Q4 2024 Sky Harbour Group Corp Earnings Call
Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply submit a question online using the webcast URL posted on our website.
Speaker Change: Thank you. And I would now like to room a call over to Mr. Francisco Gonzalez, Chief Financial Officer. Mr. Gonzalez, you may begin your conference.
Thank you.
Thank you, Abby.
Speaker Change: and hello and welcome to the 2024 Fourth Quarter and Food Year Results Investored Conference
Speaker Change: for the Sky Harbour Group Corporation. We have also invited our boardholder investors in our borrowing subsidiary Sky Harbour Capital to join and participate on this call. Before we begin, I've been asked by Council to note that on today's call the company will address certain factors that may impact this and next year's earnings.
Speaker Change: Some of the information that will be disclosed today contains 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 and slide to one and two of these presentations, as well as our SS filings for the description of the factors that make cost actual results to differ from our forward-looking statements.
Speaker Change: All Forward-looking statements are made out of today and we assume no obligation to update any such statements.
Speaker Change: So now let's get started. The team with us this afternoon, you know from our prior webcasts, our CEO and chair of the board, Tal Keinan, our treasurer, Tim Herr, our chief accounting officer, Mike Smith, our accounting manager, Tori Petro. We also have Andreas Frank, our recently promoted assistant treasurer.
Speaker Change: We have a few slides. We'll want to review with you before we open its questions. These were filed with the ACC about an hour ago in Horn 8K, along with our 10K, and we'll also be available on our website later this evening. We also filed our fourth quarter sky harbour capital over the Gated Group on our other financials with MSRB Emma a few days ago.
Speaker Change: Asabi mentioned, you may submit written questions during the webcast, during the Q4 platform, and we'll address them shortly after our paper remarks. So let's get started.
Speaker Change: In the fourth quarter, on a consolidated basis, assets from the construction and completed construction continue to accelerate reaching over 250 million as of year end. On the back of construction activity, we get Phoenix, Dallas, and Denver.
Speaker Change: Revenues experience an increase of 13% sequentially over 2-3 as we realize more leases in San Jose optimize in the other three operating campuses and have three leaks of operations from the acquisition of the Camarillo and California Campus on December 6.
Speaker Change: For the full year, Consulate revenues doubled over those from 2023.
Speaker Change: Operating expenses in Q4 increase mainly from two factors. We began to hire general managers and staff for the new campuses coming online this quarter and next, in order to do the adequate onboarding and training on our existing campuses.
Speaker Change: Second factor, as we have explained the past, we accrue for groundless payments at 13 airport locations even if we're not actually making cash payments to the airport or musical owner of our sites.
Speaker Change: that non-cassure cruel of groundless expense amounted to over 1.4 million in Q4 and is reflected within offering expenses.
Speaker Change: Also worth repeating that increase over the last three quarters in groundless expense is to principally to e-ground these payments as I don't say.
Speaker Change: which are significantly higher than our typical Greenfield projects, as groundless payments incorporate the leasing of an existing large hanger apron and parking because of these existing buildings or facilities is basically advertised through groundless payments as far more offering expenses.
Speaker Change: On SGNA, we strive to keep it in check as we grow our business.
Speaker Change: We also would like to reaffirm our prior guidance that we expect Sky Harbour to reach cash flow break even when a consolidated basis in Q4 of this year, as we reach sufficient scale with new campus openings to cover our whole incomplete expenses.
Speaker Change: One last thing to note, as you reviewed 10K just filed, is that for the first time we're reporting fuel revenues far from rental revenues. Fuel revenues are mostly margin we get from providing the fuel delivery service as we don't take ownership of fuel in most of our existing campuses.
Speaker Change: As this plan item grows in importance, we'll break down further to show how much of these field revenues correspond to minimum amount of guarantees.
Speaker Change: We embed in most of our channelesis, as those represent also contracted revenues, in a sense. Say, simply, if a tenant does not fly or doesn't consume their minimum amount guaranteed amount, it's like additional contracted revenues that get added to their rental incomes.
Next slide, please.
[inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: One last thing to note the Scarborough capital level is that at the end of 2024, we were required to begin the compliance testing after our.
Speaker Change: Volume indenture, and we will.
Speaker Change: We're in compliance.
Speaker Change: In terms of those ratios.
Speaker Change: For a forward looking for 2025.
Speaker Change: Next slide, let's now turn to Mike Smith, our Chief Accounting Officer for a review of the introduction of the presentation of adjusted EBITDA in our reporting Mike. Thank you Francesco I would like to take this opportunity to provide.
Speaker Change: And highlighted key business metric that we began presenting within the management discussion and analysis section of our annual report adjusted EBITDA is utilized by our management team to evaluate our operating and financial performance, which as supplemental in nature and a financial measure not calculated in accordance with U S. GAAP.
Speaker Change: We have provided a reconciliation from our GAAP net loss in fiscal years 2022 through 2024 on the right hand portion of this slide.
Speaker Change: We define adjusted EBITDA as GAAP net income or loss before the add backs as attractions that are <unk> on the left portion of the slide which I encourage you to review.
Speaker Change: Amongst these items are a few significant noncash items that we have discussed both in branch Cisco's commentary as well as our previous call, including the noncash portion of our ground lease expense share based compensation and the change in fair value associated with our liability classified warrants, we began including adjusted EBITDA and our filings.
Speaker Change: As we believe it is a potentially useful metric for investors analysts and other interested parties as it provides a view of our operating performance analyzes our ability to meet debt service obligations and facilitates the company the company operating performance comparisons by excluding potential differences caused by various factors, including items that are noncash.
Speaker Change: Cash or volatile in nature.
Speaker Change: Lastly, it's important that I note that our method of calculating adjusted EBITDA may differ.
Speaker Change: Similar measures utilized by other companies and therefore, its comparability may be limited.
Tom: And with that ill pass it back to Tom.
Tom: Thank you Mike.
Tom: So we have been sharing this chart on all of the.
Tom: Last quarterly earnings calls I think this is fundamentally where value is driven it.
Tom: At Sky Harbor this is the.
Tom: Realizable revenue from ground leases that have already been signed.
Tom: We are currently at the second to last from the right chart. That's BSI, that's our Boeing field in Seattle, Our most recent acquisition.
Tom: Which puts us at just under $140 million of realizable revenue.
Tom: By the end of this year, if we meet our guidance, we will be coming in just shy of $190 million of realized revenue.
Tom: The I think important thing too.
Tom: Look at this on this chart is.
Tom: I'll advise anyone looking at the company.
Tom: Let me remind people of the methodology here. This is the number of square footage the amount of square footage of hangar capacity that is buildable on each site. According to our site layouts.
Tom: The Sky Harbor equipment rent for sure which is what aircraft are currently paying on those airports and rented fuel we think that's a conservative estimate because on every airport. We our actual revenues have significantly exceeded the shares.
Tom: So that I think is a good starting point now than anyone who's analyzing us will.
Tom: I want to discount for development risk lease up risk operating risk that goes with that but that fundamentally is the is the foundation of.
Tom: Value creation at Sky Harbor on the right side, you can see the current status of the various air fields that have been announced.
Tom: With that let's move to the next slide.
Tom: Okay. So I won't dwell on this other than to highlight in the under construction section DVT as Deer Valley Phoenix.
Tom: Actually have our first two certificates of occupancy at Deer Valley and we've begun flight operations at that airport, we continue with construction with the rest of the campus.
Tom: And it assets Edison Dallas, we have our first certificate of occupancy and again construction continues at the rest of the campus other than.
Tom: I'm not going to go through.
Tom: The rest of the items on that chart and let me hand, it back to Francesco. Thank you Tal on the left hand side. We show that we continue to enjoy strong liquidity with about $127 million of cash and U S. Treasury bills. We continue our cash management management strategy led by our Treasurer Tim her.
Tom: <unk> of Rolling our cash in short term, one and three months U S. Treasury bills pending they are used in construction.
Tom: These cash balances exclude the approximately $32 million in cash we used in December to acquire and pay certain liabilities of cloud nine and scale of five primary airport inventory County, California.
Tom: On the right hand side wanted to show Bill.
Tom: The latest trading of our long bond, which continues to rally over the past year, we have been in constant touch with our bondholders continued to exhibit interest and our bonds and look forward to our next offering we have begun the process to approach the rainy season to aim to secure investment grade ratings for our existing bonds.
Tom: We will be reporting on that exercise by this summer ahead of our next debt financing.
Tom: And we also want to think about 'twenty to reiterate our expectation that the future debt service coverage ratios for these bonds will exceed those that forecast that.
Tom: We forecasted at the time of the bond insurance three years ago, and that is supporting and protecting that coverage is a solemn commitment that we have as a firm.
Tom: Next slide please.
Tom: As many of you know we completed our second pipe equity placement of common stock in the fourth quarter of last year, raising approximately $75 million from a group of existing and new qualified investors those proceeds along with cash in hand will support our next debt issuance in anticipation of the startup of <unk>.
Tom: <unk> of phase one at various projects outside the existing obligated group.
Speaker Change: Let me turn it back to <unk> cost.
Speaker Change: Some of those new campuses and ground leases that were secured in the past quarter.
Francisco Gonzalez: Thanks Francisco, Okay briefly on aid cabinets were starting with Camarillo, California. This is our first brownfield acquisition.
Speaker Change: Harbor.
Speaker Change: The reasoning behind it is pretty straightforward. It is many of the people on the call know we split our airport target list into what we call primary airports and secondary airports are primary primary airports repositioning airports.
Speaker Change: Primary airports are airports, where the airplane lives at the same place that passengers board and Deplane. Okay. So if you take a.
Speaker Change: Aircraft are spaced at Peterborough that as a primary airport.
Speaker Change: Sorry, repositioning airports are airports with airplanes lift, but the passengers do not always board and Deplane. So if you take.
Speaker Change: Bradley, Connecticut, our Oxford, Connecticut is a place where a lot of aircraft live.
Speaker Change: That repositioned to let's say to defer white plains for passenger operations <unk> both of those and there are a number of airports to serve both of those purposes. Its primary airport for aircraft owners. It later.
Speaker Change: Roughly in the quarter between Calabasas in Montecito, California.
Speaker Change: It's a secondary airport that serves then EIS, which is the top primary airport for the L. A basin.
Speaker Change: What we foresee happening this is a little bit future looking from our perspective, but really not that much is that Santa Monica Airport is in the process of closing it has been for a number of years now.
Speaker Change: It has already been cut in half in terms of runway length.
Speaker Change: Most of the large jets off of the airport.
Speaker Change: When it does finally close.
Speaker Change: A lot of the or all of the aircraft at a base that we will be looking for new homes in California, that's going to be a crowding out phenomenon.
Speaker Change: Into a market, where there is already zero capacity than ours is fully fully booked with waiting lists across the entire airport similar situations exists in Burbank.
Speaker Change: So L. A is definitely one of one of the top markets for us in the in the country.
Speaker Change: Capturing an existing facility that is already cash flowing.
Speaker Change: That is really on the migration path and it has to pass through for through Kevin Rio.
Speaker Change: <unk> is an important move for for US I will say Francisco noted.
Speaker Change: We closed that transaction in December.
Speaker Change: So youre not really going to see any of the cash flow from from camera Rio in our Q4.
Speaker Change: Earnings you'll begin to see those captured starting in Q1 of this year.
Speaker Change: One is Trenton, New Jersey.
Speaker Change: Again, I've said it before in this call.
Speaker Change: Sky Harbor could be a new York only company and it would be a pretty exciting company, who were only based in New York.
Speaker Change: Almost any square foot Atlanta that we can get in the New York area, we want to get.
Speaker Change: And we would say in general the repositioning airports in the New York area feature higher rents than the primary airports and almost every other.
Speaker Change: Major Metro center in the United States.
Speaker Change: Maybe it doesn't.
Speaker Change: As you probably fewer than a dozen.
Speaker Change: So we're very excited with Trenton, New Jersey. It is again I would say.
Speaker Change: First and foremost our repo airport for Tito grow and White plains, although there is a significant amount of activity from call. It the Philadelphia suburbs, all the way to Princeton, New Jersey, and a lot of the pharmaceutical industry Thats based on that.
Speaker Change: That area, so exciting development for us.
Speaker Change: Then lastly, Boeing field.
Speaker Change: Which we've been at for about five years now.
Speaker Change: And just a reminder to people are set acquisition.
Speaker Change: Features are much longer gestation period than we originally appreciated.
Speaker Change: I think that was bad news for us for the first few years, it's very good news for US today that I think people are seeing theres a bit of a hockey stick moment going on right now on the site acquisition side is that seeds that we planted five years ago are beginning to sprout.
Speaker Change: Today, Seattle is one of the best markets in the country. It's one of those call. It doesn't exceptions, where you can exceed New York repositioning rents.
Speaker Change: And Boeing field as the reigning king.
Speaker Change: Seattle, No pun intended because it's Kent County.
Speaker Change: This is our first foray into Boeing field, there are additional targets for us on that field and we hope to see.
Speaker Change: At the beginning of a very long and peripheral relationship with with King County.
Speaker Change: A couple of highlights from Q4.
Speaker Change: By the way that I'll call out the photographs that is from somebody help me Phoenix <unk> <unk>, one of our Phoenix hangers in the photograph.
Speaker Change: I'd like to break things into site acquisition development leasing and operations.
Speaker Change: Increasingly people who study the company closely have seen that these four silos are increasingly integrated is really one fluid effort.
Speaker Change: And increasingly as we go but in terms of framing and understanding of the scope of our activity that is still I think useful to break it into those four.
Speaker Change: Areas. So on the <unk> acquisition side, we discuss those.
Speaker Change: The three airports that have come on board.
Speaker Change: On the development.
Speaker Change: The biggest theme is our.
Speaker Change: Really foundational effort to turn this into a major construction company.
Speaker Change: With the associated benefits of speed and cost control I will talk about that a little bit in the next slide.
Speaker Change: But more tactically.
Speaker Change: DVT and avs that Phoenix and Dallas.
Speaker Change: Have both commenced operation.
Speaker Change: Leases in both campuses with flight operations, having a commence.
Speaker Change: Something that people will look at us a little bit closely understand we do have a kind of an interesting period, where flight operations have begun but.
Speaker Change: Construction is still not finished on the rest of the campus.
Speaker Change: And it's a bit of a dance to make them coexist in a safe and efficient way, where they are right now and I think the overlap is several months I don't think thats something thats going to go away. That's how we will operate probably forever because we do think we have a good handle on.
Speaker Change: How to conduct those parallel operations safely.
Speaker Change: As efficiently and Theres no reason to FERC other revenue in the meantime, as Youre waiting for Liza HPA is Denver that is set for delivery next month.
Speaker Change: We are under LOI for a good number of hangers in Denver already.
Speaker Change: Again, we can't can't move people and until we have certificate of occupancy, but but that is in the next month or so.
Speaker Change: Two new projects.
Speaker Change: <unk> for delivery end of this year beginning of next is Miami phase, two and Dallas Phase III and.
Speaker Change: And we have another 14 projects in various phases of.
Speaker Change: Development.
Speaker Change: Now to jump ahead, but the Sky Harbor 37 is the name of the.
Speaker Change: What we hope at least for the next few years will be the final prototype in Sky Harbor, a lot of our cost cutting and speed enhancing exercises has to do with the fact that it is the same AGR same prototype on every airport with minor adjustments right. So we have a version that is compliant with wind load requirements in Florida.
Speaker Change: This combined with snow load requirements in Connecticut, one thats were compliant with seismic loads.
Speaker Change: The West coast, but those are minor minor adaptations in the prototyping or call. It 95% the same hager and each of those locations.
Speaker Change: Possibly say, possibly it is the major effort right now at Sky Harbor.
Speaker Change: Is getting that program perfected and running.
Speaker Change: On the leasing side.
Speaker Change: Did we have started leasing just as soon as hangers or code they've been lease in Phoenix, and Denver, and we hope to continue that will trigger the next four to six months, we should get close to full.
Speaker Change: Full capacity on those campuses.
Speaker Change: Again, Denver under LOI pending certificate of occupancy in the in the coming months.
Speaker Change: We are.
Speaker Change: I think.
Speaker Change: <unk>.
Speaker Change: There is a line of questioning that we've gotten over the last year or two.
Speaker Change: Both on these calls and offline.
Speaker Change: Guarding pre leasing and why doesn't Sky Harbor do any kind of pre leasing and a lot of that comes from our bondholders, which we understand.
Speaker Change: And our answer has always been that our pricing leverage really peaks when we actually have a static product thats move in ready. This industry is not really one that looks to for years ahead.
Speaker Change: Yes.
Speaker Change: As an industrial or office tenant Mike.
Speaker Change: Aircraft owners tend to look for hangar capacity 190 hangar capacity.
Speaker Change: We're starting to see a few exceptions to that and I think that has to do with the brand.
Speaker Change: Although we've been making really conscious effort at building this brand yet, but it is spreading and it's not a huge community the business aviation community people, who understand the unique value proposition that Scott Harper brings.
Speaker Change: They're often existing residents who are looking to expand.
Speaker Change: And we are entertaining our first pre leases specifically in Miami and.
Speaker Change: And.
Speaker Change: Denver.
Speaker Change: We've begun to talk with people on other campuses that are not quite as far along in development again very good anchor tenant who understand the value proposition and is comfortable with the with the rents that we're putting forward I think thats something that we will increasingly.
Speaker Change: Experiment with.
Speaker Change: See us ever.
Speaker Change: Trying to pre lease an entire campus but.
Speaker Change: One or two anchors is probably not a bad thing to do so we'll stay tuned for that.
Speaker Change: That goes.
Speaker Change: And then finally you again if you are following our results you could see it.
Speaker Change: Mentioned it earlier the actual revenues.
Speaker Change: Continue to exceed actually betting increasing margins.
Speaker Change: Our forecast revenues.
Speaker Change: That is particularly again, if youre studying us closely.
Speaker Change: That's particularly the case on the second round of lease US Okay. The second round. The first time you lease up the campus, you've got 150, <unk> hundred thousand square feet of hanger.
Speaker Change: It's 150 200000 square feet of vacancies.
Speaker Change: <unk> with very sophisticated.
Speaker Change: Prospective residents that are coming in so the leverage is such that and from our perspective, let's get them leased up as quickly as possible.
Speaker Change: But as you see the second turnover leases, where we really start establishing what we think is the as the market rate.
Speaker Change: And something you can you can track if youre, if youre starting as closely.
Speaker Change: And then fourth operations increasingly important part and we had a big thrust in the fourth quarter of last year, including the.
Speaker Change: Onboarding of Marty Kretchman, our senior Vice President of airports.
Speaker Change: Two really codify what seems to be the special sauce is driving value for residents at Sky Harbor, and it's really in the operations the real estate as a platform.
Speaker Change: That real estate has to be put down in a very specific way in order to be able to serve that operational level that we've been serving.
Speaker Change: But fundamentally.
Speaker Change: Staffing training and equipping these campuses and our and our specific way is a key to the entire value proposition and increasingly we're seeing that recognizing the industry. There are a number of flight departments.
Speaker Change: We will do everything they can to be at Sky Harbor.
Speaker Change: We want to keep it that way and drive.
Speaker Change: Yes.
Speaker Change: And then lastly.
Speaker Change: Look ahead to the next 12 months.
Speaker Change: And again in these same four categories site acquisition and so again, we have a lot of seeds sprouting as we go and I don't want to say that happens on autopilot.
Speaker Change: But it increasingly requires.
Speaker Change: I call it a more routine effort.
Speaker Change: So our kind of innovative aggressive efforts are increasingly focused on the best fields in the country.
Speaker Change: And fundamentally we're still waiting for a competitor come in and join us in this space.
Speaker Change: But for the time being is whereas we're alone here our focus is really capturing the best revenue producing fields in the country.
Speaker Change: And the growing pet acquisition team is focused primarily on that is that is the ambition for 2025 is the best airports in the country.
Speaker Change: On the development side.
Speaker Change: Right now, it's all about that scaling program and if there are questions on it we're happy to get into some detail but for now just.
Speaker Change: I'll leave it at this are number one ambition is quality, we want the best hangar in business aviation full stop time, we want to put these up quicker than anybody knows how to put them up a lot faster than we are doing it today and we want to doing it in an increasingly attractive cost to Sky Harbor.
Speaker Change: On the leasing side, there is a growing brand for Sky Harbor, and that's something that we're looking to capitalize on we have opened a marketing department that Sky Harbor for the first time.
Speaker Change: And we will be looking to articulate our message and our value to the market in a more deliberate way.
Speaker Change: Going forward.
Speaker Change: And then lastly operations.
Speaker Change: So the focus will remain on the Sky Harbor resident I know a lot of people have called in to ask about additional revenue producing services, which are certainly in the works, but we're introducing those things things like our new security service.
Speaker Change: Really as a value enhancing service at the beginning rather than a revenue producing service with the idea that again, we want to put as many.
Speaker Change: Good good dots on the map as we can right now that is the primary focus of the company is grow and grow in the right places.
Put out the best offering in aviation.
Speaker Change: And then we will have time later to circle back and see which revenue line items. We can we can capture later in a way that enhances value for our residents. So we've spoken about additional revenue producing services.
Speaker Change: In the past I want to reiterate that's not it's important but it's certainly not the most urgent item right now it's not where we are allocating most of our resources.
Speaker Change: And with that.
Speaker Change: We have set.
Speaker Change: Okay, Yes.
Yes with that one we opened for questions. This concludes our prepared remarks, we look forward. We look forward now to your questions. Operator. Please go ahead with the queue.
Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question. Please submit it online using the webcast Urls.
And your first question comes from Alex poster.
Speaker Change: In a recent podcast interview with Ben Clurman, Cal mentioned, it's absolutely possible to have 50 campuses in three to five years I'm, not giving any spoilers, but I think it might be possible to exceed that as well could you provide more color on this statement and expand on what is leading to the potential.
Speaker Change: Of a significant acceleration in the pace of ground lease signings.
Speaker Change: Yes, Thank you Alex.
Speaker Change: Look if we just meet our guidance.
Speaker Change: <unk> don't exceeded then by the end of this year, we're already halfway there.
Speaker Change: And as you've probably noticed I know you have somebody who follows us quite closely.
Speaker Change: The pace of site acquisition wins is growing exponentially its not linear and that has to do with what I mentioned earlier is that a lot of that is seeds that were planted years ago that have been cultivated over the last years and are now.
Speaker Change: Beginning to scrap so we.
Speaker Change: We see a very strong case for accelerating significantly, beating our projections and we don't we're not quite ready to make any claims for the end of this year yet.
Speaker Change: But certainly for the next three to five years I think 50 may end up having look conservative.
Speaker Change: And your next question comes from Philip Bristow.
Philip Bristow: Congrats on the new BSI lease I'm, assuming this is the second brownfield location. If so what is the expectation on price per square foot.
Philip Bristow: Of the six new locations for this calendar year or any of those six also brownfield finally, what does the timeline look like for additional revenue streams to start to materialize.
Philip Bristow: Okay. Thanks, Philip So there are a couple of questions in there starting with Alaska.
Philip Bristow: What I closed on.
Philip Bristow: At the end of my remarks is that.
Philip Bristow: Those additional revenue streams, we're not in a rush to put them in place right. So right now almost all of our revenues are from rent and fuels.
Philip Bristow: Services that we have rolled out like the security service, we're offering right now really is part of France and again the idea is let's let's focus our efforts on.
Philip Bristow: Claiming.
Philip Bristow: Mark key airports sites around the country.
Philip Bristow: And creating the best possible offering that we can for Sky Harbor residents with the idea that we there'll be plenty of time to circle back and optimize the revenue streams and get into some of the other.
Philip Bristow: Call. It Opex line items of an aircraft owner, so important but less urgent than the others.
Philip Bristow: On the six.
Philip Bristow: Locations that were set to announce for the coming year, whilst all of them are greenfield that said the nature of the brownfield opportunities is such that it's difficult to predict when they're going to materialize.
Philip Bristow: Happily Francisco and team have us in a place where from a liquidity perspective, we have been able to capitalize on those quickly I think that's part of what allows us to win.
Philip Bristow: So I don't know if any of those will materialize. This year I will say that the.
Philip Bristow: <unk> kind of informal pipeline of brownfield opportunities that are being shown to us seems to be getting more robust. So I wouldn't be surprised if if we if there are some brownfield opportunities, but my guess is there'll be on top of the greenfield opportunities not not instead of.
Philip Bristow: Anything else in there.
Philip Bristow: Now I think I think that answers it.
Speaker Change: And your next question comes from Randy Binner, Great quarter, and thank you for taking the question. It is positive to see the 23 campus guide confirmed can you give us a sense of how campus development will progress in 2026.
Philip Bristow: Yeah.
Philip Bristow: Okay. Thanks, Randy.
Philip Bristow: So.
Speaker Change: Based on the first part of the question I assume you mean by development.
Speaker Change: <unk> acquisition in 2026, so we're not providing guidance quite yet for 2026.
Speaker Change: But.
Speaker Change: I would say, we should continue at least a pace with with 2025, possibly get sick.
Speaker Change: Significantly more than that so if you want to put a range I think the bottom of that range would be call. It six airports don't want to say what the top of the range would look like.
Speaker Change: And your next question comes from Alex closer you mentioned that the average step up in rents when you've had a vacancy has been 28% do you believe that your existing tenant leases are below market and do you believe you can continue to achieve large step ups when you re lease the space.
Speaker Change: Alright. Thank you that's a good question.
Speaker Change: I'd say this the.
Speaker Change: I don't know that we've had a third lease on a hanger yet in the portfolio. My guess is that the step up in the second lease to the third lease is not going to be quite as dramatic as the step up from the first to the second lease so.
Speaker Change: That's more or less how I see this going down as you have a significant.
Speaker Change: Compromise, let's call. It on your first round of lease up in an airport a significant step up to what I would consider market rates on the second round that you lease up.
Speaker Change: And then from the second round on sorry, a third third third.
Speaker Change: Third rolls on.
Speaker Change: I would say inflation should more or less be our guide again this is barring.
Speaker Change: Establishing.
Speaker Change: <unk>, a more solid brand and better recognition in the industry that if you are.
Speaker Change: A premier jet owner, you want to be at Sky Harbor, if we put that aside for now I think inflation should be our guide now.
Speaker Change: To be clear, we think inflation at airports is going to outstrip CPI by by a very very significant margin. It's beachfront property their R&R new airports coming up there is limited additional added existing airports. So we think inflation is going to be a pretty major factor.
Speaker Change: But.
Speaker Change: That's what I think is just one kind of hint to where that goes is that our multi year leases feature.
Speaker Change: Annual escalators.
Speaker Change: Of CPI with a floor of 4%.
Speaker Change: And there's very little pushback in the industry and again, we're dealing primarily with the most sophisticated flight departments in aviation.
Speaker Change: But there is little pushback I think constitute some recognition among those who are experienced in business aviation operations.
Speaker Change: Thats significant airport inflation is inevitable.
Speaker Change: Yes.
Speaker Change: And your next question comes from Thom Yorke.
Thom Yorke: Slide 10 indicates you are funded for 800000 square feet, assuming you received the full $150 million of funding your square foot in development outside of the obligated group is obviously more than double 100000, how do you expect to bridge this gap funding wise.
Speaker Change: Yes, Tom.
Tom: Francisco again, thanks for the question.
Speaker Change: Indeed.
Speaker Change: We are very deliberate of our capital raising plan and one of our objective is always to be at least at least 12 to 18 months in terms of having the capital.
Speaker Change: Versus the time that we need to deploy it.
Speaker Change: Making sure that we can navigate any market environment and.
Speaker Change: So on a timely basis, so 2026, and we should be then a sock oracle soy basis.
Speaker Change: A positive.
Speaker Change: Cash flow in company from the standpoint of the operations.
Speaker Change: Which then leads to the question do we.
Speaker Change: Redeployed.
Speaker Change: Excess cash as.
Speaker Change: As the equity into new into new fields, and thereafter or do we at some point later in 'twenty six 'twenty seven start thinking about the dividend policy if any for the company. There's been a lot of a school of thought in our board in the Investor base.
Speaker Change: And that's a debate that will continue or having internally. It would of course of the next 18 months.
Speaker Change: Do we do we do with dividend out most of our free cash flow, but then that will require us to raise growth equity in the market or do we reinvest our cash now given our ocelot rating level of ground leases is fair to say that.
Speaker Change: Are those free cash flows or a 2026, and 37, who will not likely be sufficient to meet.
Speaker Change: That time schedule, we have been approach in the past couple of years by between four to six real estate infrastructure funds, who have been interested in potentially partnering with us in some type of sidecar vehicles to prosecute our business plan.
Speaker Change: Where we will be needing to put just a small amount of equity and be able to extract a significant amount of the economics of our business model. So we also have been wrestling with those more asset light.
Speaker Change: Models as a way of thinking about the right.
The deployment of our capital and <unk> dilution to existing equity holders. So again, we're going to be deliberate about this going forward.
Speaker Change: Stay tuned for that thank you for the question.
Randy Binner: And your next question comes from Randy Binner.
Randy Binner: Please provide an update on the process for raising $150 million.
Randy Binner: Yes. Thank you run before your question.
Randy Binner: We just came earlier this week from.
Randy Binner: A muni bond conference in Midtown Manhattan sponsored by a large investment bank and were placed at least.
Randy Binner: Happy to see we had about 11% a 100 once we have institutional investors some of them who have been with us since the original deal perhaps deal three years ago, and some new faces and so on.
Randy Binner: And it's clear that there is some interest in our bonds.
Randy Binner: In terms of existing bonds on the <unk> potential.
Randy Binner: In the summer in terms of the process.
Randy Binner: We have commissioned the feasibility of marketing study.
Randy Binner: With the third party a consultant.
Randy Binner: That is underway and should be ready by a may late April early may.
Randy Binner: Also.
Randy Binner: In the process of starting the radiancy process with to seek investment grade with our existing bonds.
Randy Binner: And that's something that also as I said in.
Randy Binner: So a few minutes ago, we look to also update everyone by the beginning of summer. So we are obviously paying attention to.
Randy Binner: Market interest rates and credit spreads on all of that and working with our vendors in.
Randy Binner: Our relationship bankers.
Randy Binner: In terms of our strategy.
Randy Binner: Simultaneously, we have received several proposals from some large commercial banks to basically provide five year term financing in lieu of bonds, which is also an alternative that we have in place to the extent that we don't like the bond market.
Randy Binner: Our cash tender would come to market this summer.
Speaker Change: And your next question is from Alex <unk> does rapid built have the opportunity to expand to clients outside of Sky Harbor, if so how material could this be.
Speaker Change: Yeah. Thanks, Alex So the answer is yes.
Speaker Change: It turns out that the Sky Harbor 37 prototype is actually a pretty good design not just for Sky Harbor uses the way that shapes and.
Speaker Change: No if it's made its way into our website yet.
Speaker Change: It Hasnt it will it will be soon.
Speaker Change: You can actually come to comfortably fit about 70000 feet of airplane into that 37000 square feet CAGR right.
Speaker Change: Yolanda that sounds counterintuitive.
Speaker Change: When we put up on the website, you'll launch that exactly how that works if you're busy spo you could probably get to a lot more than that so the answer is yes.
Speaker Change: I just wanted to remind people that the purpose of the rapid build acquisition was to increase the quality speed and reduce the cost of Sky Harbor development Thats really what that company is about.
Speaker Change: We're not seeking to turn it into a profit center for Sky Harbor.
Speaker Change: That said, we're working one shift now at rapid built.
Speaker Change: Soon going to go up to two shifts we're not going to be filling our two ship capacity entirely and we can go to three shifts ultimately in that factory as well. So there will come a point, where we're very comfortable that we're supplying ourselves adequately are doing exactly what we need for Sky Harbor at rapid built and that might be a tie.
Speaker Change: Jim.
Speaker Change: Its oppression question, because we are actually getting quite a bit of interest from from third parties to manufacture metal buildings for them and people who understand the Scarborough, 37% and are happy to take exactly that for their own users. So I'd say probably not in the next couple of quarters, but ultimately.
Speaker Change: That is an opportunity.
Speaker Change: Your next question is from Pat Mccann can you give any expectations for the interest rate you might get with the upcoming private activity bond issuance.
Speaker Change: Okay.
Speaker Change: Yes. Thank you for the question so are the secondary market trading of our bonds.
Speaker Change: And you can actually follow this.
Speaker Change: A logging into the.
The MSR be my website of the municipal industry.
Speaker Change: Last trade our long bond was about 538 in yield and our short is born.
Speaker Change: The 11 year.
Speaker Change: Trading loss of $4 65, so call. It on average roughly around five five and <unk> in terms of a secondary market level trading.
Speaker Change: The issue, sometimes likely comes at a discount to that meeting a slightly higher yield so.
Speaker Change: In the current market when we will expect to speculate a little bit.
Speaker Change: A issuance like ours will come.
Speaker Change: <unk>.
Low fives now.
Speaker Change: Our plan, though is first to seek investment grade ratings.
Speaker Change: Our existing bonds, which should obviously impact those secondary market level.
Speaker Change: Those bonds and then Doug might have a halo effect.
Speaker Change: Our new issuance, so stay tuned for that and our goal obviously is to.
Speaker Change: Get the lowest cost.
Speaker Change: Value out there in the marketplace.
Speaker Change: For for the next financing.
Speaker Change: Okay.
Speaker Change: And your next question comes from Doug Johnston are you going to publish public you publicly excuse me be projected 2025 D. S coverage for the PHP obligated group.
Speaker Change: Yes. Thanks for the question, we actually did if you look at the.
Speaker Change: Quarterly.
Speaker Change: And the quarterly financials on <unk>.
Speaker Change: The capital that was filed.
Speaker Change: Am I Miss or B.
Speaker Change: A few days ago.
Speaker Change: March one.
Speaker Change: March one and the audited financials will be coming up in the next few days.
Speaker Change: Youll see the last page the calculation for 2024 and the calculation for 2025 aim the other thing I will note in our website and we posted already we're about to post the <unk>.
Speaker Change: The presentation that we provided.
Speaker Change: This week in there.
Speaker Change: Municipal local infringe and we showed the predicted level of debt service for this kind of a capital gain.
Speaker Change: Bonds.
Speaker Change: And pro forma for our updated I will say better for the rents that we have been receiving in the past three years and.
Speaker Change: And then we expect to receive in the in the in the.
Speaker Change: Spaces that are still under construction or in development and you can see in our expectation of that service coverage.
Speaker Change: In their presentation.
Speaker Change: Thank you.
Speaker Change: And your next question is from Thom Yorke.
Speaker Change: In 2023, you projected debt service coverage of over three times in 2025, but have lowered this Q1 three six on.
Speaker Change: What are the moving pieces here.
Speaker Change: Yeah.
Speaker Change: Yes. Thank you Tom for any question is actually like a follow up to the prior question.
Speaker Change: Yes.
Speaker Change: The service coverage ratio calculated for its less than 25.
Speaker Change: Is $1 three six which is higher than the two five <unk> requirement in the indenture, but do we have to remember that we still are halfway or <unk>.
Speaker Change: Actually less than halfway of the revenue potential of the obligated group. So as we opened Denver, Phoenix and Dallas in coming months and then later on.
Speaker Change: <unk>.
Speaker Change: Early 2026.
Speaker Change: <unk> phase II and later than a Denver phase III, all those things together.
Speaker Change: <unk> will be sold our expectation is that the debt service coverage once all those things stabilize in a couple of years from now will be higher than the three times.
Speaker Change: We expected three years ago actually again referencing that.
Speaker Change: Illustration that we provided in that.
Speaker Change: <unk> filed with MSR BMO actually that we are going to file a letter.
Speaker Change: Tonight or tomorrow.
Speaker Change: You will see that our expectation is that <unk>.
Speaker Change: So three times as we projected.
Speaker Change: <unk>.
Speaker Change: Three years ago, and some of the one issue we're looking to be up four to five times debt service coverage of our debt service in the future years.
Speaker Change: So.
Speaker Change: It really is looking to that thank you.
Speaker Change: Yes.
Speaker Change: And your next question is from Pete to scale.
Speaker Change: Based on the 10-K estimated some airfields construction cost Rs.
Speaker Change: F have change quarter over quarter in both directions can you provide some color on initiatives that have reduced costs RSA I E Bbl and challenges that have increased cost Rss IEP double U K.
Speaker Change: Yes, thanks patents so.
Speaker Change: Let's start with all the macro factors are pushing costs up and Thats, obviously not specific to Sky Harbor, that's that's across the board.
Speaker Change: The.
Speaker Change: The efforts that we've been talking about for the last several quarters.
Speaker Change: On the development side have started to bear fruit. So I'll give you some examples.
Speaker Change: Just the manufacturing of pre engineered metal buildings by ourselves is saving us today on the most recent projects between 32 and $33 a square foot.
Speaker Change: That's what we'd be paying and pre engineered metal building margin to third party suppliers, if we had to purchase from from them.
Speaker Change: We've taken a lot of the ability to control the feedback loop between manufacturing and construction and I'm talking about the extreme end of the construction envelope, which is the sub contractors.
Speaker Change: And take for example trades like erection.
Speaker Change: And create a strong feedback loop between our manufacturing and what is now becoming a.
Speaker Change: A small group of regional and National Erector partners.
Speaker Change: Our harbor, who are putting up our campuses.
Speaker Change: That feedback loop as we project and we haven't seen this yet, but there's still work that we're going to have to.
Speaker Change: Live up to this as we as we put these next projects.
Speaker Change: To construction.
Speaker Change: And it's going to result in significant time savings in the field.
Speaker Change: These buildings are going to go a lot faster than the previous buildings went up and Thats time savings.
Speaker Change: On the other side of that and we don't exactly to put this into cost cutting but if you figure that a fully leased campus generates call it half a million to $700000.
Speaker Change: <unk> and net operating income shaving a month or two off of a construction timeframe is very significant in terms of when revenues get turned on again.
Speaker Change: Another example, and I won't provide too many of these but another example is national procurement right. So the way we built all of the campuses to date has been let's say you're looking at your lighting fixtures of which there are thousands on a campus we will purchase those on a per campus per.
Speaker Change: Project basis.
Speaker Change: Typically through our electrical subcontractor, who takes a margin on that.
Speaker Change: On that as well so that means building each campus as though it's the only campus that we that we're ever going to build what we're doing is starting now on the campuses that are coming in.
Speaker Change: That were pre purchasing everything that we can for the next 678 campuses at once.
Speaker Change: And we're already realizing really significant cost savings by that procurement and so there's all sorts of interesting kind of hedging and.
Speaker Change: In procurement.
Speaker Change: It means that we can take that look some of them I think we could have done earlier, we just didn't we hadn't gotten around to it.
Speaker Change: Some of them are really a function of the scale that we're building it right now and that we're able to realize it.
Speaker Change: So stay tuned for that if we if we do this right you'll see our development cost continue to come down as we go forward.
Speaker Change: Your next question is from Dave storms, one as you are procuring materials and labor for development are you seeing any impact from tariffs.
Speaker Change: And two you mentioned site acquisition has benefited from seeds planted a while ago are you seeing or expecting to see any impact on the pace or availability of site acquisitions coming from some of the uncertainty in the public sector. Following the government layoffs at the federal level.
Speaker Change: Yes, alright, thanks, Dave I'll start with the second one.
Speaker Change: Short answer is no.
First of all what.
Speaker Change: Our exposure to the federal regulation is relatively static right compliance with FAA guidelines secondary secondarily TSA guidelines.
Speaker Change: Pretty much anything national is uniform it can be complicated, but it's uniform and it's relatively unchanging. So.
Speaker Change: We don't see any significant change.
Speaker Change: Most of the unique hurdles that we have to cross in every project, our local local and state so.
Speaker Change: So you answered that one is no on the first one.
Speaker Change: Look there have been two there have been two <unk>.
Speaker Change: Hikes in steel prices this month.
Speaker Change: So the short answer is yes, we are seeing some.
Speaker Change: Materials and labor.
Speaker Change: Well materials changes I'd like to talk about labor quite yet but.
Speaker Change: So yes those are directly a result of tariffs Luckily we were able to preempt that.
Speaker Change: Just out of abundance of caution put some pretty large preorders in place before those happens and we're able to capture some savings that were feeling pretty lucky to have two of them.
Speaker Change: Got that in place.
Speaker Change: And then going forward, we don't want to speculate on macro developments at <unk>.
Speaker Change: The whole tariff.
Speaker Change: Situation unfolds for us, but for the coming projects were actually covered we were.
Speaker Change: Scott Harper itself was actually not impacted by those two.
Speaker Change: Increases in steel prices.
Speaker Change: As a reminder, if you'd like to ask a question. Please submit it.
Speaker Change: A webcast and your next question is from Jacob Robinson.
Jacob Robinson: Hi, Sky Harbor team a student from the University of Michigan here was.
Jacob Robinson: Wondering if you had a solid outlook on the Capex financing plan well into the next five years and how the terms of that lending might gradually turn in your favor and when you might choose to instead turn to equity issuance and further dilution.
Speaker Change: Thank you Jacob for the question.
Jacob Robinson: Reminds me that Theyre always a.
Speaker Change: College students.
Speaker Change: And looking to invest early in their careers also have to say go blue.
Speaker Change: For those guys who follow Michigan.
Speaker Change: <unk>.
Speaker Change: The interesting thing about our model is that we have a very modular.
Speaker Change: Our business plan in terms of.
Speaker Change: The moment.
Speaker Change: Secured those ground leases as Tom mentioned earlier.
Speaker Change: We then have a very deliberate planning in terms of getting the entitlements permits and so on that could range between six or nine months and then we haven't got 12 months.
Speaker Change: Construction period so.
Speaker Change: We then have basically low visibility.
Speaker Change: In the finance area of looking out at those ground leases as they come.
Speaker Change: Together and those various construction plans and so on so we basically have a good idea whaling events.
Speaker Change: To say actually.
Speaker Change: As I mentioned about a year or two years in advance of when we actually funding, which is important because it allows us to plan be opportunistic and so on and as I said earlier, our plans always to be raising the funds 12 to 18 months minimum ahead of what we need to fund.
Speaker Change: So as you look out into future if that translates into our capital plan on our financing plan that we obviously.
Speaker Change: Yes.
Speaker Change: A.
Speaker Change: Situations that lend themselves in the marketplace either in the debt side or on the equity side I think one important thing is always to have a plan B plan C and so just in case this market turbulence either in.
Speaker Change: Equity markets or in the debt market I think we have proven email.
Speaker Change: In terms of our bye bye financings that we have been able to.
Speaker Change: You don't take advantage of reverse inquiry.
Speaker Change: Eight inch.
Speaker Change: Interest into the company as we have proven in our in our <unk>.
Speaker Change: In a couple of financings in the past year and a half.
Speaker Change: We as I mentioned earlier, we have dual tracking for lack of better word EBITDA bond deal and our bank financing.
Speaker Change: For these upcoming bond deal or designates this summer and also as I said in that.
Speaker Change: This was on a question we have also the opportunity to potentially co invest with exist.
Speaker Change: Existing large real estate of infrastructure funds in some projects, especially brownfield ones. So there's a lot of.
Speaker Change: Therapies, a here that we see in front of us and.
Speaker Change: A.
Speaker Change: So we're going to be deliberate.
Speaker Change: We go forward.
Speaker Change: In our in our deployment of obviously being conscious of cost of capital.
Speaker Change: Dilution to our equity.
Jacob Robinson: The investors. So thank you Jacob for your question.
Speaker Change: And your next question is from Brad Thomas.
Brad Thomas: Curious as to Sky Harbor customer sentiment as it relates to re shoring announcements and Trump tax cuts.
Speaker Change: Okay.
Brad Thomas: Thank you Brad so.
Brad Thomas: By customers you mean, our residents.
Speaker Change: That's a good question I'm trying to think where we.
Brad Thomas: Might've gotten a.
Speaker Change: A peek into that.
Speaker Change: I will say in general we're feeling significant optimism from our residents. If you if you measure that.
Speaker Change: In terms of the level of improvement.
Speaker Change: Post delivery of improvements of tenants put into their hangers and in some cases, we're talking about.
Speaker Change: Literally a $1 million on a leased space right is often not necessarily a very long term lease.
Speaker Change: There actually is quite a bit of optimism in that.
Speaker Change: In that group, whether that has to do with re shoring R. R.
Speaker Change: Tax cuts I don't know.
Speaker Change: I'll ask sitting around the table Francisco.
Speaker Change: Bonus depreciation, yes, yes, I was going to add that.
Speaker Change: First of all thank you about 40 question is great to see the King of reads a following our stock. Thank you Brad.
Speaker Change: Yes. It was mentioned that has been reward that.
Speaker Change: Tax plan is coming together in Washington that they may bring back what they had in 2017.
Speaker Change: Tax reform.
Speaker Change: The depreciation for new machinery equipment and that will include also business aviation aircraft. So if that were to happen.
Speaker Change: Basically depreciate the entire purchase of your of the plane and within a year that's really accelerate.
Speaker Change: People purchasing plays or upgrading their planes to bigger planes and remember in our business model is not just the modem business aviation is there'll be a benefit bsw's over larger planes cannot be serviced by the existing and legacy hanger, a real estate out there.
Speaker Change: So thank you Brad Great question.
Speaker Change: And your final question is from Alex poster in a recent podcast interview with Ben Clurman, Karl mentioned that recent M&A transactions.
Speaker Change: Hangar space by peers in the industry imply a value for Sky Harbor, a lot higher than the current share price could you mention what those comps are and their valuation.
Speaker Change: Okay. Thank you Alex for the question, we avoid having discussions of our view of our value.
Speaker Change: Add that to the pundits are the research analysts that cover us and so on one thing. We will note is that we have.
Speaker Change: Served.
Speaker Change: As in the M&A market for four <unk>, although again different model a both dose continue.
Speaker Change: They've been bought and sold at a very hefty multiples.
Speaker Change: And a more I think more comparable than an IPO, because youre aware infrastructure real estate.
Speaker Change: <unk> business model is marinas arena, especially in the U S have similar similarities to to us in the sense that there'll be strong properties literally beachfront properties.
Speaker Change: And they sell fuel.
Speaker Change: They're really replicated a or b, there's no more marine has been dredging and environmental issues make it very very scarce real estate, obviously, they serve a very diverse client tail of high net worth individuals so let's similarities.
Speaker Change: So every cent.
From a transaction when Blackstone I think acquired.
Speaker Change: A safe Harbor Safe Harbor.
Speaker Change: Marinas.
Speaker Change: From a.
Speaker Change: <unk>.
A cold.
Speaker Change: If I can remember here.
Speaker Change: <unk>.
Speaker Change: Sun communities.
Speaker Change: And that was it.
Speaker Change: Hefty multiple I think it was 21 times EBITDA or something like that anyway, but so we keep track of the M&A activity.
Speaker Change: Truthfully, we're very focused on our business and execution of our plan and so on.
Speaker Change: And on their funding needs and so on led valuation be a something that that gets determined over time by by the marketplace.
Speaker Change: And with no further questions at this time I would like to turn the call back to Mr. Francisco Gonzalez for closing remarks.
Speaker Change: Thank you Avi.
Speaker Change: This.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Thank you everybody for joining us this afternoon and for your interest in Sky Harbor, we have as I mentioned earlier additional information on our website that we'll keep updating that.
Speaker Change: A ww Sky Harbor group and you can always reach was directly with any additional questions to the email investors eschar window group. So thank you again for your participation and with this we have concluded our webcast operator. Thank you.
Speaker Change: Thank you and ladies and gentlemen, this concludes today's call and we thank you for your participation you may now disconnect.
Speaker Change: Okay.
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