Lamar Advertising: A Unique REIT With Margin Expansion And AFFO Growth Potential

Core Viewpoint - Lamar Advertising is positioned well in the outdoor advertising industry, demonstrating consistent revenue and EBITDA growth despite recent challenges in advertising spend from large customers [2][6][8]. Company Overview - Lamar Advertising is one of the largest outdoor advertising companies in the U.S., operating over 363,000 displays across various formats [3]. - The company has been in business for over 120 years and has operated as a REIT since 2014, benefiting from special tax treatment [3]. Financial Performance - In Q1'24, Lamar reported a 5.7% increase in net revenues, marking the largest increase since the previous two quarters and the 12th consecutive quarter of pro forma revenue growth [6]. - Billboard advertising increased by 5.3%, logo advertising by 2.1%, and transit advertising by 12.3% [6]. - Political advertising revenue reached $3.8 million, up nearly $3 million from Q1'23, driven by increased campaign spending ahead of the November 2024 federal election [7]. Management Outlook - Management raised full-year AFFO guidance to a range of $7.75 to $7.90 per share, indicating optimism for the remainder of the year [8]. - The company plans to recommend a $1.30 per share distribution for Q2, with potential for further increases later in the year [8]. Margin and Cost Management - Adjusted EBITDA for the quarter was $212 million, reflecting a 42.5% margin, which is a 50 basis points increase compared to Q1'23 [9]. - The company expects cost growth to be between 3% to 3.5%, which should contribute to improving margins over time [10]. Balance Sheet and Leverage - Lamar maintains moderate leverage with total debt of $3.4 billion and cash of $36 million, with no significant maturities until 2025 [11]. - The company's leverage ratio stands at 3.1x, with a low weighted average interest rate of 5.1% [11]. Historical Performance - Over the last decade, Lamar has delivered a total return of 260%, outperforming the S&P 500's return of 242% [18]. - The company has achieved revenue and EBITDA CAGRs of 5.4% and 6.4%, respectively, over the last ten years, indicating effective margin expansion [16].