Q2 2024 Sky Harbour Group Corp Earnings Call
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply submit your question online using the webcast you are all posted on our website.
I would now like to turn the call over to Francisco Gonzalez Chief Financial Officer. Please go ahead.
Francisco Gonzalez: Thank you Regina.
Francisco Gonzalez: Hello, everyone and welcome to <unk> 2024, second quarter Investor Conference call and webcast pretty Scot Harper Group Corporation. We are also embedded in our blood hold investors permit subsidiaries kind of on capital to Julian participate on these calls.
Speaker Change: Before we begin I've been asked by counsel to note that on today's call. The company will address certain factors that may impact. This in next year's earnings. So much information that will be discussed today contain forward looking statements.
Speaker Change: These statements are based on management assumptions, which may or may not come true and you should refer to the language on slides one and two of this presentation as well as our SEC filings for a description of factors that may cause actual results to differ from our forward looking statements. All forward looking statements are made as of today and we assume no obligation to update any such statements.
Speaker Change: So now let's get started with US. This afternoon to you know from our prior webcast, our CEO and chair of the board Dr. Kanan, Our CFO Wil <unk>, our Chief Accounting Officer, Mike Schmidt, our treasurer to incur and toward Petro our accounting manager.
Speaker Change: We have a few slides we will want to review with you before we open it to questions. These were filed with the SEC at an hour ago and form 8-K, along with our 10-Q and we will also be available on our website.
Speaker Change: Okay.
Speaker Change: You may submit within questions during the webcast during the using the Q4 platform and we will address them shortly after our prepared remarks.
Speaker Change: Get started next slide.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: This is a summary of the financial result of our wholly owned subsidiary Scarborough capital and its operating subsidiaries that form the obligated group in the context of the trend of the past three years.
Speaker Change: On selective metrics. These basically incorporating results of our Houston, Miami and Nashville campuses, along with the Capex and operating cost of our three projects currently under construction in Denver, Phoenix and Addison, Texas.
Speaker Change: As you may see the path of construction activity in Q2 has picked up again and we expect that trend to continue as we ramp up construction.
Speaker Change: Revenues to move higher in Q2 from two main factors first there were a couple of tenant leases that kicked in during the quarter and second we also benefited from some tenant renewals of our first lease explorations and some tenant replacements, both at higher rental rates.
Speaker Change: Operating expenses increased but I should note that this includes the ground lease payments or accruals as per U S. GAAP in all six ground leases in yogurt obligate group.
Said in other words, we do not capitalize ground lease payments or accruals during construction.
Speaker Change: Even with that we have firmed across into positive cash flow from operations as you may see in the lower right hand.
Speaker Change: Quadrant.
Speaker Change: We expect this trend to continue and accelerate in the first half of next year, when Denver, Phoenix, and Dallas, Dallas campuses open and begin to cash flow next slide.
Speaker Change: On a consolidated basis, the second quarter revenues exhibit the step function of incorporation of our new campus in San Jose International Airport.
Speaker Change: As previously previously reported San Jose was roughly 58% leased during Q2 and with a new tenant leases signed in recent days, we expect another step revenue increase in Q3 as that campus of approaches.
Speaker Change: <unk>.
Speaker Change: Full occupancy.
The operating expenses in Q2 increased mainly from two factors first the incorporation of the ground lease payments of San Jose, which are significantly higher than in our typical greenfield projects that.
Speaker Change: Let me explain this a little further in essence because of San Jose ground lease came with a large hanger existing hanger apron embarking the cause of these facilities is basically amortize through the ground lease payments as part of our operating expenses.
Speaker Change: Second factor Similarly is the obligated group, we accrue in the consolidated operating costs for.
Speaker Change: Our ground lease payments at the 12 airport locations that we had a signed by Q2 and we will begin to have in Q3 another.
Speaker Change: And ground lease that will be accruing essentially has expanded with the addition of <unk> a week ago that noncash noncash accrual of ground lease expense amounted to approximately $1 1 million in Q2 and reflected within operating expenses.
Speaker Change: The SG&A, which is mainly at the parent holding company reflect the impact of noncash employee stock based compensation expenses, which amounted to a similar figure of about $1 1 million during Q2.
Tana Cana: We reaffirm our prior guidance that we expect hardware to reach cash flow positive on a consolidated basis in the fall of 2025, as we reached sufficient scale with a new campus openings to cover our holding company expenses that has turned to tell cana, our CEO for an update on site acquisitions.
Francisco Gonzalez: Thank you Francisco.
So you can see here reflects our announcement last week of the Salt Lake City International ground lease. In addition to some expansion that we've been able to achieve an existing ground leases.
Speaker Change: We began presenting it in this fashion over the last couple of quarters. Because this is really how we look at it as what is the total revenue capture of.
Speaker Change: Land that we have underground lease at Sky Harbor today. So as of August 2024, you could see it in the kind of 125 $130 million range. What that number is to remind people is the total square footage of buildable hanger on.
Speaker Change: On each of these campuses times, the Sky Harbor equivalent ranch, which is our proxy for revenue.
in the first half of next year when Denver, Phoenix, and Dallas campuses open and begin to cash flow. Next slide.
Speaker Change: On each of these.
Speaker Change: Kansas, that's what that that's what that capture number equal.
On a consolidated basis, the second quarter revenues exhibit the step function of incorporation of our new campus in San Jose International Airport.
Speaker Change: Equals just to remind people and I think we have some numbers that will share later.
Speaker Change: Is.
Speaker Change: On the campuses that we've that we're operating at this point, we are significantly exceeding our sky Heartbroken fund reps. So we do think Thats a conservative number to use as an estimate for what revenue capture potential is on these campuses.
As previously reported, San Jose was roughly 58% leased during Q2, and with the new tenant leases signed in recent days, we expect another step of revenue increase in Q3, as that campus approaches full occupancy.
Speaker Change: Let me hand, it over to will to talk about development.
Will: Thanks Tal.
The operating expenses in Q2 increased mainly from two factors. First, the incorporation of the ground lease payments of San Jose, which are significantly higher than in our typical greenfield projects.
Will: This slide really represents the next phase of development and construction for Sky Harbor on an accelerated growth plan starting with the three projects that are currently in progress or they are on track or ahead of schedule to be completed in Q1 of <unk> 25 per <unk>.
Let me explain this a little further. In essence, because of San Jose ground lease came with a large hanger, existing hanger, apron, and parking, because of these facilities, it's basically amortized through the ground lease payments as part of our operating expenses.
Will: <unk> in our Q1.
Speaker Change: Statements Bill.
Speaker Change: Below the second half of the page below in the bar graph right really represents.
Second factor, similarly as the obligated group, we accrue in the consolidated operating cost.
Speaker Change: Our growth plan over the next two years focusing on 2025 and 2026 2025, we have a combination of eight projects starting in construction with three completed for a total of 11 projects.
for ground lease payments at the 12 airport locations that we had signed by Q2. And we will begin to have in Q3, another ground lease that will be accruing in terms of this expense with the addition of Salt Lake City a week ago.
Speaker Change: To bridge into 2026 of <unk>.
Speaker Change: <unk> projects start and a completion of seven projects for a total of 22. So over the next two years between 2025 and 26.
That non-cash accrual of groundless expense amounted to approximately $1.1 million in Q2 and reflected within operating expenses.
Speaker Change: Ballpark.
The SG&A, which is mainly a dependent holding company, reflect the impact of non-cash employee stock-based compensation expenses, which amounted to a similar figure of about 1.1 million during Q2.
Speaker Change: 33 projects between starts and finishes, which is which is definitely an accelerated growth plan.
Speaker Change: Now ill turn it back to site.
Tao, K&N: We reaffirm our prior guidance that we expect Sky Harbor to reach cashflow positive on a consolidated basis in the fall of 2025, as we reach sufficient scale with the new campus openings to cover our holding company expenses. Let us turn to Tao, K&N, our CEO, for an update on site acquisitions.
Speaker Change: Thank you will we continue to enjoy strong liquidity with $150 million in cash in the U S. Treasury bills. We continue our cash management strategy of growing our cash in 1% to three months U S Treasury bills and notes extending their use in construction.
Speaker Change: During the past quarter, we continued to earn more than our cash than the interest cost of our bonds.
Speaker Change: Thanks, Francisco.
Tao, K&N: So what you can see here reflects our announcement last week of the Salt Lake City International ground lease in addition to some expansion that we've been able to achieve on existing ground leases.
Speaker Change: As many of you know our debt is permanent fixed rate bonds with the first maturity.
Speaker Change: A principal maturity coming up in eight years.
Speaker Change: And capitalized interest.
Speaker Change: Through July the July payment.
Speaker Change: Sure.
Speaker Change: The expected cash flows from operations at the obligated group in 2025 is continues to we continue to expect to.
Speaker Change: We've begun presenting it in this fashion over the last couple of quarters, because this is really how we look at it, is what is the total revenue capture of.
Speaker Change: <unk> quarterly net debt service of $5 $6 million due next year with having to touch the ramp of reserve we put in place just in case.
Speaker Change: of land that we have underground lease at Sky Harbor today. So as of August 2024, you could see it's in the $125-$130 million range. What that number is, to remind people, is the total square footage of buildable hangar.
Back at the time of the issuance of bonds and that ramp will reserve will get released it once the construction is.
Speaker Change: Completed at the obligated group next slide.
Speaker Change: on each of these campuses times the Sky Harbor equivalent rent.
Speaker Change: Yes, one more comment on our bonds.
Speaker Change: which is our proxy for revenue.
Speaker Change: Our longest 30 year maturity due in 2054 traded a few weeks ago at $5 35.
Speaker Change: on each of these campuses. That's what that capture number equals.
Speaker Change: And just yesterday, our 12 year maturity bond traded yesterday at 5% flat.
Speaker Change: Just to remind people and I think we have some numbers that we'll share later
Speaker Change: is on the campuses that we're operating at this point, we are significantly exceeding our Sky Harbor equivalent rents. So we do think that's a conservative number to use as an estimate for what revenue capture potential is on these campuses.
Speaker Change: These levels are a testament to the credit quality and investor demand for our bonds.
Speaker Change: We reiterate our reiterate our expectation that future debt service coverage ratios will exceed those forecasted at the time of the bond issuance three years ago, and our solid commitment to protect such coverage. We continue on a path to seek investment grade ratings next year as campuses ramp up with cash flow generation.
Speaker Change: Let me hand it over to Will to talk about development.
Will: Thanks, Tyler.
Will: Bye-bye.
Will: This slide really represents.
Will: The next phase of development and construction for Sky Harbor on an accelerated growth plan.
Speaker Change: You Gotta accretive fields to the portfolio and at the risk weight and we use entering financings in order to protect the claim bondholders of you're obligated group.
Will: Starting with the three projects that are currently in progress, they are on track or ahead of schedule to be completed in Q1 of 25 per our announcement in our Q1 statements.
Speaker Change: Next slide please.
Speaker Change: Yes, we have shown this slide before but wanted to reiterate that we continue to approach capital formation deliberately and Opportunistically to act in the best interest of our company its bondholders and shareholders. We are continuing to receive only proposals both equity and debt to meet our growth capital needs.
Will: Below, second half of the page below in the bar graph, right, really represents...
Will: our growth plan over the next two years, focusing on 2025 and 2026.
Will: 2025, you have a combination of eight projects.
Speaker Change: But we're disciplined and our consideration of piece.
On the debt front, we conducted a limited market outreach and have received proposals from five major U S financial institutions were $150 million bond or loan facility at attractive interest rates, we plan to select one or two banks to lead such a report after labor day and expect to complete the financing subject to market conditions.
Will: starting in construction, with three completing for a total of 11 projects.
Will: to bring it into 2026 of...
Will: 15 project starts and a completion of seven projects for a total of 22. So over the next...
Will: Two years between 2025 and 2026, we are ballparking 33 projects between starts and finishes, which is definitely an accelerated growth plan.
Speaker Change: Next year.
Okay.
Speaker Change: Over two days during the early part of this past quarter, We test drive our ATM program and sold seven 407 shares over two days at an average price of $12 42.
Speaker Change: Now, turn it back to your slide.
Speaker Change: Thank you, Will. We continue to enjoy strong liquidity with $150 million in cash and U.S. Treasury bills. We continue our cash management strategy of rolling our cash in one- to three-month U.S. Treasury bills and notes pending their use in construction.
Speaker Change: Without impacting the trading price of our stock we will keep this as a tool, but don't plan to use it on as our stocks significantly higher than current levels.
Speaker Change: As with the past.
Speaker Change: Our conservative balance sheet and liquidity allow us to be deliberate.
Speaker Change: During the past quarter, we continued to earn more in our cash than the interest cost of our bonds.
Speaker Change: We're fully funded 41st in airports and can reach cash flow breakeven without any additional capital rates of course, and we can accelerate growth with the right new funding will take advantage of opportunities as they arise.
Speaker Change: As many of you know, our debt is permanent fixed-rate bonds with the first maturity, a principal maturity coming up in eight years, and capitalized interest through July, the July payment of next year.
Back to Paul for a brief review of our achievements during Q2 and areas of focus for the next 12 months.
Speaker Change: The expected cash flows from operations at the other group in 2025 is continues to we continue to expect to
Paul: Thanks Francisco.
Paul: So as people now I'd like to think of a company in these four.
Speaker Change: Amplified poverty net debt service of 5.6 million.
Paul: Pillars site acquisition being the first as we discussed we're excited about getting underway at Salt Lake City.
Speaker Change: do next year without having to touch the Rampant Reserve we put in place, just in case, back at the time of the issuance of funds. And that Rampant Reserve will get released.
Speaker Change: And that expansion on existing fields is something that we're going to continue to be working on all the fields that were owned by definition are attractive to us if we can get more square footage on those fields.
Speaker Change: once the construction is completed at the obligatory group. Next slide.
Speaker Change: Oh yes, one more comment on our bonds. Our longest 30-year maturity during 2054 traded a few weeks ago at 535, and just yesterday our 12-year maturity bond traded yesterday at 5% flat.
Speaker Change: That is equivalent to winning new fields.
Speaker Change: On the development side. This is where I think we're going to see a lot of the action.
Speaker Change: Over the next couple of quarters, we're really in a phase shift in this company, where we were working in <unk>.
Speaker Change: Serial <unk>.
Speaker Change: Got to work in parallel now.
Speaker Change: These levels are a testament to the great quality and investor demand for our bonds.
Speaker Change: It really kind of massive ramp up on the development side and I.
Speaker Change: I think youll see in the press release.
Speaker Change: We reiterate our expectation that future debt service coverage ratios will exceed those forecasted at the time of the bond issuance three years ago, and our solemn commitment to protect such coverage.
Speaker Change: Reductions of few people key people who've joined the team.
Speaker Change: And the last quarter or so.
Speaker Change: To help us.
Speaker Change: Meet that challenge. So we've got three projects set for delivery by the first quarter of 2025, that's Denver Phoenix and Dallas.
Speaker Change: We continue on a path to second best in grade ratings next year as campuses ramp up with cash flow generation. We add accretive fields to the portfolio in a de-risked way, and we use interim financings in order to protect the current bondholders of the obligated group.
Speaker Change: But we've got 10 additional projects.
Speaker Change: Projects in development now.
Speaker Change: That number is only going to grow right.
Speaker Change: As challenging as it is there is no <unk>.
Speaker Change: No intention to stop accelerating onsite acquisition, that's what this company is about fundamentally.
Speaker Change: Next slide, please.
Speaker Change: Yes, we have shown this slide before but wanted to reiterate that we continue to approach capital formation deliberately and opportunistically.
Speaker Change: We're going to have the resources in place to process. It as we as we grow so right now we're at 10, but our intention is to actually increase that quite significantly over the next over the next few quarters.
Speaker Change: to act in the best interest of our company, its fund holders, and shareholders. We have continued to receive funding proposals, both equity and debt, to meet our growth capital needs, but we're disciplined in our consideration of these.
Speaker Change: As part of that effort. We are institutionalizing. This is becoming a much more process driven construction effort.
Speaker Change: A lot less reinvention of the wheel as we go.
Speaker Change: On the debt front, we conducted a limited market outreach and have received proposals from five major U.S. financial institutions for a $150 million bond or loan facility at attractive interest rates.
Speaker Change: We have finally completed the design of the Sky here for 37 prototype. We think this is a breakthrough hanger. We think it's the best Hanger business aviation by far I don't think anything comes even close to it in terms of the capacity to to hold aircraft.
Speaker Change: We plan to select one or two banks to lead such effort after Labor Day and expect to complete financing subject to market conditions early next year.
Speaker Change: But also the utility of the hangar.
Speaker Change: Again, we've seen a lot of anger designs over the years. This is by far the most thoughtful we've been able to come up with we don't think anything comes close to touching it we have rapid build our pre engineered availability manufacturer configured to pump exactly this model of hanger out.
Speaker Change: Over two days during the early part of this...
Speaker Change: Last quarter, we test-drived our ATM program and sold 7,407 shares over two days at an average price of $12.42 without impacting the trading price of our stock. We will keep this as a tool, but don't plan to use it unless our stock's significantly higher than current levels.
Speaker Change: We expect to.
Speaker Change: Achieved very significant economies of scale as we as we do that.
Speaker Change: On the leasing side.
Speaker Change: As we have said in the past, our conservative balance sheet and liquidity allow us to be deliberate. We are fully funded for the first 10 airports and can reach cash flow breakeven without any additional capital raise. Of course, if we can accelerate growth with the right new funding, we will take advantage of opportunities as they arise.
Speaker Change: Under NDA with many of our tenants and we're seeing the questions come in already and there are some questions about privacy, that's definitely a big piece of it so when we're never going to disclose it.
Speaker Change: Our tenants identities there of course free to do it themselves. We don't we don't do that.
Speaker Change: We can say is the premier flight departments in the United States. Our residents of Sky Harbor, the best flight departments in the country, our residents of us and I think we have.
Speaker Change: Back to Tal for a brief review of our achievements during Q2 and areas of focus for the next 12 months.
Tal: Thanks Francisco. So as people know I'd like to think of our company in these four
Speaker Change: Perhaps.
Speaker Change: Reached a certain threshold in terms of brand awareness within within our specific industry, where the most sophisticated decision makers in business aviation to understand the utility of the Homebase solution.
Tal: Pillars, site acquisition being the first, as we discussed, we're excited about getting underway Salt Lake City and that expansion on existing fields is something that we're going to continue to be working on all the fields that we're on by definition are attractive to us. If we get more square footage on those fields.
Speaker Change: Versus for example living at.
Speaker Change: In spo.
Speaker Change: The the.
Speaker Change: The second thing I think it's worth pointing out is the actual revenues from airports.
Tal: that is equivalent to winning new fields.
Tal: On the development side, this is where I think we're going to see a lot of the action over the next couple of quarters. We're really in a phase shift in this company where we were working in
Speaker Change: We're exceeding our projections by.
Speaker Change: About 32% to 33%.
Speaker Change: Yeah.
Speaker Change: I'll say that in the initial lease up of all of these properties, but we're also beginning to see and we discuss it a little bit in the in the press release.
Tal: serial, we've got to work in parallel now. It's a really kind of massive ramp-up on the development side and I think you'll see in the press release the introduction of a few people, key people who've joined the team in the last quarter or so to help us.
Speaker Change: Is that we're seeing a significant step up in revenue when we renew a lease or replace an existing resident again, we haven't had that many of those.
Speaker Change: Little more than a handful at this point, but the the numbers have been pretty consistent.
Tal: meet that challenge. So we've got three projects set for delivery by the first quarter of 2025. That's Denver, Phoenix, and Dallas.
Speaker Change: Marking up at a little over 20% right. So if youre getting a dollar in rent when that term and when you released the anger to a new tenant or to the same tenant youre getting a $1 20.
Tal: But we've got 10 additional projects in development now that number is only going to grow right? We, as challenging as it is, there is no.
Speaker Change: And I think that is the first and we'll put out numbers at some point when we can we have enough.
Tal: No intention to
Tal: stop accelerating on-site acquisition. That's what this company is about fundamentally. We're going to have the resources in place to process it as we grow. Right now, we're at 10, but the intention is to actually increase that quite significantly over the next few quarters.
Speaker Change: Make it statistically valid, but we can already see it.
Speaker Change: We see this as probably the first empirical demonstration of our thesis on inflation on airports right. There is a finite number of airports youre not going to build new airports in United States there are already space constrained.
Tal: As part of that effort, we are institutionalizing this as becoming a much more process-driven construction effort, a lot less reinvention of the wheel as we go.
Speaker Change: We think we're in one of the most inflationary segments of the U S economy.
Speaker Change: And I think we're beginning to see that in our in our renewals.
Speaker Change: Operations, So San Jose was.
Speaker Change: We have finally completed the design of the Skyharbor 37 prototype. We think this is a breakthrough hanger. We think it's the best hanger in business aviation by far. I don't think anything comes even close to it. In terms of the capacity to hold aircraft.
Speaker Change: Rick.
Speaker Change: Effort to get it staffed equipped and up and running we did that very quickly we're accommodating many tenants right now.
Robust.
Speaker Change: Operation There and we've got three fields that we've got a staff equipment get standard operating procedures for.
Speaker Change: But also the utility of the anger, I mean, it's, you know, again, we've seen a lot of anger designs over the years. This is by far the most thoughtful we've been able to come up with. And we don't think anything comes close to touching it. We have rapid build our pre engineer availability manufacturer configured.
Speaker Change: In the next two quarters, so we're already well underway on that.
Speaker Change: We will talk about some of the new members of the team.
Speaker Change: The operation side, but just is.
Speaker Change: And I think I use this analogy and the last on.
Speaker Change: to pump exactly this model of hangar out and we expect to achieve very significant economies of scale as we do that.
Speaker Change: On the last call.
Speaker Change: This is an exercise like any growing company, it's an exercise in shifting bottlenecks insight acquisition was the primary bottleneck for a very long time today, we think it's primarily in development and construction operations is next and where we're looking 24 to 36 months ahead.
Speaker Change: On the leasing side, we're under NDA with many of our tenants. We're seeing the questions come in already, and there's some questions about privacy. That's definitely a big piece of it, so we're never going to disclose it.
Speaker Change: Our tenants identities there, of course, free to do it themselves. We don't we don't do that. But what we can say is the premier flight departments in the United States are residents of Sky Harbor. The best flight departments in the country are residents of us. I think we have.
Speaker Change: In terms of staffing and putting processes in place to accommodate that.
Speaker Change: Okay.
Speaker Change: That growth the last thing I'll say on operations. As this has been a quarter. We've spent a lot of time and gleaned a lot of insights.
Speaker Change: What makes our service special why is it that we're commanding such a premium.
Speaker Change: Uh, perhaps.
Speaker Change: Versus <unk> on our rents and why do we have waiting lists on all of our campuses.
Speaker Change: reached a certain threshold in terms of brand awareness within our specific industry, where the most sophisticated decision makers in business aviation understand the utility of the home basing solution versus, for example, living at an SBO.
Speaker Change: A physician out where we're turning people away.
Speaker Change: Which is where we were we had hoped to be a lot of that has to do with the fact that when you don't have a transient business theyre all sorts of service.
Speaker Change: Attributes that you can create and that we think really add tangible value for our.
Speaker Change: The second thing I think it's worth pointing out is the actual revenues from airports.
Speaker Change: Our residents won't get into the now, but if there are questions on it while I'm happy to talk about it.
Speaker Change: where we're exceeding our projections by about 32, 33%.
Speaker Change: Looking ahead.
Speaker Change: I'll say that's.
Speaker Change: in the initial lease up of all of these properties. What we're also beginning to see, and we discussed it a little bit in the press release,
Speaker Change: So kind of our radar at least for purposes of this call is.
Speaker Change: Is pushed out about 12 months.
Speaker Change: is that we're seeing a significant step up in revenue.
Speaker Change: On the <unk> acquisition side.
Speaker Change: <unk>.
Speaker Change: When we renew a lease or replace an existing resident again, we haven't had that many of those It's a little more than a handful at this point
Speaker Change: The metric that we're targeting is revenue capture.
Speaker Change: Which is.
Speaker Change: As I discussed earlier.
Speaker Change: But the the numbers have been pretty consistent. We're marking up at a little over 20%, right? So if you're getting a dollar in rent when that term ends and you release the hanger to a new tenant or to the same tenant, you're getting a dollar twenty.
Speaker Change: Thats rentable square feet time Sky Harbor equivalent rent.
Speaker Change: Focus you focus as you by necessity on specific locations in the country.
Speaker Change: We're looking to pull down the best airports in the country right now I think we have a very good sense of who they are and we're well underway on a lot of those airports are expected expect announcements.
Speaker Change: And I think that is the first, and we'll put out numbers at some point, and we have enough to make it statistically valid, but we can already see it.
Speaker Change: In the near future.
Speaker Change: The Salt Lake City.
Speaker Change: We see this as probably the first empirical demonstration of our thesis on
Speaker Change: His airport number 14 for us It also is.
Speaker Change: inflation.
Speaker Change: Satisfies our guidance of four new ground leases for 2024.
Speaker Change: On airports, right? There's a finite number of airports. You're not going to build new airports, the United States.
Speaker Change: They're already space-constrained. We think we're in one of the most inflationary segments of the U.S. economy, and I think we're beginning to see that in our renewals.
Speaker Change: And we did that in July.
Speaker Change: So.
Speaker Change: We kind of sat down and looked at that together with the pipeline where we see.
Speaker Change: operations. So San Jose was a quick effort to get it staffed, equipped, and up and running. We did that very quickly. We're accommodating many tenants right now. We've got a very robust
Speaker Change: Airports that are in process and decided that we're going to update our guidance.
Speaker Change: Right now we.
Speaker Change: Up until now we've been on course for six additional airports right up to airport number 20 by the end of 2025, we're going to raise that now to eight airports.
Speaker Change: operation there, and we've got three fields that we've got a staff equipped and get standard operating procedures for in the next two quarters. So we're already well underway on that. We'll talk about some of the new members of the team on the operation side, but just as
Speaker Change: So 22 airports by the end of 2025 is our is our new guidance.
Moving on to development.
Speaker Change: Right now, it's about standardization and really maximizing the benefits of economies of scale right now were at the largest hangar development.
Speaker Change: I think I used this analogy in the last...
Speaker Change: On the last call
Speaker Change: Developer in the country, perhaps in the world.
Speaker Change: You know, this is an exercise like any growing company. It's an exercise in shifting bottlenecks. If said acquisition was.
Speaker Change: Some real opportunities that come with that I don't think we're quite right.
Speaker Change: We're quite at the place where we've maximized the.
Speaker Change: The primary bottleneck for a very long time today, we think it's it's primarily in development and construction operations is next. And we're, we're, we're looking, you know, twenty four, thirty six months ahead. In terms of staffing and putting processes in place to accommodate that.
Speaker Change: The efficiencies that can be gained from that but that's the objective.
Speaker Change: Now and we'll be looking for opportunities to introduce Steve Martinez and Dave Sherman, They're both both mentioned in the press release.
Speaker Change: As key leaders on the development and construction team that are going to push push that effort of standardization forward.
Speaker Change: The last thing I'll say on operations is that this has been a quarter where we've spent a lot of time and gleaned a lot of insights.
Speaker Change: On the leasing side, so that brand awareness is a key thing for US we don't have a marketing department, we haven't really engaged and active marketing.
Speaker Change: And what makes our service special? Why is it that we're commanding such a premium?
Speaker Change: versus FBOs on our rents, and why do we have waiting lists on all of our campuses? We're at a position where we're turning people away, which is where we had hoped to be. A lot of that has to do with the fact that when you don't have a transient business, there are all sorts of services.
Speaker Change: <unk> done what we do.
Speaker Change: And I think word of mouth has probably been our strongest.
Speaker Change: Competitor or our aircraft owners.
Speaker Change: Nick off before anybody from arrivals to the airport to wheels up you will have the shortest time at Sky Harbor.
Speaker Change: attributes that you can create and that we think really add tangible value for our residents. Won't get into them now but if there are questions on it we'll be happy to talk about it.
And there are a lot of reasons behind that but if you are flying a $50 $60 $70 million jet.
Speaker Change: That time is quite critical I think for many people you can look at your airplane as a time machine. It really is is that.
Speaker Change: Looking ahead...
Speaker Change: Why wouldn't you has it in a way that you can maximize its utility and I think that's been one of the key attributes again I see in the questions that are coming in.
Speaker Change: So, kind of our radar, at least for purposes of this call, is pushed out about 12 months. On the site acquisition side, the
Speaker Change: It's about privacy security I mean, these are all attributes that we can deliver in a way that nobody else can.
Speaker Change: The metric that we're targeting is revenue capture.
Speaker Change: But what we've been focusing on.
Speaker Change: right, which is a, as I discussed earlier, that's rentable square feet times Sky Harbor equivalent rent.
Speaker Change: Up until now is that time to build up and I think that's showing and again I think it's part of the appeal of Sky Harbor to new residents.
Speaker Change: which focuses you by necessity on specific locations in the country.
Speaker Change: There's also a lot of unmet need on the airport sponsor side.
Speaker Change: We are looking to pull down the best airports in the country right now. I think we have a very good sense of who they are and we're well underway on a lot of those airports, so expect announcements in the near future.
Speaker Change: And that we are taking a box.
Speaker Change: I think other types of <unk>.
Speaker Change: Developers are tenants on airports are not are not ticking and again, we haven't really marketed this in any deliberate or a proactive way.
Speaker Change: Salt Lake City.
Speaker Change: is airport number 14 for us. It also...
Speaker Change: But I think awareness of Sky Harbor and the airport community is.
Speaker Change: Is satisfies our guidance of four new ground leases for twenty twenty four in we did that in July. So, we kind of sat down and looked at that together with the pipeline where we see.
Speaker Change: Exactly where we would hope it would.
Speaker Change: It would be.
Speaker Change: And then lastly on operations.
Speaker Change: For a while and interesting things and things are growing fast and went from three campuses to four campuses in spot to be seven campuses.
Speaker Change: You know, airports that are in process and decided that we're going to update our guidance right now. We.
Speaker Change: Operating.
Speaker Change: Simultaneously the focus is is.
Speaker Change: 100% Omni Sky Harbor resident right, if we maybe thought three or four years ago that we're a real estate developer.
Speaker Change: Up until now, we've been on course for six additional airports, right, up to airport number 20. By the end of 2025, we're going to raise that now to eight airports. So 22 airports by the end of 2025 is our new guidance.
Speaker Change: We're also real estate developer, but where an operator and it's very important that we that we don't lose side of that we're delivering value to Scarborough residents that we don't think anybody else can deliver and we keep coming up with better ways to do that.
Speaker Change: Moving on to development.
Speaker Change: Right now, it's about standardization and really maximizing the benefits of economies of scale, right? Right now, we're the largest hangar developer in the country, perhaps in the world. There are some real opportunities that come with that. I don't think we're quite there yet.
Speaker Change: And to do it at.
Speaker Change: At scale.
Speaker Change: With that we don't have them on the call yet he will be on the next next earnings call.
Speaker Change: Really excited to announce Marty Kretchman as our senior Vice president of airports.
Speaker Change: We're quite at the place where we've maximized.
Speaker Change: Marty spent most of his career at.
Speaker Change: The efficiencies that can be gained from that, but that that's the objective right now. And we'll be looking for opportunities to introduce Steve Martinez and Dave Sherman. They're both both mentioned in the, in the press release.
Speaker Change: Signature.
Speaker Change: Just a fantastic addition to the team and is his focus is specifically on airports and with and partnerships with <unk> with other people in the.
Speaker Change: as key leaders on the development and construction team that are going to push that effort of standardization forward.
Speaker Change: The aviation community.
Speaker Change: And then finally something that we've been.
Speaker Change: I think.
Speaker Change: Is kind of been a peripheral activity for us which is additional revenue streams were up until now the <unk>.
Speaker Change: On the leasing side, so that brand awareness is a key thing for us, we don't have a marketing department, we haven't really engaged in active marketing, we've just done what we do, and I think word of mouth has probably been our strongest.
Speaker Change: Vast majority of our focus has been on putting more dots on the map are not taking our foot off the gas at all on that.
Speaker Change: But now that we have Marty on board, we are looking to start developing those additional revenue streams through services that we're going to provide on the.
Speaker Change: competitor. Our aircraft owners take off before anybody. From arrival to the airport to wheels up, you will have the shortest time at Sky Harbor. And there are a lot of reasons behind that, but if you're flying a 50, 60, 70 million dollar jet.
Speaker Change: On the campuses.
Speaker Change: Okay.
Speaker Change: With that.
Speaker Change: I think we go to questions. Thank you. This concludes our prepared remarks, we now look forward to your questions. Operator. Please go ahead with the queue.
Speaker Change: that time is quite critical. I think for many people you can look at your airplane as a time machine. It really is that.
Speaker Change: At this time I would like to remind everyone in order to ask a question. Please submit it online using the webcast you are all well pause for just a moment to compile the Q&A roster.
Speaker Change: Why would you have it in a way that you can maximize its utility? And I think that's been one of the key attributes again. I see in the questions that are coming in
Phillip Bristow: Our first question is from Phillip Bristow, great quarter, what are your thoughts about broadening the float to mitigate against future potential selling from Boston Omaha, and I'll tie.
Speaker Change: Questions about privacy, security, I mean, these are all attributes that we can deliver in a way that nobody else can, but what we've been focusing on up until now is, is that time to wheels up? And I think we're that's showing. And again, I think it's part of the appeal of a Sky Harbor to new residents.
Speaker Change: And we're not able to hear a response speakers or youre on the line.
Speaker Change: There's also a lot of unmet need on the airport sponsor side.
Speaker Change: And that we are ticking a box that I think other types of developers or tenants on airports are not ticking. And again, we haven't really marketed this in any deliberate or proactive way.
Speaker Change: But I think, you know, awareness of Sky Harbor in the airport community is, you know, exactly where we would hope it would be.
Speaker Change: And then, lastly, on operations.
Speaker Change: You know, for a while, and I think things are growing fast went from 3 campuses to 4 campuses and it's about to be 7 campuses operating simultaneously. The focus is is.
Speaker Change: I apologize, but there is a slight delay in today's meeting please hold and the line will resume momentarily. Please do not disconnect. Thank you so much for your patience.
Speaker Change: You know, 100% on the Sky Harbor resident, right? If we maybe thought 3 or 4 years ago that we're a real estate developer.
Speaker Change: Yeah.
Speaker Change: Yeah, we're also a real estate developer, but we're an operator and it is it's very important that we that we don't lose sight of that We're delivering value to Sky Harbor residents that we don't think anybody else can can deliver and we keep coming up with better ways to do that And to do it as at scale
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: With that, we don't have him on the call yet. He will be on the next earnings call.
Marty Kreshman: I'm really excited to announce Marty Kreshman as our Senior Vice President of Airports.
Speaker Change: Yes.
Speaker Change: Marty spent most of his career at Signature, just a fantastic addition to the team and his focus is specifically on airports and partnerships with FBOs, with other people in the aviation community.
Phillip Bristow: We will now resume the meeting and our first question is from Phillip Bristow great quarter, what are your thoughts about broadening the float.
Speaker Change: And then, finally, something that we've been, I think...
Speaker Change: To mitigate against future potential selling from Boston, Omaha, and I'll tie.
Speaker Change: has kind of been a peripheral activity for us, which is additional revenue streams.
Speaker Change: Okay. Thank you a feel for.
Speaker Change: So participating in your question.
Speaker Change: where up until now, you know, the vast majority of our focus has been on putting more dots on the map.
Speaker Change: Yes.
Speaker Change: We are conscious of.
Speaker Change: We're not taking our foot off the gas at all on that, but now that we have Marty on board, we are looking to start developing those additional revenue streams through services that we're going to provide on the on the campuses.
The limited float of our stock.
Speaker Change: And our plans.
Speaker Change: You.
Speaker Change: To address that.
Speaker Change: A grin by the fact that over time M S.
Speaker Change: With that.
Speaker Change: As we do.
Speaker Change: [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: I think we got the questions. Thank you, Tal. This concludes our prepared remarks. We now look forward to your questions. Operator, please go ahead with the queue.
Speaker Change: Hi.
Speaker Change: When he'd be right milestones in terms of our progress.
Speaker Change: Right time will come.
Speaker Change: At this time, I'd like to remind everyone in order to ask a question, please submit it online using the webcast URL. We'll pause for just a moment to compile the Q&A roster.
Speaker Change: To address that through.
Speaker Change: Organized.
Speaker Change: Equity offerings that will increase the float.
Speaker Change: i
Speaker Change: Of our of our trading a we don't expect a we will do that.
Philip Rousseau: Our first question is from Philip Rousseau. Great quarter. What are your thoughts about broadening the float to mitigate against future potential selling from Boston, Omaha and Altai?
Speaker Change: For quite some time is definitely a non within the next 12 months.
Speaker Change: In the meantime, though us.
Speaker Change: Sky Harbour Group
Speaker Change: Some of the investors who have.
Speaker Change: But dissipated in in our equity stock in the past trade our stock obviously flowed.
Speaker Change: Sky Harbour Group
Speaker Change: It will increase now let me just comment.
Speaker Change: And we're not able to hear a response. Speakers, are you on the line?
Speaker Change: We don't really want to comment on what some of our shareholders do they actually were not privy to what azamara shareholders do in terms of their stock trading.
Speaker Change: you I apologize but there is a slight delay in today's meeting please hold and the line will resume
Speaker Change: In the case of outside go up we will know that out by led.
Speaker Change: Paid that would be last November is going through a SPV.
Speaker Change: A special purpose vehicle and I think the sales that was reported.
Speaker Change: The marketplace logistically breaking up of Venice, BBB and the allocation of the shares to all the participating pipe investors. So thousands of not truly a sale in with just a distribution to the ultimate investors.
Speaker Change: Some of them who can.
Speaker Change: Continue solving why I see participate on this call who have.
Speaker Change: Express interest to continue investing in Sky Harbor, So we'll look on that.
Speaker Change: momentarily. Please do not disconnect. Thank you so much for your patience.
Speaker Change: Comes up most of them are.
Speaker Change: We did see a small sale by them.
Speaker Change: We we are continuing discussions with them and they have reiterated to us there.
Speaker Change: I threw us long term investors and holders of Sky Harbor.
Speaker Change: So any further questions on the day to day business with our share should be directed to them and again. They have returned to us there there'll be UN amongst debentures have been.
Speaker Change: The holder of the company.
Speaker Change: Next question.
John Glass: Our next question is from John Glass is the SJC lease profitable today, given the high rent is it profitable at 100% occupancy.
Speaker Change: Sky Harbour Group
John Glass: Hey, John itself. Thank you for the question, yes. It is it is profitable today.
Speaker Change: i
Philip Rostow: We will now resume the meeting, and our first question is from Philip Rostow. Great quarter. What are your thoughts about broadening the float to mitigate against future potential selling from Boston Omaha and Altai?
Speaker Change: We don't really think in terms of 100% occupancy there is no it doesn't.
Speaker Change: No specific cap to the revenue potential of an airport remember we're also taking fuel margin.
Speaker Change: Hey, thank you, Phil, for participating and your question.
Speaker Change: With with our residents we have all sorts of as I think we discussed on the last earnings call semi private hangar arrangements, where we achieved significantly greater than 100% occupancy. So yes. So at San Jose is insignificantly profitable already today.
Speaker Change: Yes, we are conscious of
Speaker Change: The limited flow of our stock and our plans to address that, are driven by the fact that over time, as we do
Speaker Change: And there is still upside potential at that airport. The last thing I'll say on that is you know again, we're starting to quantify this 20% average.
Speaker Change: we hit the right milestones in terms of our progress, the right time will come to address that through.
Speaker Change: Markup a premium on a renewed lease or replace lease that's one of the places we're always there it's not where we're staggering our lease terms. So it's not like everybody's on a five 710 year lease we have people now in one and two year leases as well and what we're finding is when those come to term we have a significant.
Speaker Change: you know, organized equity offerings that will increase the float of our trading. We don't expect...
Speaker Change: And we will do that up to quite some time. It definitely a non within the next 12 months.
Speaker Change: Opportunity to to raise revenue from from that airport.
Speaker Change: In the meantime, though, as some of the investors who have participated in our equity stack in the past.
Alan <unk>: Our next question is from Alan <unk> with signature in Atlanta, and other large FBR compete against Sky Harbor by offering tenants a hanger price combined with the steel discount how does Sky Harbor plan to compete with just a hanger and having to negotiate with the major FBL for a fuel discount.
Speaker Change: trader stock or should we float
Speaker Change: will increase.
Speaker Change: Now, let me just comment if, you know, we don't really want to comment on what
Speaker Change: some of our shareholders do, they actually bring a preview to what some of our shareholders do in terms of their stock trading. In the case of Alptype though, we will know that Alptype led the pie that we did last November. They did it through an SPV.
Speaker Change: Airport commissions are not handing out fuel farms.
Alan <unk>: Hangars without going stealing latest Sky Harbor at a disadvantage, especially of signature offers their tenants at discounted price at every signature location.
Speaker Change: a special purpose vehicle. And I think the sale that was reported in the marketplace was just the breaking up of that SPV and the allocation of the shares to all the participating pipe investors. So that was not truly a sale. It was just a distribution to the ultimate investors.
Speaker Change: Question Alan Thanks for the question Alan and style again.
Speaker Change: Yes, a couple of things first we do offer fuel.
Alan <unk>: So.
Speaker Change: In that sense, what distinctions between us and an F. B O primarily is that we don't we don't have transient customers or who are only based tenants, but we do provide them with fuel and you're right to assume that total basin costs should be the metric that guide at least your your price analysis or cost analysis.
Speaker Change: Some of them who continue, some of them who I see participating in this call and who have expressed interest to continue investing in Sky Harbor. So we welcome that. In terms of Barcelona, you know, we did see a small sale by them. You know, we are in discussion with them, and they have reiterated to us their stature as long-term investors and holders of Sky Harbor. So any further questions on their day-to-day activities with our shares should be directed to them. But again, they have reiterated to us their view and long-term interest of being a shareholder of the company.
Alan <unk>: Being at an airport the two biggest components of which are rent and fuel.
Alan <unk>: But we're both us and the F. B hoes are in that game. There is not a lever that we have that they don't have and vice versa. What I will say, though is the.
Speaker Change: The FPL business is fundamentally a fuel business and it's about transient customers. Yes. There are based tenants that nephew on their beta is who should be it in <unk> were not the right fit for every tenant.
Speaker Change: We are the premier offering of business aviation full stop we are the front row and kind of floor seats.
Speaker Change: Next question.
Speaker Change: At the NBA game, there is only one front row and it does so.
John Blaze: Our next question is from John Blaze, is the SJC lease profitable today given the high rent? Is it profitable at 100% occupancy?
Speaker Change: So I think the market shakes out kind of naturally between us and the SCO industry, they've got their focus they've got us we do compete at the margins, but it's not one for one competition with elite with the Ipos.
John Blaze: Hey, John, it's Tom. Thank you for the question. Yeah, it is. It is profitable today. You know, we don't really think in terms of 100% occupancy. There is no, there's no specific cap.
Speaker Change: I think you can recognize that or see that yeah, its demonstrated quite well and our multiple.
Speaker Change: Joint ventures in cooperation with the F. B O S. Alright, we do work well quite quite well with with the IPO, specifically with with signature so.
John Blaze: to the revenue potential of an airport. Remember, we're also taking fuel margin today.
Speaker Change: Uh, with with our residents, we have all sorts of, I think we discussed on the last earnings call.
Speaker Change: So I think theres, some natural synergies to be found there as well, but again the offering is fundamentally different between Sky Harbor, Homebase thing and the NFPA offering.
Speaker Change: semi-private hangar arrangements where we achieve significantly greater than 100% occupancy. So yes, San Jose is significantly profitable already today, and there is still upside potential at that airport. The last thing I'll say on that is, you know, again, we're starting to quantify this.
Speaker Change: Okay.
Speaker Change: Our next question is from John Glass with your goal of IAG and the SCR cast the beginnings in for Q, how would raising an additional $150 million be possible.
Speaker Change: 20% average.
Speaker Change: Thank you John for your question.
Speaker Change: markup or premium on a renewed lease or replaced lease.
Speaker Change: It's a very nuance question, but I'm glad you asked this.
Speaker Change: That's one of the places where we're staggering our lease terms. It's not like everybody's on a 5, 7, 10-year lease. We have people now on one and two-year leases as well.
Speaker Change: We are very protective of our bondholders.
Speaker Change: Bondholder investors that participated in the in the first.
Speaker Change: Issuance in.
Speaker Change: 821 it.
Speaker Change: And what we're finding is when those come to term, we have a significant opportunity to raise revenue from that airport.
Speaker Change: It is a program, meaning the obligated group is a program there are a couple of older programs out there by.
Speaker Change: Two or three other insurers.
Speaker Change: You
Speaker Change: <unk>.
Speaker Change: Most of the cargo space and we intend over time to make it a program to be able to accelerate the investment grade ratings.
Speaker Change: i
Alan Radlow: Our next question is from Alan Radlow. If Signature and Atlantic and other large FBOs compete against Sky Harbor by offering tenants a hangar price combined with a fuel discount, how does Sky Harbor plan to compete with just a hangar and having to negotiate with a major FBO for a fuel discount?
Speaker Change: Chewing a boundary rings for for the existing senior bondholders, our goal and strategy eastern until the next issuance.
Alan Radlow: Airport commissions are not handing out fuel farms. Offering hangers without owned fueling places Sky Harbor at a disadvantage. Especially if Signature offers their tenants a discounted price at every Signature location.
Speaker Change: Outside.
Speaker Change: And apart from these new senior bonds.
Speaker Change: And that way protect.
Speaker Change: The crown bondholders from.
Speaker Change: Colin Mcrae dilution, all adding or construction projects to tune the portfolio and all the English a few years from now when the new projects and therapy, Nance and with our next debt offering.
Alan Radlow: Thanks for the question, Alan. It's Tal again.
Speaker Change: A couple of things. First, we do offer fuel.
Speaker Change: So
Speaker Change: In that sense, what distinction between us and an FBO primarily is that we don't have transient customers who are only base tenants, but we do provide them with fuel. And you're right to assume that total basing costs should be the metric that guides at least your price analysis, your cost analysis.
Speaker Change: Reached stabilization dam that will be the appropriate time.
Speaker Change: To collapse everything into the into the growing program and sustain those investment grade ratings and coverage ratios that we seek.
Speaker Change: But again very nuanced point, but very important point, especially for our bondholders will participate and also on this call.
Speaker Change: being in an airport, you know, the two biggest components of which are rent and fuel. But we're, both us and the FBOs are in that game. There's not a lever that we have that they don't have and vice versa. What I will say though is
Speaker Change: My question.
Matthew Howlett: Our next question is from Matthew Howlett with the bond deal Youre contemplating how should we be thinking about leverage going forward. Prior framework suggested a 70 30 debt to equity split should we be thinking about with equity capital needs going forward and consequentially higher roe's are longer term.
Speaker Change: The FBO business is fundamentally a fuel business.
Speaker Change: and it's about transient customers. Yeah, there are base tenants at an FBO and there are base tenants who should be at an FBO. We're not the right fit for every tenant. We are the premier offering of business aviation full stop.
Speaker Change: Okay.
Speaker Change: Yes, Matt. Thank you for your question on the end for your following of our Sky Harbor.
Speaker Change: We are the front row because floor seats at the NBA game. There is only one front row and it's us.
Speaker Change: Those 70 30 is still the right way of thinking about our leverage target.
Speaker Change: So, I think the market shakes out kind of naturally between us and the FBO industry. They've got their focus. They've got ours. We do compete at the margins, but it's not one-for-one competition with the FBOs.
Speaker Change: And especially in <unk>.
And even if we do what we mentioned in terms of having in the next set of a dead to be outside.
Speaker Change: And I think you can recognize that or see that it's demonstrated quite well in our multiple joint ventures and cooperations with the FBOs. We do work quite well with the FBOs, specifically with Signature.
Speaker Change: The existing.
Speaker Change: Altogether group, but I think over time back to my earlier comment about this being a program.
Speaker Change: I will say that the third issuance.
Speaker Change: That comes a couple of years on the road is likely to be higher than 70%, while the critical things of all of these.
Speaker Change: So I think there's some natural synergies to be found there as well. But again, the offering is fundamentally different between Sky Harbor Home Basing and an FBO offering.
Speaker Change: Group program.
Speaker Change: <unk> achieves gets more sublease Asia more maturity that he will provide adequate coverage torches and bondholders and allow us to ever increase a deleverage to give you. An example, some of the programs that are in existence out there that are a triple b rated a.
John Blaise: Our next question is from John Blaise, with your goal of IG and DSCR tests beginnings in 4Q, how would raising an additional 150 million dollars be possible?
Speaker Change: Thank you John for your question. It's a very nuanced question but I'm glad you asked this. You know we are very protective of our fund holder investors that participated in the in the first
Speaker Change: When it comes to my mind that these are less issuance at 95% leverage why because over time.
Speaker Change: As all of these properties that we're constructing cash flow and there is nothing inherent credit strength.
Speaker Change: issuance in 2021. It is a program, meaning the obligated group is a program. There are a couple of other programs out there by.
Speaker Change: This.
Speaker Change: Borrowing programs that will allow you to then incrementally a new financings at ever increasing leverages and thus have the impact.
Speaker Change: two or three other issuers, mostly in the cargo space.
Speaker Change: And we intend, over time, to make it a program. But to be able to accelerate the investment-grade ratings, achieving investment-grade ratings for the existing senior bondholders, our goal and strategy is to do the next issuance
Speaker Change: On the Roe's.
Speaker Change: Anybody.
Speaker Change: Keeping the company of the relationship between return on assets, our leverage and return on equity will understand how important.
Speaker Change: Our borrowing program is to achieve the 30% plus are always on the unit economics that we continue to pursue.
Speaker Change: outside and apart from the senior bonds.
Speaker Change: Next question.
Speaker Change: and that way protect the current bondholders.
Speaker Change: Our next question comes from Connor K, how do you see the lifecycle of lease signing through stabilized revenue as you increase the number of campuses. For example, do we expect the permitting and construction timeline to be quicker for campus number 15 versus campus number eight.
Speaker Change: Bye.
Speaker Change: a credit dilution or adding or construction projects.
Speaker Change: to the portfolio.
Speaker Change: And only in a few years from now, when the new projects that are financed with our next debt offering reach stabilization.
Speaker Change: Yes, it's cell counter great great question, Thanks for that.
Speaker Change: then that will be the appropriate time.
Speaker Change: Let me start with this all of our projections everything you see does not take one was about to say to account because we don't know exactly how effective it is gonna be however.
Speaker Change: to collapse everything into the growing program and sustain those investing rate ratings and coverage ratios that we seek. But again, very nuanced point, but very important point, especially for our bondholders who are participating also on this call. Next question.
Speaker Change: That is absolutely the objective is to constantly work on.
Speaker Change: Hey, getting our construction costs down be getting timeframe that you're you identified here down as much as possible some of the steps that we're taking here.
Matthew Howlett: Our next question is from Matthew Howlett. With the bond deal you're contemplating, how should we be thinking about leverage going forward? Prior framework suggested a 70-30 debt-to-equity split. Should we be thinking about less equity capital needs going forward and consequentially higher ROEs longer term?
Speaker Change: First of all we've been looking at site acquisition and development is two discrete activities.
Speaker Change: With a handoff.
Speaker Change: How we look at it anymore and so as we as we progress the entitlements process starts significantly before we actually sign a ground lease.
Matthew Howlett: Yes, Matt, thank you for your question and for your following of Sky Harbor.
Speaker Change: One thing that we haven't seen the fruits of that quite yet we will see how effective that is over time.
Matthew Howlett: I believe 730 is still the right way of thinking about our leverage target.
Speaker Change: We have key people, who we have key roles that didn't exist before and Sky Harbor.
Speaker Change: And especially, you know, if we do what we mentioned in terms of having the next set of dead.
Speaker Change: For example, Preconstruction pre development roles, where we are.
Speaker Change: We're working for it and then perhaps most importantly.
Speaker Change: to be a outside.
Speaker Change: There's no rocket science of what we do here, it's a very simple business, but there is a thousand little color tricks of the trade.
Speaker Change: the existing obligatory group.
Speaker Change: But I think over time, back to my earlier comment about this being a program.
Speaker Change: As far as I'm, saying, the only way you can lend them is through experience.
Speaker Change: I will say that the third issuance
Speaker Change: and when that comes, you know, a couple of years down the road, it's likely to be higher than 70%. You know, one of the critical things of this over-the-air group program, and as it achieves more civilization, more maturity,
Speaker Change: So each time, we go through another one of these entitlement processes, we get a little bit sharper a little bit better.
Speaker Change: What we're doing.
Speaker Change: The last thing I'll say on that is.
Speaker Change: We think one of the benefits of the prototype hangar decide.
Speaker Change: Is it.
Speaker Change: It gives the approval process.
Speaker Change: that it will provide adequate coverage to autism bondholders and allow us to ever-increase the leverage.
Speaker Change: Will boost in that if you've got exactly the same design approved by 15 different fire departments across the country.
Speaker Change: To give you an example, some of the programs that are in existence out there that are triple B rated, one comes to my mind that did their last issuance at 95% leverage.
Speaker Change: The 16th one is I think an easier time digesting exactly what it is they also get much better at communicating exactly what the features of our of our anchors are.
Put all of those together maybe a few other efforts that we have underway again, none of that is really accounted for in the projections that we put out but it's certainly the ambition. So thanks for the question exactly.
Speaker Change: Why? Because over time...
Speaker Change: As always.
Speaker Change: properties that we're constructing cash flow.
Speaker Change: There's an inherent credit.
Speaker Change: strength these borrowing programs that will allow you to then incrementally do financings at ever-increasing leverages and thus have the impact on our ROEs.
Speaker Change: That's definitely a focus of ours today.
Speaker Change: Our next.
Peyton scale: <unk> comes from Peyton scale, what is the steady state capacity for number of days as in development at once.
Peyton scale: Yeah, it's telling you thanks, thanks for that.
Speaker Change: keeping the relationship between return on assets, our leverage and return on equity, we'll understand how important a borrowing program is to achieve the 30% plus ROEs on the unique economics that we continue to pursue.
Speaker Change: I don't know that there is a steady state capacity, we like I said before.
Speaker Change: The intention is never never just slow down on site acquisition, we never want to let the bottleneck whatever the bottleneck is at the moment dictate the pace of our growth we're going to open the bottlenecks. So.
Speaker Change: Next question.
Speaker Change: Our next question comes from Connor Kay. How do you see the life cycle of lease signing through stabilized revenue as you increase the number of campuses? For example, do we expect the permitting and construction timeline to be quicker for campus number 15 versus campus number 8?
Speaker Change: Right now, we're developing 10 airports in parallel.
Speaker Change: Can we develop 20 airports in parallel today no I don't think we can.
Speaker Change: One that becomes a challenge we will be able to develop 20 airports in parallel that's exactly.
Speaker Change: Yeah, it's how kind of a great, great question. Thanks for that.
Speaker Change: That's exactly the analogy of moving bottlenecks.
Speaker Change: Let me start with this, all of our projections, everything you see does not take what I'm about to say into account, because we don't know exactly how effective it's going to be. However,
Speaker Change: That had been using on all of these quarterly calls.
Speaker Change: Our next question comes from Francisco <unk> two questions. One you mentioned development as your current bottleneck at the company in general to the ground leases you execute have a deadline by which you must build out the improvements.
Speaker Change: That is absolutely the objective, is to constantly work on A, getting our construction costs down and B, getting the time frame that you're identified here down as much as possible. Some of the steps that we're taking here.
Francisco <unk>: You are you now targeting shorter leases due to the recent success and release renewals. How do you think about the tradeoff between short lease upside versus revenue visibility, perhaps if you could put it in context of leasing strategy for upcoming properties, such as API and DVT. Thank you.
Speaker Change: First of all, we've been looking at site acquisition and development as two discrete activities.
Speaker Change: With a handoff.
Speaker Change: That's not how we look at it anymore as we as we progress the entitlements process starts
Speaker Change: Alright printer.
Speaker Change: Very insightful questions and I know our own Francisco is going to want to take a crack at the second one as well, but I'll just say the following.
Speaker Change: significantly before we actually sign the ground lease.
Speaker Change: That's one thing. Again, we haven't seen the fruits of that quite yet. We'll see how effective that is over time.
Speaker Change: In terms of deadlines typically no bright the performance requirements on ground leases at airports tend to be relatively lax that doesn't mean, we ever want to slow down, but you're right. There is not.
Speaker Change: We have key people who we have key roles that didn't exist before in Sky Harbor, for example, pre pre construction, pre development roles. We're, we're, we're, we're working for it. And then, you know, perhaps most importantly.
Francisco: If I understand your question right, there's not really a gun to our heads.
Speaker Change: There's no rocket science to what we do here, it's a very simple business, but there's a thousand little tricks of the trade.
Speaker Change: We signed a ground lease says there's plenty of time to develop again, it's in our interest in all of our shareholders interest that we develop as quickly as possible, but that pressures not not coming from the airport.
Speaker Change: As far as I've seen, the only way you can learn them is through experience.
Speaker Change: So, each time we go through another 1 of these entitlement processes, we get a little bit sharper, a little bit better of what we're doing. And then the last thing I'll say on that is.
Speaker Change: The second piece I mean, it's a yes and I know there are a lot of bondholders on the call and I think you're highlighting a very important tension.
Speaker Change: Perhaps between between our bondholders and our stock holders.
Speaker Change: We think one of the benefits of the prototype hangar design
Speaker Change: is it gives the approval process.
Speaker Change: But I think that tension is.
Speaker Change: A real boost in that if you've got exactly the same design approved by, you know, 15 different fire departments across the country. The 16th, 1 has, I think, an easier time digesting exactly what it is. We also get much better at communicating exactly what the features of our of our hangers are.
Speaker Change: Is pretty easily resolved here in that.
Speaker Change: Stagger the lease terms of our tenants right, we never want to be in a situation, where we have a third of our campus.
Speaker Change: <unk> to maturity in a single year, we never want to be in that situation.
Speaker Change: I also want to remind everybody when we open a campus, we're putting more hangar square footage onto a market at a single.
Speaker Change: Put all of those together and maybe a few other efforts that we have underway. Again, none of that is really accounted for in the projections that we've put out, but it's certainly the ambition. Thanks for the questions. Definitely a focus of ours today.
Speaker Change: Moment that has ever been done before and in most cases in most most markets.
Speaker Change: S.
Speaker Change: Don't don't open 200000 square feet of hangar in one shot.
Peyton skill: Our next question comes from Peyton Skill. What is the steady-state capacity for a number of phases in development at once?
Speaker Change: Which gives us a significant disadvantage.
Speaker Change: Just pricing leverage right, we've got a lot of product that comes off the market.
Peyton skill: Yeah, thanks for that. You know, I don't know that there is a steady state capacity. We, you know, like I said before,
In one time and I think there are ways for us to address that over time, but what it means is the first round of leasing is not really where you discover the market price of Sky Harbor Homebase thing. It's the second route right. So I think airport inflation is one of the factors that led to that 20% Mark up.
Peyton skill: The intention is never, never to slow down on-site acquisition. We never want to let the bottleneck, whatever the bottleneck is at the moment, dictate the pace of our growth. We're going to open the bottlenecks.
Speaker Change: Another factor is exactly that is that we're not trying to lease 150 or 200000 square feet on the second round.
Speaker Change: And you do want we believe we do lock in a certain number of cases on every campus to to reach that second round earlier in the process. We don't want all your leases to be 10 years of law. So we well we do appreciate the revenue visibility because.
Peyton skill: So, you know, if right now we're developing 10 airports in parallel.
Peyton skill: You know, can we develop 20 airports in parallel today? No, I don't think we can. When that becomes the challenge, we will be able to develop 20 airports in parallel. That's exactly, you know, that's exactly the analogy of moving bottlenecks that I've been using on all these quarterly goals.
Speaker Change: Of those 10 year leases with high credit tenants, that's great. It doesn't have to be the entire campus.
Francisco: Also want to point out that the revenue performance on these campuses has been so much better than we projected Francisco was alluding to the coverage ratios on our bonds.
Peyton skill: Our next question comes from Francisco Brugueras.
Francisco Brugueras: Two questions. One, you mentioned development as your current bottleneck as a company. In general, do the ground leases you execute have a deadline by which you must build out the improvements? And two, are you now targeting shorter leases due to the recent success in release renewals? How do you think about the trade-off between short lease upside versus revenue visibility?
Speaker Change: Now that we're achieving those coverage ratios way before we're 100% lease at these these campuses, which gives you a little bit of latitude to sort of so to speak have your cake and eat it too meaning.
Speaker Change: Address the needs of our bondholders and our.
Speaker Change: Perhaps if you could put in context of leasing strategy for upcoming properties, such as APA and DBT. Thank you.
Speaker Change #100: Equity holders.
Francisco: At the same time so fundamentally this is the short answer to your question is staggering, but francisco.
Francisco: Is there anything that was a complete answer well that is.
Speaker Change #101: The following I think we will when the time comes in next year, and where we're facing the rating agencies.
Speaker Change: In terms of deadlines, typically no, right? The performance requirements on ground leases at airports tend to be relatively lax. That doesn't mean we ever want to slow down, but you're right. There's not, if I understand your question right, there's not really a gun to our heads.
Speaker Change #102: Have to show them and prove to them that what's better for both bondholders.
Speaker Change #102: We definitely know it's better for our equity holders, but also for bondholders, what's better to have.
Speaker Change #102: A very few tenants with a very long it lease it or to have it.
Speaker Change: once we've signed a ground lease. So there's plenty of time to develop. Again, it's in our interest and all of our shareholders' interest that we develop as quickly as possible, but that pressure is not coming from the airport.
Speaker Change #102: As a vacation of tenants with.
Speaker Change #102: With shorter leases that we haven't we can show and prove to them that every time, they get renewed and released.
Speaker Change: On the second piece, I mean, it's a, yeah, and I know there are a lot of bondholders on the call, and I think you're highlighting a very important tension, perhaps, between our bondholders and our stockholders.
Speaker Change #103: The rate of growth.
Speaker Change #103: As our recent experience and by when this including our recent press release that we just filed and the recent renewals and replacements and basically allowed us to increase our rents by 32% and we say that again three 2% on those hangars that were renewed or released a or replaced.
Speaker Change: but I think that tension is pretty easily resolved here in that.
Speaker Change: We stagger the lease terms of our tenants, right? We never wanna be in a situation where we have, you know, a third of a campus, you know, coming to maturity in a single year. We never wanna be in that situation.
Speaker Change #103: And then we just disclosed.
Speaker Change #103: An hour ago, so over time.
Speaker Change #104: 2000, and your point.
Speaker Change #105: I think the range will determine if we have the right diversification tests.
Speaker Change: I also kind of want to remind everybody, when we open a campus, we're putting more hangar square footage onto a market at a single.
Speaker Change #104: Right.
Speaker Change #104: In terms of our Telerik presentation that the we will with higher coverage.
Speaker Change: moment that has ever been done before, in most cases, in most markets. SBOs don't open 200,000 square feet of hangar in one shot.
Speaker Change #106: <unk> offset the fact that we have a shorter average lives of 10 leases then it will be the case for other comparable funding programs out there that may have 2030 year tenant leases or they haven't been high concentration.
Speaker Change: which gives us a significant disadvantage on just...
Speaker Change: pricing leverage, right? We've got a lot of product that comes onto the market in one time. I think there are ways for us to address that over time.
Speaker Change #109: Tenants anyway, moving to the next question.
Speaker Change: But what it means is the first round of leasing is not really where you discover the market price of Sky Harbor home basing. It's the second round, right? So I think airport inflation is one of the factors that's led to that 20% markup. Another factor is exactly that is that we're not trying to lease 150 or 200,000 square feet on the 2nd round.
Speaker Change #106: Our next question comes from John Blake can you. Please explain the rationale for the New York and Connecticut area airports.
Speaker Change #106: Yes, so when we talked about it revs.
Speaker Change #110: Revenue capture.
Speaker Change: And you do want, we believe you do want in a certain number of cases on every campus to reach that second round earlier in the process. You don't want all your leases to be 10 years long. So, we, well, you know, we do appreciate the revenue visibility.
Speaker Change #108: Meaning square footage times revenue per square foot.
Speaker Change #108: Location is is the key driver I mean, this kind of let's just dial it back for a minute to just unit economics.
Speaker Change #107: The metric that we target for unit economics as yield on costs as any real estate developer should.
Speaker Change: of those 10-year leases with high credit tenants, that's great. It doesn't have to be the entire campus. I also want to point out that the revenue performance on these campuses has been so much better than we projected. Francisco was alluding to the coverage ratios on our bonds.
Speaker Change #107: What I would argue is that.
Speaker Change #107: All of the action in yield on cost is in the numerator.
Speaker Change #107: The denominator being development cost and Opex to development cost varies within a pretty finite range across the country right. It's not like.
Speaker Change: That we're achieving those coverage ratios way before we're 100% least at these at these campuses, which gives you a little bit of latitude to sort of, you know, to, so to speak, have your cake and eat it to meaning.
Speaker Change #107: Cost in California, a triple nickel costs in.
Speaker Change #107: In Florida, or something like that and it varies within a finite ridge opex per campus.
Speaker Change #107: Areas within it and even more finite graduate argued so the denominator is actually realm.
Speaker Change: address the needs of our bondholders and our equity holders at the same time.
Speaker Change #107: Relatively static.
Speaker Change #111: The numerator revenue per square foot is really where the action occurs and that's about locations. We are on the real estate business.
Francisco Gonzalez: So fundamentally, the short answer to your question is staggering, but Francisco Gonzalez might have something to add. I think that was a complete answer. Well, that is the following. I think when the time comes next year and we're facing the rainy season,
Speaker Change #107: At the end of the day.
Speaker Change #107: The best.
Speaker Change #112: Metro area in the country for Sky Harbor is New York, It's the best in the country, Alright, and then I am not speaking I was speaking specific interest got harbor for Homebase. It right. There are places that are great FBL markets I think from a square foot level.
Francisco Gonzalez: We'll have to
Francisco Gonzalez: Show them and prove to them that what's better for both own holders.
Speaker Change #113: Aspen Pitkin is there's probably a fantastic market for an IPO it wouldn't be for Sky Harbor.
Francisco Gonzalez: We definitely know it's better for equity holders, but also for bondholders, what's better to have a very few tenants with a very long lease?
Speaker Change #114: New York and again, we're very Metro Center focused New York is the best metrics in the country. There is a 2 million square foot plus deficit of hangers, serving the New York area.
Francisco Gonzalez: or to have diversification of tenants.
Francisco Gonzalez: with shorter leases that we can show and prove to them that every time they get renewed and released.
Speaker Change #115: And then remember most Manhattan owned aircraft that operate in and out of Peterborough not based at Peterborough Theres No room does not hangar capacity.
Francisco Gonzalez: the rate of growth as our recent experience I've shown, and by the way, this is including our recent press release that we just filed.
Speaker Change #116: Peterborough Theyre based in outlying airports mid repositioned into the country those outlying airports the repositioning airports have higher rents per square foot than most primary airports and most metro centers in the country. So yes, frankly, I tell a lot of our focus we're not went up two specific about airports, but a lot of our focus naturally is.
Francisco Gonzalez: The recent renewals and replacements basically allowed us to increase our rents by 32%.
Francisco Gonzalez: Let me say that again, 32% on those hangers that were renewed or released.
Thao: or replaced, and that we just disclosed an hour ago. So over time, to Thao's earlier point, I think the arrangement will determine that if we have the right diversification of tenants.
Speaker Change #115: Going to be in New York.
Speaker Change #117: Our next question comes from Matthew Hallett, Thanks for the update on the potential for ancillary revenue fuel Airport services in the model can you give us a sense of what the opportunity is for Sky Harbor, how much added revenue this could contribute per airport.
Thao: We have right tenors in terms of our tenor representation that we will, with higher coverage.
Speaker Change: offset the fact that we have a shorter average life of tenant leases than it would be the case for other comparable bonding programs out there that may have 20, 30 year tenant leases.
Speaker Change #117: Yes, so I think there is.
Speaker Change #118: There are a few ways to look at this first of all we are we're definitely not in position to give any numbers yet on this I don't know if you'd have to look at it on a per hour basis. You can think for example of partnerships with FBL companies for all sorts of on the road services, where.
Speaker Change: but they have been high concentration of tenants. Anyway, moving to the next question.
Speaker Change: Our next question comes from John Blaze. Can you please explain the rationale for the New York and Connecticut Area Airports?
Speaker Change #118: Those can be revenue drivers for Sky Harbor as well.
Speaker Change #118: Think of that on a per airport basis.
Speaker Change #118: I can tell you for example, one revenue.
Speaker Change: Yeah, so when we talked about revenue capture, meaning square footage times revenue per square foot location is the key driver. I mean, let's dial it back for a minute to just unit economics.
Speaker Change #118: Revenue producing service that we already have in place hasn't actually started kicking off revenues, yet, but we think it will let me coming quarters.
Speaker Change #118: There's something simple and small as aircraft detailing right one of the things that we noticed is.
Speaker Change: The metric that we target for unit economics is yield on cost, as any real estate developer should.
Speaker Change #118: Aircrafts detailing as kind of a fragmented industry it's opaque.
Speaker Change #118: There's a lot of exposure is in aircrafts down or that you can take by operating or working with a detailer.
Speaker Change: What I would argue is that.
Speaker Change: all of the action in yield on cost.
Speaker Change: Is in the numerator. Okay. The denominator being development costs and outbacks.
Speaker Change #118: You don't know right, there's all sorts of sensitive equipment on airplanes antennas that can be broken things like that.
Speaker Change: The development cost varies within a pretty finite range across the country, right? It's not like, you know, cost in California or triple the cost in, you know, in Florida or something like that. It varies within a finite range. OPEX per campus.
Speaker Change #119: And a lot of our residents look to us sort of is the arbiter of what's quality Inn in aviation. So we formed a partnership with one of the national aircrafts detailing companies after conducting our own very extensive due diligence and like we live and breathe business aviation we know.
Speaker Change: It varies within an even more finite range, I would argue. So the denominator is actually relatively static. The numerator revenue per square foot is really where the action occurs, and that's about location. We are on the real estate business at the end of the day.
Speaker Change #120: We know the answers to these questions I think as well as anybody does.
Speaker Change #121: We formed a partnership with a company called private parents.
Speaker Change: The best.
Speaker Change #120: As.
Speaker Change: Metro area in the country for Sky Harbor is New York. It's the best in the country. All right. And I'm not speaking, I'm speaking specifically for Sky Harbor for home basing, right? There are places that are great FBO markets. I think from on a square foot level.
Speaker Change #120: That has our endorsement on all of our campuses. They know how to operate from every aspect from where the utilities run on our campuses to security protocols getting in and out of our of our capsid. So it becomes a very seamless arrangement to work with with this company for your aircraft detailing and we're talking about many tens of thousands of dollars.
Speaker Change: Aspen, Pitkin is probably a fantastic market for an FBO. It wouldn't be for Sky Harbor. New York, and again, we're very Metro Center focused. New York is the best Metro Center in the country. There is a two million.
Speaker Change #120: Revenue per aircraft.
Marty: On a detailed basis, that's one of many many examples that we again, we haven't really started working on most of these yet as Marty kind of gets you get into splitting of the company that is one of his mandate is to begin systematically taken down all of these drivers at some point, we'll be able to I think answered.
Speaker Change: a square foot plus deficit of hangers serving the New York area.
Speaker Change: Right? And again, remember, most Manhattan-owned aircraft.
Speaker Change: that operate in and out of Teterboro are not based at Teterboro. There's no room, there's no hangar capacity at Teterboro. They're based at outlying airports and they're repositioned into the country. Those outlying airports, the repositioning airports, have higher rents per square foot than most primary airports in most metro centers in the country.
Speaker Change #123: Your question in a more kind of quantitative manner is what do we think these different revenue streams add up to in relation to rent, but we're not in a position to say that yet.
Speaker Change: So, yeah, frankly, I feel a lot of our focus and we're not we're not too specific about airports, but a lot of our focus naturally is going to be New York.
Speaker Change #124: Our next question comes from Connor.
Speaker Change #125: Do you see the potential for signing more leases similar to that as Jay Z, where there is an existing hanger.
Speaker Change #125: Began earning revenue on the property within a few months.
Speaker Change: Our next question comes from Matthew Howlett. Thanks for the update on the potential for ancillary revenue, fuel, airport services in the model. Can you give us a sense of what the opportunity is for Sky Harbor? How much added revenue this could contribute per airport?
Speaker Change #126: Do you have any of these situations in your current pipeline.
Speaker Change #126: Okay, I always look at that kind of thanks.
Speaker Change #126: Ed.
Speaker Change #126: More of an opportunistic.
Speaker Change #127: Yes scenario, it's not it's not our strategy fundamentally there is an arbitrage in our business. It's one of several arbitrage is that we've been exploiting in our business.
Speaker Change: Welcome to Sky Harbour Group.
Speaker Change: Yeah, so I, I think there's.
Speaker Change: There are a few ways to look at this. First, we're definitely not in a position to give any numbers yet on this.
Speaker Change #127: Which is it's much better to build than to buy it's much better to build than to buy right and there are all sorts of initiatives out there too.
Speaker Change: I don't know if you have to look at it on a per airport basis.
Speaker Change: You can think, for example, of partnerships with FBO companies for all sorts of on-the-road services where those can be revenue drivers for Sky Harbor as well. You don't have to think of that on a per-airport basis.
Speaker Change #127: Either roll up SBA loans or portfolios of hangers.
Speaker Change #127: And I think some of these might work nicely I don't know, but fundamentally the.
Speaker Change: I can tell you, for example, one revenue producing service that we already have in place, hasn't actually started kicking off revenues yet, but we think it will in the coming quarters.
Speaker Change #127: The economies, we've been able to achieve already before we got a great scale I think it would be this big.
Speaker Change #127: Companies are more compelling at scale.
Speaker Change #127: Really suggests that the plain vanilla Sky Harbor model is the best way to grow and that's where our strategic resources are arrayed.
Speaker Change: is something simple and small, is aircraft detailing, right? One of the things that we noticed is, you know, aircraft detailing is kind of a fragmented industry. It's opaque.
Speaker Change #128: Which is get the land and build it ourselves there are situations there airports, where it's like in many cases. This is a strategic decision where you are not really that interested in the short term.
Speaker Change: There's a lot of exposure as an aircraft owner that you can take by operating or working with a detailer that you don't know, right? There's all sorts of sensitive equipment on airplanes, antennas that could be broken, things like that.
Speaker Change #129: Right you might buy some hangar capacity at an airport or lease of hangar capacity as your first kind of beachhead at an airport where the intention is to earn is is to really grow their fundamentally again and there is opportunistic situations that we don't want to rule rolled these things out.
Speaker Change: And a lot of our residents look to us sort of as the arbiter of what's.
Speaker Change: Quality in in aviation. So we formed a partnership with one of the national aircraft detailing companies after conducting our own very extensive due diligence and like we live and breathe business aviation. We know we know the answers to these questions. I think as well as anybody does.
Speaker Change #130: But strategically what we're actually proactively trying to do is just a plain vanilla model get the land and build Scarborough hangers on that land. So let me just add to that.
Speaker Change #130: That financially in terms of a target return on equity.
Speaker Change: We formed a partnership with a company called Prime Appearance that has our endorsement on all of our campuses. They know how to operate.
Speaker Change #130: I mentioned earlier, we're continuing to target.
Speaker Change #131: Our core business of 30 plus percent Roes when youre looking at a situation, especially his intuition that usually comes in terms of an auction or so on because there is a third party of existing properties, you're likely going to be driven down to returns on equity in the teens and obviously that's not <unk>.
Speaker Change: From every aspect from where the utilities run on our campuses to security protocols, you know, getting in and out of our of our campuses. So it becomes a very seamless.
Speaker Change: Arrangement to work with with this company for your aircraft detailing and you know we're talking about, you know, many tens of thousands of dollars of revenue per aircraft on on a detailing basis.
Speaker Change #131: Something that we want to deploy our capital.
Speaker Change #131: All of our Investor base.
Speaker Change #131: I do know we have been exploring.
Speaker Change: That's one of many, many examples that we, again, we haven't really started working on most of these yet, as Marty kind of gets his footing in the company, that is one of his mandates is to begin systematically.
Speaker Change #131: Yourself through IPO, So how do we bring third party capital.
Speaker Change #132: Two joining us so that we are able to achieve through asset management fees promote and so on get a 30% return on equity a while at the same time, though it leveraging someone else's capital that may have a lower threshold than ours.
Speaker Change: taking down all of these drivers. At some point, we'll be able to, I think, answer your question in a more quantitative manner, is what do we think these different revenue streams add up to in relation to rent? But we're not in a position to say that yet.
Speaker Change #133: And given that we bring expertise of running this type of campuses and to bear. So so as Tom mentioned, we'll be opportunistic we have been looking at a variety of things that some of them that we have passed on because again, we're going to be very deliberate in terms of not overpaying or bidding for certain situations out there of existing assets.
Speaker Change: Our next question comes from Connor Kay. Do you see the potential for signing more leases similar to SJC where there is an existing hanger and you can begin earning revenue on the property within a few months? If so, do you have any of these situations in your current pipeline?
Speaker Change #133: Next question.
Speaker Change #133: Our next question comes from John Blaise can you outline your ROI calculation on SLC with $40 million of minimum capital improvements on eight four acres of total property.
Speaker Change: Okay, I would look at that Connor. Thanks. I'd look at that more as an opportunistic scenario. It's not a strategy. Fundamentally, there's an arbitrage in our business. It's one of several arbitrages that we've been exploiting in our business.
Speaker Change #133: Okay.
Speaker Change #134: Yes, I don't know for sure that that level of Spike site specific detail.
Speaker Change #135: We have I think what we can say that a couple of points here first we believe that our next set of airports the ones that we have been signing in the past few.
Speaker Change: Which is it's much better to build than to buy it's much better to build than to buy right and there are all sorts of initiatives out there to
Speaker Change: either roll-up SBOs or portfolios of hangers. And I think some of these might work nicely, I don't know, but fundamentally, the.
Speaker Change #135: Six months and currently.
Speaker Change #135: On average have a.
Speaker Change #135: We're underwriting to targets that are higher than where we on the road.
Speaker Change: [inaudible]
Speaker Change #135: Three years ago for the a crime.
Speaker Change: economies we've been able to achieve already before we get to great scale. I think this becomes even more compelling at scale.
Speaker Change #135: <unk> that we have in operation and wearing construction. So that's one key element.
Speaker Change: really suggests that the plain vanilla Sky Harbor model is the best way to grow, and that's where strategic resources are arrayed.
Speaker Change #135: Consider we love.
Speaker Change #135: Salt Lake City as an airport.
Speaker Change #135: Meets the criteria that we have.
Speaker Change: Which is get the land and build it ourselves. There are situations there are airports where, you know, like, in many cases, this is a strategic decision where you're not really that interested in the.
Speaker Change #135: That we have outlined a publicly in terms of our thresholds.
Speaker Change #135: For return on assets and returns on equity. So we're looking forward it will get more of them in Salt Lake City with garden, but I think we've got US more just think the airport it will give us four pieces aviation.
Speaker Change: short-term, right? You might buy some hangar capacity at an airport or lease some hangar capacity as your first kind of beachhead at an airport where the intention is to really grow there.
Speaker Change #135: A hanger.
Speaker Change #135: I think that we are being able to secure the one thing I will also note it was getting better and better at.
Speaker Change: Fundamentally, again, and there's opportunistic situations that we don't want to rule these things out. But strategically, what we're actually proactively trying to do is, it's just our plain vanilla model. Get the land and build Chicago for Hangers on that land.
Speaker Change #135: <unk>.
Speaker Change #135: Getting the terms that we care about in Windsor win was occurring ground leases in our first ground lease was 30 years.
Speaker Change #135: I'm sure people are noticing that our recent ground leases are really 50, plus 10 60 years and there are many other terms that were being able to secure that are important to us and that are important to our equity investors in terms of the value accretion.
Speaker Change: Let me just add to that, that financially in terms of target return on equity, you know, as I mentioned earlier, we're continuing to target our core business of 30 plus percent ROEs.
Speaker Change #136: Office Enterprise next Washington.
Speaker Change: When you're looking at a situation, especially a situation that usually comes in terms of an option or so on, because it's a third party of existing properties, you're likely gonna be driven down to returns on equity in the teens.
Our final question comes from Alan Jackson, when pursuing a ground lease what are the primary bottlenecks or pushback that occur from airports sponsors towards Sky Harbor the surrounding residents in a metro area pushed back towards municipalities, establishing a sky Harbor campus.
Speaker Change: And obviously that's not something that we want to deploy our capital of our investor base to do. Now, we have been exploring various alternatives of how do we bring third-party capital to join us so that we are able to achieve through asset management fees, promote and so on, get our 30% return on equity. And while at the same time though, leveraging someone else's capital, it may have a lower threshold than ours, given that we bring the expertise of running these type of campuses to bear. So as Tom mentioned, we'll be opportunistic. We have been looking at a variety of things.
Speaker Change #137: Yeah. Thanks Alan.
Speaker Change #137: <unk>.
I think the term in the industry, we've seen one airport in San Juan Airport.
Speaker Change #138: We I think for the first three years or four years of this venture.
Speaker Change #139: We were frustrated by our inability to find kind of one.
Speaker Change #139: One size fits all model for business, how you acquire land at airports and just apply it across the country.
Speaker Change #140: I think that's actually become a real asset for US now is that it's very hard to do this it's very hard I mean, I don't think I can't think of any two airport situations, where that were alike that we've experienced and as you know.
Tom: that some of them that we have passed on, because again, we've got to be very deliberate in terms of not overpaying or bidding for certain situations out there of existing assets. Next question.
Speaker Change #141: We're we're in process at many many dozens of airports around the country as we speak.
Speaker Change #141: I don't know that any two situations are similar the reason I think thats become a plus is it's become increasingly our feeling at the time was.
Tom: Our next question comes from John Blaze. Can you outline your ROI calculation on SLC with 40 million of minimal capital improvements on 8.4 acres of total property?
Speaker Change #141: There is.
Speaker Change #141: There are certain barriers to entry there is certainly good barriers to entry on airports are good moats around us at airports, where we're already operating because we tend to take the Alaska readily developable land at those airports, but.
Speaker Change: I don't know if we share that level of site-specific detail, but I think what we can say is a couple of points here.
Speaker Change #141: There wasn't we didn't feel that was such a moat around the business model itself increasingly I think there is.
Speaker Change: First...
Speaker Change: We believe that our next set of airports, the ones that we have been
Speaker Change: signing in the past few, you know, six months and currently.
Speaker Change #142: It is very hard to get land at airports full stop.
Speaker Change: are on average have a, we're underwriting two targets that are higher.
Speaker Change #141: However, much.
Speaker Change #143: Lending is spend I'm trying to figure it out there is definitely a learning curve and we're.
Speaker Change: than what we underwrote three years ago for the current projects that we had in operation and were in construction.
Speaker Change #143: We're certainly not done we're on that London group somewhere, but we are light years ahead of where we were a three or four years ago in terms of our acumen.
Speaker Change: So that's one key element to consider. We love Salt Lake City as an airport. It meets the criteria.
Do we actually get landed airports. We're also in process at the airports that we want to be at.
Speaker Change #143: Many many airports around the around the country.
Speaker Change: that we have.
Speaker Change #143: So I think it's a great question, it's something that.
Speaker Change: that we have outlined publicly in terms of thresholds.
Speaker Change #143: I think thought about for a long time.
Speaker Change: for return assets and returns on equity. So we're looking forward in, if we could get more land in Salt Lake City, we've gotten, but I think, you know, we got as much as I think the airport it will give for business aviation, a hangar. I think that we have been able to secure that. One thing I will also note, we're getting better and better.
Speaker Change #143: There was a time, where I wished that notion our primary bottlenecks of pushback.
Speaker Change #144: It was a question we can answer kind of in one in one sentence today I'm happy that we can't.
Speaker Change #144: It's just it's a very complicated world, but we've got a great team we have.
So say we trained the team we learned together.
Speaker Change: at getting the terms that we care about when we're securing ground leases. Our first ground lease was 30 years.
Speaker Change #144: Exactly how to do this and hopefully we continue getting getting better at it in terms of the surrounding residents in metro areas.
Speaker Change: I'm sure people are noticing that our recent grant leases are really 50 plus 10, 60 years. And there are many other terms that we'll be able to secure that are important to us and that are important to our equity investors in terms of value accretion of this enterprise. Next question.
Speaker Change #144: I would say kind of the same thing.
Speaker Change #144: It's everywhere.
Speaker Change #144: What we've done is.
Speaker Change #144: Yeah.
Speaker Change #144: Everything from improving the environmental footprint of an airport that is something that we do do you think about airports, where there's not enough hangers and there's a lot of repositioning taken airport like Chicago Executive Airport.
Alan Jackson: Our final question comes from Alan Jackson. When pursuing a ground lease, what are the primary bottlenecks or pushbacks that occur from airport sponsors towards Sky Harbor? Do surrounding residents in a metro area push back towards municipalities establishing a Sky Harbor campus?
Speaker Change #144: We're again like it likely to Peterborough you have more airplanes operating in and out of Chicago executive than you.
Speaker Change #145: Then you can actually housing on that airport. So you have airplanes that live in waukegan or elsewhere around the <unk>.
Speaker Change: Yeah. Thanks, Ellen and Stel.
Speaker Change: I think the term in the industry, you've seen one airport, you've seen one airport. I think for the first three or four years of this venture,
Speaker Change #145: The Chicago area repositioning.
Speaker Change #145: Stand at a repositioning airport if you want to fly from Chicago, Miami and your airplane is not based on Chicago Executive Chicago Executive has too.
Speaker Change: We were frustrated by our inability to find kind of one.
Speaker Change #145: Accommodate for operations right, they've got an empty legs landing at your airports, we've got a full leg taking off from Miami.
Speaker Change: I think that's actually become a real asset for us now is that it's very hard to do this. It's very hard. I mean, I don't think I can't think of any two airport situations that were alike that that we've experienced. And as you know,
Speaker Change #145: Full leg lending from Miami, and then an empty legs repositioning back to waukegan or wherever your airplane is is based.
Speaker Change #146: Adding hangar capacity at that airport, we're cutting.
Speaker Change #147: We're cutting that in half right the.
Speaker Change: We're, we're in process that many, many dozens of airports around the country as we speak. I don't, I don't know that any 2 situations are similar. The reason I think that's become a plus is, you know, it's become increasingly our feeling at the time was.
Speaker Change #146: The number of operations, so from an environmental perspective, a noise perspective.
Speaker Change #146: All of that that's great.
Speaker Change #146: And again I won't get into every example, but think of environmental impacts.
Speaker Change #146: Things like Dicing aircraft aircraft live and heated hangers, they don't need the I think they only come out when they're ready to fly they're not like an F. B over the airplanes live on a ramp outdoors, they're getting snowed on frosted on you can't take off an aircraft that's roster by the way that's a many many thousand dollar operation to Dyson airplane and environmentally it's not you know not not.
Speaker Change: You know, there's.
Speaker Change: There are certain barriers to entry. There's certainly good barriers to entry on airports or good moats around us at airports where we're already operating because we tend to take the last readily developable land at those airports.
Speaker Change: But there wasn't, we didn't feel there was such a moat around the business model itself. Increasingly, I think there is. It is very hard to get land at airports, you know, full stop. And however much
Speaker Change #148: Great situation, that's something that we that we cut as well.
Speaker Change #149: <unk> that recreate the tax revenues that we create for airport sponsors I think fundamentally we are a plus for an airport in a way that no no. Other airport tenant is we've got a very very specific set of.
Speaker Change: The money you spend on trying to figure it out, there is definitely a learning curve, and if we're
Speaker Change: We're certainly not done. We're on that learning curve somewhere, but we are light years ahead of where we were three or four years ago in terms of our acumen. How do we actually get land at airports? We're also in process at the airports that we want to be at. There are many, many airports around the country.
Speaker Change #149: Values that we bring too to an airport and two community.
Speaker Change #149: I'm happy to say today, there is no 111 value that gets prioritized across the board every airport has its own <unk>.
Speaker Change #149: Sort of prioritization and it's a matter of working with them to understand how we create the most value together with them and kind of create that virtuous triangle.
Speaker Change: So, I think it's a great question. It's something that we, you know, I think thought about for a long time. I, you know, there was a time where I wished that notion of primary bottlenecks or pushbacks was a question we could answer kind of in one sentence.
Speaker Change #149: The airport sponsor.
Speaker Change #149: Business aviation operator.
Speaker Change #149: In us.
Speaker Change: Today I'm happy that we can't and it's just it's a very complicated world, but we've got a great team, you know, we've
Francisco gondola: And that will conclude our question and answer session I will hand, the call back to Francisco gondola for any closing remarks.
Speaker Change: So we trained a team, we learned together exactly how to do this and hopefully we continue getting better at it. In terms of the surrounding residents and metro areas,
Francisco gondola: Thank you operator, and thank you all for joining US this afternoon and for your interest in Sky Harbor additional information maybe found in our website at Ww Sky Harbor Group, you can always reach us directly with any additional questions, we'll be investor email investors at Careerbuilder groups.
Speaker Change: I think kind of the same thing is that, you know, it's sort of everywhere, but what we've done is
Francisco gondola: Thank you again for your participation and with these we have concluded our webcast. Thank you operator.
Speaker Change: you know.
This concludes today's meeting you may now disconnect.
Speaker Change: Everything from improving the environmental footprint of an airport, that is something that we do. If you think about airports where there's not enough hangars and there's a lot of repositioning, take an airport like Chicago Executive Airport.
Speaker Change: where, you know, again, like at Teterboro, you have more airplanes operating in and out of Chicago Executive.
Speaker Change: then you can actually house on that airport. So you have airplanes that live in, you know, Waukegan or elsewhere around the Chicago area repositioning.
Speaker Change: Understand that a repositioning airport, if you want to fly from Chicago to Miami and your airplane is not based to Chicago executive, Chicago executive has to.
Speaker Change: accommodate four operations, right? They've got an empty leg landing at your airport. You've got a full leg taking off from Miami, a full leg landing from Miami, and then an empty leg repositioning back to Waukegan or wherever your airplane is based.
Speaker Change: By adding hangar capacity at that airport, we're cutting that in half, right, the number of operations. So, from an environmental perspective, a noise perspective,
Speaker Change: All of that, that's great.
Speaker Change: Again, I won't get into every example, but think of, you know, environmental impacts of things like de-icing aircraft, right? Our aircraft live in heated hangars. They don't need de-icing, right? They only come out when they're ready to fly. They're not like an FBO where the airplanes live on the ramp outdoors.
Speaker Change: They're getting snowed on, frosted on, you can't take off an aircraft that's frosted. By the way, that's a many, many thousand dollar operation to de-ice an airplane, and environmentally it's not a great situation.
Speaker Change: That's something that we cut as well.
Speaker Change: The jobs that we create, the tax revenues that we create for airport sponsors, I think fundamentally we are a plus for an airport in a way that no other airport tenant is. We've got a very specific set of values that we bring to an airport and to a community.
Speaker Change: Again, you know.
Speaker Change: I'm happy to say today, there is no one.
Speaker Change: One value that gets prioritized across the board. Every airport has its own, you know, own sort of prioritization and it's a matter of working with them to understand how we create the most value together with them and kind of create that virtuous triangle of, you know,
Speaker Change: of the airport sponsor, the business aviation operator, and us.
Speaker Change: And that will conclude our question and answer session. I'll hand the call back to Francisco Gonzalez for any closing remarks.
Francisco Gonzalez: Thank you operator and thank you all for joining us this afternoon and for your interest in Sky Harbor. Additional information may be found in our website at www.skyharbor.group and you can always reach us directly with any additional questions through the investor email investors at skyharbor.group.
Francisco Gonzalez: Thank you again for your participation, and with this we have concluded our webcast. Thank you, Alberto.
Speaker Change #100: This concludes today's meeting. You may now disconnect.