signs, that we had to either raise them, move them, you know, get rid of them.
Yeah.
That's like, you know, half of the portfolio.
Right.
just because they wanted to elevate the road for reasons that I don't fully understand. That's what goes on in these local markets all the time.
That's super helpful. Can I talk about the U.S. REIT conversion? You mentioned a couple.
Yeah, sure.
. of things in your comments so far. You talked about the NOLs running out, and you wanna sort of get to that REIT conversion before you're a full cash taxpayer in the U.S. You talked about sort of shrinking the size of the European portfolio, right? Since those couldn't be REITed. That's gonna be, I guess, a good thing in terms of the U.S. REIT conversion. Are there other gating factors that are out there? Like, what other things should people keep their eye on?
For us, the biggest one is our debt level.
Okay.
In order to qualify for REIT status, you have to be able to put a majority of your earnings to your investors every year as dividends.
Yeah.
We can't have our debt at the level that it's at and be a REIT. That's the other big thing.
Is there like a rule? I'm sure it's sort of, you know, leverage times whatever the interest rate is, so it's not an easy question to answer. Is there like a heuristic of some sort of leverage that you have in the back of your mind?
Yeah. I mean, the range that we've always talked about on it is ideally you'd like to be down in the four zip code. At the four zip code, you're never gonna run into a problem with that distribution piece.
Yeah.
You could probably be as high as a six.
Okay.
In a 6, you would potentially be borrowing money to pay the dividends some years.
Yeah.
That is not where you wanna be.
Okay.
we've gotta get a couple turns.
Okay
. is what the net effect has to happen. The thing of it is, as we make these other things happen, I suspect there's gonna be some people who would like to invest behind the idea of not being a U.S. taxpayer. That's a question we can get into when we have done the preparation on the other things. I suspect that we can cross the last turn or two in a creative way.
Right.
So.
Okay.
Enough said on.
Okay
on that one.
All right. When one of the metrics that you did talk about at your investor day was sort of AFFO. Again, maybe I'm the dumbest guy, but what confused me a bit is like if you present an AFFO metric that sort of spans sort of readable assets and non-readable assets, I don't really know what to do with it, right? What are you trying to sort of what breadcrumbs are you laying out for investors by introducing it to them?
We're trying to demonstrate the core cash generation growth of the business.
Okay. Yeah.
'Cause AFFO will give you a picture of cash flow growth that you would not have. It's not gonna happen in a year. It's going to take some time. You know, especially with the interest rate increases. The interest rate increases.
Yeah.
. you know, dampened how quickly. As you see our FFO grow, that's the number REIT investors anchor on to believe or not believe in the sustainability of the dividend.
Yep.
The reason that you do it at the full enterprise level is because it factors a lot of things that are not readily allocable. Yeah, we have some things in the mix that are not readable currently. The vast majority of our U.S. business is.
Okay
. where the vast majority of our earnings come from.
Okay.
We feel like the trade-offs were appropriate in that.
I think I got it.
Yeah.
Any final question for Scott then?
Sorry. Do you plan on giving fiscal year 23 guidance?
Yeah. That was one of the things we talked about, that when we do our full year report in February, we'll give a view of the year. Yeah.
Great. You spoke a lot about debt sort of de-leveraging or repayment. Have you considered buying bonds on the open market? Because the yields now are almost 15%.
Yes, there are a lot of our investors who would think that was very reckless of us right now from a liquidity usage perspective. That is a line of reasoning. The more practical thing is, as long as we have our European strategic process in place, our ability to do treasury activity is greatly limited. That is, yes, we think about it all the time, and we think about what would it look like, what could we do, how much could we bring in, and there are just things that, you know, keep us from pulling that trigger.
Thank you.
Scott, thank you very much. It was great.
No, thank you.
All right.
Enjoyed it.
Thank you.
Take care.