Billboard Financing May 2015 Dave Westburg Billboard Loans dave.westburg@billboardloans.com www.billboardloans.com 206-910-1283 5/12/15 Billboard Financing

Dave Westburg Background 26 years lending to out-of-home business. Four funds which have $20 million lent to media companies. Finance billboards, digital signs, 8 sheets and transit advertising through Billboard Loans www.billboardloans.com Raise equity and debt for billboard companies. Provide operating services (sales, accounting and management) to billboard companies via Circle City Outdoor (www.circlecityoutdoor.net). 5/12/15 Billboard Financing

Trends of The Billboard Industry Industry rebounding from recession Digital signs creating growth opportunity but have drawbacks. Some parts of the country overbuilt with rents of 30-50% of normal. Landmark is aggressively buying billboard land leases. 5/12/15 Billboard Financing

Outdoor Revenues recovering from recession Year US Outdoor Revenue (millions) % Change US GDP (billions) 2008 $7,300 0% $14,383 -2% 2009 $5,900 -19% $14,681 2% 2010 $6,100 3% $15,238 4% 2011 $6,400 5% $15,956 2012 $6,700 $16,502 2013 $6,900 $17,044 2014 $7,000 1% $17,701 5/12/15 Billboard Financing

Digital Sign Pros and Cons 6-8 advertisers versus 1. Ability to change copy without $400/install. Cons 100,000 hour life (11 years) versus 40 years for steel monopole. $350,000 capital costs versus $40,000 for monopole Higher electricity and insurance. 5/12/15 Billboard Financing

Market impacts of being overbuilt Normal rent for 14 by 48 billboard or digital billboard: $1,000-1,500/month. Rent for 14 by 48 billboard or digital billboard in overbuilt market: $300-700/month. 5/12/15 Billboard Financing

Market impact of Landmark Dividend LLC focusing on ground lease acquisition. Buys billboard leases and easements in exchange for a lump sum payment to the land owner, 8-10 times value of annual lease payments. Negative implications for the billboard industry if they acquire a large portfolio of leases. 5/12/15 Billboard Financing

Industry Valuations 4-6 times gross revenue. 6-10 times cashflow (earnings before interest, depreciation, amortization and addbacks). Values at high end if: You own easements under signs. You have good leases (low cost, long maturity) You have digital sign conversion potential. You have 14 by 48 billboards. You have clean permits. Values at low end if: You have bad leases (high costs, short maturity). You have smaller billboards. You have permit issues. Noone pays for potential revenue. 5/12/15 Billboard Financing

What you need to access debt. Equity. A transaction. A loan package. 5/12/15 Billboard Financing

A Lender’s View of Acquisitions Valuations 4-6 times gross revenue 6-10 times cashflow (ebidta) Are leases decent? Lease costs less than 20% of gross revenue. No guaranteed annual rent increases. 20 year term. Is market overbuilt? Digital sign potential Purchase assets, not stock. Can depreciate assets but not stock. You’re stuck with the owner’s liabilities. 5/12/15 Billboard Financing

A guide to addbacks OK Not OK Interest Financing charges. Fines and penalties. Leases for space which won’t be used. That portion of owner’s salary which won’t be replaced. Not OK Corporate overhead. Phone expenses. Travel. Unspecified personnel cuts. Legal fees. 5/12/15 Billboard Financing

Sources of Equity Home equity line of credit. Savings. Costly to access 401(k) or IRA. 10% early withdrawal penalty. Taxed as current income. Friends and family. Jobs Act (SEC Oct 23, 2013 Proposal on Crowdfunding). Accredited Investors. Equity Funds. 5/12/15 Billboard Financing

Examples of Undeclared Liabilities Which You Inherit If You Buy Stock Unpaid leases. Unpaid contractor bills. Environmental liabilities. Lawsuits. Tax liabilities. 5/12/15 Billboard Financing

The Loan Package (in order of importance) Sources and uses of funds. Historic financials. Personal financial statement. Operating spreadsheet of the plant you want to buy (locations, sign type, lease terms, lease expiry, advertiser, ad contract terms). Management bio. 3 business and professional references. Projections. 5/12/15 Billboard Financing

What to do when approaching a lender. Be specific on how much money you want and for what. Approach the lender when you don’t need the money. Talk the lender’s metrics Revenues Cashflow (EBIDTA) Dwell on history, not on the future. 5/12/15 Billboard Financing

EBIDTA (what the business can pay the bank) Earnings before: interest Depreciation Income Taxes Amortization Trailing twelve months. Debt Capacity is a multiple of EBIDTA Debt Service coverage is (Interest and Principal)/EBIDTA 5/12/15 Billboard Financing

Billboard Loans Debt Terms Interest rate of Prime plus 6% floating. Floor on the rate at 12%. 2% loan fee. 2% legal/travel fee. Personal guarantee. First security interest in all assets of business. UCC on inventory, equipment and receivables. Assignment of material agreements. Pledge of stock. 5/12/15 Billboard Financing

My Debt Terms Continued Debt/EBIDTA of 6:1 or less. Debt Service Coverage (Interest and principal)/EBIDTA in excess of 1.1 times. Restrictions on dividends, salary, capital expenditures, other debt … 7-20 year amortization. 5/12/15 Billboard Financing

Sources of Debt Billboard Loans Funds Sign Vendors (Yesco, Daktronics) Banks. Leasing Companies. Beware prepayment penalties. Finance companies (usually want to do $10 million or more). 5/12/15 Billboard Financing