Q1 2025 Sky Harbour Group Corp Earnings Call
Tina: Good afternoon. My name is Tina and I will be your conference operator today. At this time I would like to welcome everyone to the conference call
All lines have been placed on mute to prevent any background noise.
Tina: After this speaker's remarks, there will be a question and extra session. If you would like to ask a question during this time, simply submit a question online using the webcast URL posted on our website. Thank you. See if O. Francisco Gonzalez, you may begin your conference.
Tina: Thank you Tina. I'm Francisco Gonzalez, CFO of Sky Harbour. Hello and welcome to the 2025 first quarter investor conference call and webcast for the for the
Tina: Corporation. We have also invited our bondholder investors in our parents of series Sky Harbour Capital to join and participate on this call.
Tina: Before we begin, I have been asked by Council to note that on today's call the company will address certain factors that may impact these and next year's earnings.
Tina: Some of the information that we'll discuss today contains forward-looking statements.
Tina: These statements are based on management assumptions, which may or may not come true, as you refer to the language on slides one and two of these presentations, as well as our ACC filings for the description of the factors that may cause actual results to differ from our forward looking statements.
Tina: All Forward-looking statements are made as of today and we assume no obligation to update any such statements.
Tina: Wanted to note, the picture here on the deck is one of our new hangars at our new campus that just opened the city of Addison just north of downtown Dallas. These hangar is beautiful, I have you noticed, and the picture has a messaging level.
Tina: and Floor to Roof Wall Windows in the office space, overlooking the hangar.
Tina: The jet shows a bombardier global setting 500, one of the largest jets in business aviation and fits nicely into our hangar space.
Tina: We're now moving to even larger size hangars in our future campuses to accommodate even larger single jets or of customers with a fleets.
Tina: So now let's get started, the team with those this afternoon, you know from...
Speaker Change: Prior Webcasts, our CEO and Chair of the Board, Tal Keinan, our Treasurer, Tim Herr, Archive Accounting Officer, Mike Schmitt, and our Country Manager, Tori Petro.
We also have Marty Crestman with us.
Speaker Change: Some of you remember he joined us as head of airports about a year ago.
after a successful career at Singapore Aviation.
Speaker Change: We have a few slides we'll want to review with you before we open into questions. These were followed with the SEC about an hour ago in Form 8K, along with our 10Q, and will also be available on our website later this evening. We also filed our first quarter Sky Harbour or capital over to get a group of financials with MSRBM, also about an hour ago.
Speaker Change: As the operator stated, you may submit written questions during the webcast, during the Q4 platform and will address them shortly after our paper remarks.
So let's get started. Next slide please.
Speaker Change: In the first quarter, on a consulate basis, assets on the construction and completed construction continue to accelerate reaching over 275 million as a quarent on the pack of construction activity in Phoenix, Dallas and Denver.
Speaker Change: Revenues experience an increase of 133% over a year ago and 20% sequentially, as we incorporate the operations from the acquisition of the Camarillo Campus last December .
Speaker Change: Operating expenses in Q1 increase moderately, due to several factors which Mike, Archive Accounting Officer will break down shortly in more detail.
Speaker Change: We strive to keep S-G-N-A in check as we grow, keeping frugality, front and center, in our expense and cost management industries.
Speaker Change: Casulo, using operative activity is much higher, which usually happens in each of our first quarters, but this quarter in particular for the increasing operative cost that Michael explained now.
Speaker Change: We want to also reaffirm our prior guidance that we expect Sky Harbour to reach cash flow breakeven on a console basis at the end of this year, as we ramp up the leasing and cash flowing of the new three campuses over the summer and fall. Next slide, Michael.
Thank you, Francisco.
Speaker Change: I'd like to discuss a few of the factors impacting the comparability between some of our reported operating expenses this quarter as compared to the prior.
Speaker Change: of the one and a half million increase, approximately a third of the increase relates to an increase in our reported fuel expenses, which is simply a function of us reporting fuel growth at our Camarillo Hanger Campus as opposed to NET as we do with many of our others.
Speaker Change: To other impactful factors include our startup expenses, including increases in headcount at our ADS, APA, and DVD locations.
Speaker Change: This was further impacted by a full quarter of our operations at our Camarillo Hanger campus, which, as you may recall, was acquired in December of 2024.
Speaker Change: Similarly, our cash use and operating activities was impacted by many of the things I just went over, but was also impacted by
Speaker Change: a decrease in accounts payable, largely just due to timing of payment, a driven by an effort to speed up the time in which we pay our vendors. Thank you, back to Francisco.
Thank you, Mike.
Francisco Gonzalez: Next slide is a summary of the financial withdrawals of our wholly owned subsidiary Sky Harbour Capital, and it's operating subsidiaries that form the Obligated Group.
Francisco Gonzalez: These basically incorporate the results of our Houston Miami and Nashville campuses, along with the CapEx and offering a cost, and soon revenues of our three projects that have just opened up in Phoenix, Addison and Denver that's expected to open up in a few weeks.
Francisco Gonzalez: Revenues were basically flat for the last few quarters. We expect a step function increase in revenues in Q2, Q3 and Q4 at these three campuses as there are least up and random fuel revenues come into flow over the coming months.
Francisco Gonzalez: Operating expenses increase as we just discussed, even the onboarding of all the line personnel and harbor masters in Q1 in anticipation of these campus becoming operational a few weeks
Francisco Gonzalez: Next, we are expected to increase into higher-positive cash flow operations as the three new
[inaudible]
Francisco Gonzalez: With that, let me pass on to Tal for an update on her grand least pipeline.
Thanks, Francisco.
Francisco Gonzalez: So, this is a slide that draws the most questions and comments, so I'll drill on it for a few minutes before we go on with the rest of the presentation and just highlight a few things that we've added.
Francisco Gonzalez: So, what you see on the right is our growing map of Sky Harbour Groundleases, self-explanatory, the two new ground leases that you see are in the Pacific Northwest, that's Seattle and Portland.
Francisco Gonzalez: The chart on the left is, I think maybe the key chart to understand in terms of how we perceive or conceive of value creation at Sky Harbour which is the chart that tracks the revenue that is available to Sky Harbour.
Francisco Gonzalez: We added a few points just to make sure that people understand because we've gotten questions about this on the last two or three earning schools.
Francisco Gonzalez: The first is, what does that bar chart actually represent? It's rentable square footage under ground lease, times Sky Harbour Equivalent Rent.
Okay, Airport.
Sorry, Rentable Square Footage
Francisco Gonzalez: Under Groundless, Tim's Sky Harbour equivalent rent. That is the total revenue that's available to Sky Harbour from groundless is that we currently control.
The box on the upper left.
Francisco Gonzalez: Is the direct answer to a lot of people's questions from previous calls. How do we calculate that and why do we think it's a conservative starting point for estimating?
Francisco Gonzalez: kind of call it terminal NOI in the entire Sky Harbour portfolio.
Sky Harbor Equivalent Rent
Francisco Gonzalez: is what people are paying today at those airports. Now, the closest function that we have to compare it to is the original CBRE estimate from 2022.
Francisco Gonzalez: on available rent on the airfield that we had. So what we're looking at here is $29.08. That was the original estimate. That is what we went out to the bond market with originally. That was for 2022.
Francisco Gonzalez: Where we are currently is at $35.75 a square foot, so that is the actual, it's about 23% higher than the Sky Harbour equivalent rent, which is half of the reason that we feel that this chart is conservative.
Francisco Gonzalez: What we see on the lowest line is the highest expected revenue, which is $40.06. That is the blended average of the most recent leases signed in Miami Nashville and Houston.
which represents a 38% premium over the original CBRE estimate.
Francisco Gonzalez: So there's two things that we feel are going on here.
Francisco Gonzalez: The first is the premium that top jet owners in the country are willing to pay for the home basing offering.
Francisco Gonzalez: Alright, Sky Harbour is a completely unique offering in aviation, it doesn't exist today, and we think that that's part of the reason that we're commending such a premium over Sky Harbour equivalent rents, and the second is inflation on airports, which is a central piece of our thesis.
Francisco Gonzalez: which is, we're not building new airports in this country, the available land on existing airports. Let's say the readily available land on existing airports is already quite scarce.
Francisco Gonzalez: We tend to take up all of the readily-developable land on an airport that we come to, and that really makes the case. It's really a supply-to-man question.
Francisco Gonzalez: for airport inflation outstripping CPI by a very significant margin, and I think that's part of what we're seeing. So the last line on that chart.
Francisco Gonzalez: Captures, we believe, a lot of that inflation, meaning the most recent rents that we're seeing are much higher than our average rent, at least that we signed on the first round, right after opening a campus, comes in at a lower total revenue than at least side more recently.
Francisco Gonzalez: So that is on site acquisition. Next slide is just a quick overview of our most recent site acquisition deal. This is Hillsborough, Oregon, which is the primary business aviation airport for Portland.
Francisco Gonzalez: and everybody has the slides. I'm not going to spend much more time on it.
Francisco Gonzalez: Next slide is where we've spent most of our time and effort over the last two quarters, which is in a total revamping of our construction sky harbors becoming a construction company. In many ways, today we have the scale that both
Uh...
Francisco Gonzalez: I'd say demands that we do this, but also presents a big opportunity for doing it. So if you look on the left side of the chart
You see...
The
Francisco Gonzalez: A story of vertical integration at Sky Harbour, which largely was not a factor in the early days. We did do our own prototypes very early on, and I think that was a big piece of our value proposition, but almost everything else was outsourced in the construction stack.
Francisco Gonzalez: And what you can see over the course of 2024 where we purchased our pre-engineered metal building, manufactured subsidiary, and brought all of our steel and materials procurement in-house.
Francisco Gonzalez: What we've done over the last two or three quarters was integrate the ability to conduct our own pre-construction services design architecture engineering.
Francisco Gonzalez: and increasingly now general contracting in-house. So what does all that do? And that trend, I believe, will continue as we continue to scale. What does all that do? The center column?
is the intended effect of those moves.
Francisco Gonzalez: The first for everybody who's looking closely at our unit economics is to manage costs and that's not just a question of cutting out margin to the various suppliers that used to be on the outside.
Francisco Gonzalez: But it's also getting a lot more efficient in our processes because, again, we're not relying on people who do a lot of different things. We're now talking about people who do only one thing, which is build a prototype, Sky Harbour 37 Hanger.
That will also manifest in speed, which improves.
Francisco Gonzalez: which lowers our costs as well and also starts revenues flowing earlier. Yeah, if you figure...
Francisco Gonzalez: About a half million dollars a month in NOI per campus, the effect of shaving two and a half months off of our construction campus is, it certainly moves the needle, even in the grand scheme.
Francisco Gonzalez: Build Quality, which, you know, is a lot of people in the call who follow school slip known. We've had, you know, a very mixed experience with build quality and design quality in our space and we've worked with the blue chip suppliers.
Francisco Gonzalez: It just happens that in this space there are quality issues and that's something that we want to address by taking it in house.
Francisco Gonzalez: Fundamentally, the ability to manage scale really inoculate ourselves from the effects of supply chain disruptions or anything like that and have nothing in the way of scaling our business.
Francisco Gonzalez: And then lastly, versatility. If we need to make modifications to the prototype, retrofits, whatever it might be, having all of that ability in-house and the ability to prioritize because we're all competing with other customers for those services.
Francisco Gonzalez: I think is a big deal. And the ultimate benefit that we're trying to get from this is on the right column.
Francisco Gonzalez: Obviously, our unit economics is yield on cost is what we measure. The denominator is our construction cost. The lower we get those is that our unit economics.
Francisco Gonzalez: One level more subtle, but I think very important for people who are trying to value this company is our addressable market. If you just do the math, if you're looking at it, if you're a friend of target, a minimum of a 12% yield on cost in all of our new construction.
Francisco Gonzalez: If you're building it $250 a foot versus $300 a foot, the universe of airports that will bear that yield grows dramatically.
Francisco Gonzalez: in all of our efforts to reduce our construction costs, the total adjustable market grows very significantly for Sky Harbour.
Francisco Gonzalez: And then third, you know, our arguably most important is product differentiation right and we have a bundled real estate and service offering that has to go together. You have to build it this way in order to put forward the service offering that that we have.
Francisco Gonzalez: We aim to be the six star offering always in our space.
and we're differentiating ourselves on build quality. It's not just...
Francisco Gonzalez: It's not just about the quality of construction and the durability of our structures, but it's the design itself and the fact that we have a rapid feedback loop where you solicit.
Francisco Gonzalez: Direct feedback from our residents and then introduced that into the portfolio.
Francisco Gonzalez: I think we continue to gain an advantage and that will increasingly be part of the moat around this entire business with that I'm going to hand it over to Tim.
[inaudible]
Tim Herr: Thanks, Tal. We continue to enjoy strong liquidity with approximately 97.5 million of cash and less
Tim Herr: Our cash management strategy focuses on investing our cash in short-term U.S. Treasury bills and money market funds dedicated to future construction use, while the various reserve funds required by our bonds are invested in longer-term treasuries.
Tim Herr: The charter on the right-hand side shows the latest trading of our long-bought, which continues to rally over the past year.
Tim Herr: We stand by our expectation that the future debt service coverage ratios for these bonds will exceed those that we forecast at the time of the bond issuance.
Tim Herr: We appreciate the continued interest in our bonds by our bondholders as we gear up for our next offering this year to fund our airport scrum leader development.
Back over to Francisco.
Thank you Tim, very quickly in terms of capital formation.
We continue to work ahead in preparation of our next.
of that issuance
Tim Herr: which we discussed in prior calls. We have been dual tracking a bond offering or a bank term facility.
Tim Herr: And let me also note, you know, we keep our eye on developments in DC about the future of tax exemption for musical debt. And, you know, all that we've seen at least in public news is that what's coming out of DC seems to be living tax exemption on touch, which gives us great news for, you know, one of the pillars of our business model, which is racing tax exempt debt.
to follow our growth.
Tim Herr: Separately, we are continuing to receive inquiries from investors looking to invest in the company, and also from certain real estate and infrastructure funds looking to partner with us in potentially looking at existing hanger assets already in operations.
Tim Herr: will report soon on these potential structures and finances that we are working on as soon as they are materialized and okay formalized.
Let me turn it back to...
Tim Herr: Tal to discuss and look ahead on highlights of our Q1 in terms of development at least.
Thanks for Francisco.
Tim Herr: So QM highlights, I'm going to focus on development in this slide and when we look ahead I'm going to focus on leasing because as we've described the business before it's an exercise in shifting bottlenecks, right? We had a very big set acquisition bottleneck.
Tim Herr: We're coming into a place where our success on a side acquisition side has built a development bottleneck, which is welcome. That's what we want.
Tim Herr: But starting with the being in an on-set acquisition, two new leases in the last quarter, both in the Pacific Northwest.
Tim Herr: As always, more to come, the pipeline is full. We will not take our foot off the gas on side acquisition. It is the binary entry ticket into this entire business.
Tim Herr: and we remain focused on pulling down the best airports in the United States for Sky Harbour.
Tim Herr: Development is where the biggest action has been in the last quarter.
Tim Herr: We are on the eve of some big announcements and some big introductions for new leadership in our construction team and a significant expansion of the roster of players.
Not just a number, but in fit for our mission.
Tim Herr: These are what I consider the top veterans of the pre-engineered metal building industry in this country coming in-house. Things that I referred to earlier that we really are excited about. I think that's a huge piece. It's both a necessary gear up.
Tim Herr: for the scale of development that we're entering right now, but also an opportunity to really just maximize the advantage and economies of scale of a construction effort on this.
Tim Herr: Dallas and Denver are all nearing completion. All three of those have part of their hangars under certificate of occupancy already. We've commenced operations in two of those airports and leasing at all three of those airports.
We have two more campuses.
Scheduled for delivery by the beginning of 2026.
That's Dallas Phase 2 and Miami Phase 2.
Tim Herr: and then 16 additional campuses in development. So certainly, an exponential ramp up in development activities. I would say coming into the second and even third quarters, that will remain a major focus for management.
Tim Herr: is making sure we're properly prepared for that, but also maximizing the benefits that we can draw from scale.
Tim Herr: on the leasing side. All three of the new campuses are in Round 1, lease up. Remember, we're also completing leasing at Camerillo, which we acquired. And we're beginning lease up in Boeing Field in Seattle, which we just acquired.
Tim Herr: We are experimenting now. I think a lot of people who follow us closely have noted and challenged this strategy of waiting until we actually are ready for operations, certificate of occupancy.
Tim Herr: Full ground support equipment and staff trained and ready to go before we actually start leasing a campus The idea behind that is that we have maximum pricing leverage at that point in that aircraft owners tend not to pre-plan and pre-lease
Tim Herr: One of the things we're seeing though is inbound demand is real. When we announce the new airport, we increasingly get calls from a lot of the business aviation community in that jurisdiction.
Tim Herr: looking to pre-lease. And increasingly we feel like people are aware of the differentiated value of the Sky Harbour home basing offering. And frankly, they are aware of the premium that you pay in order to get it.
Tim Herr: So we've taken one airport which will perhaps name it at the next opportunity and we are going to lease up part of that campus well in advance before we've even broken ground.
Tim Herr: and see, and this is an experiment, but you just see what that does for us.
I would say certainly for the bond holders on the call.
Tim Herr: and I say, you know, people who are looking at downsides scenarios on the equity side, that should be welcome news. And we're going to see if we are really forced to part with significant upside by doing that. Obviously, the, the, the, the, uh,
Tim Herr: Intention is to try to have our cake and eat it too, but we'll see how that goes Really thing has become a central piece of our activity and that's just a function of scale at this point is that we have, you know, seven, eight, nine airports.
Tim Herr: with Lisa's coming to term now. So it's significant. I don't want to call it a distraction, but a significant...
a portion of the leasing team's focus.
Tim Herr: has been diverted to releasing, and that's also key because of the premiums that we're getting on pre-releases. The second round is, I don't know if we have updated statistics, but let's say between 20 and 30%.
Tim Herr: higher than the first round of leasing. So we want to continue to maximize that.
That's...
Speaker Change: on leasing operations. I don't think people on this call have met Marty Krechman or senior VP of airports.
Marty Kretschmann: So, this is a good opportunity to meet him. So, Marty, let me ask you to cover operations. Thanks, Sal. So, quarter one, strong quarter of execution for the operations team. As the Sal mentioned, when it comes to value differentiation, that really is where the rubber meets the road for our customers.
Marty Kretschmann: getting ready for the first residence and bringing the Sky Harbour model to more aircraft.
owners and operators across the country.
Speaker Change: Tal mentioned we also established our initial operating presence at Boeing Field. We began support of our first incumbent residents there while we're negotiating towards a longer term agreement with the airport. And then at Camarillo, we continued refining the service offering from our December acquisition to align with our distinct and elevated standards.
Speaker Change: with nine campuses now actively serving our residents. We're demonstrating the scalability and in particular the appeal of our unique model and we're introducing this differentiated value proposition to a growing segment of the industry as we expand further.
Thanks, Marty.
Okay, so moving on to the next...
Speaker Change: One or two quarters. Again, the theme that you will see is a gradual shift of management attention away from the bottleneck that you're worth.
Speaker Change: We're now contending with which is development to the next bottleneck which will be leasing. Okay, we have a skeletal leasing team today and that's going to have to change as all this volume comes online.
Speaker Change: Again, on site acquisition, our focus is on the best airports in the country, right? Just referring us back to that bar chart, it's primarily about the revenue capture and maximizing that.
Thaam.
Speaker Change: We are a reiterate on course to meet our 2025 acquisition target, which will have us at 23 campuses by the end of this year, and we continue to grow our team to support that acceleration.
Speaker Change: Development. Again, we've discussed quite a bit already, and I'm guessing there are going to be some questions on this, but vertical integration has been the theme more and more is coming under our roof, and that is both a necessity and also a big opportunity for us to increase our build quality.
Speed up, scale up, and lower our development costs.
Speaker Change: Leasing, like I said, will increasingly be the center of management's focus in the common quarters. We're going to have to build up a national leasing team.
Speaker Change: Definitely a challenge. I think one of the areas is going to take a lot of focus. It was and it has been on the development side. It will be on the leasing side.
Speaker Change: It's not obvious who the right players are to actually manage a process like this. There's no obvious pool to be fishing in for talent. A lot of it I think is cultivated in the house and that might be that might be the strategy going forward.
Marty Kretschmann: As we do that, and again, I'm going to ask Marty to speak about operations in a minute, but a lot of that takes care of itself if we continue firing in oil cylinders on operations and really bringing that differentiated value.
So increasingly we're seeing...
Marty Kretschmann: The Sky Harbour brand growing in the business aviation community, you know, there are a few and fewer people, whether that's, you know, aircraft managers, pilots, aircraft maintainers, and in many cases, aircraft owners who are aware of Sky Harbour and want it.
Again, we're seeing that in the, when we announce new ground leases.
Marty Kretschmann: The calls that we get from flight departments looking to pre-lease these properties were seeing it in expansions. People who have let's say one hanger who are now going to two hangers or in one case two hangers going to six I guess now seven hangers.
Marty Kretschmann: residents in one location who are looking for a dedicated hangar in a second location. So increasingly, I think the the word is out and that's really about just delivering every day. So we've been worried a little bit less about.
Marty Kretschmann: Messaging and more letting that take care of itself when we just deliver, which is a good segue to, let me hand it back to Marty again to talk about operations in the coming quarters. As we look ahead, we continue refining our standard operating platform with input from our residents and their support teams.
Marty Kretschmann: What we offer is a comprehensive aircraft home-based solution, and it is truly unique in the space. Our model means we don't serve any transient traffic, so we have up to ten times fewer aircraft movements than a traditional FBO at the same airports.
Marty Kretschmann: And there's an inherent operational simplicity here that enables tighter security, improved safety performance, and ultimately a more seamless transition into the air for our residents.
Marty Kretschmann: We're also focused on building partnerships with select FBOs, maintenance providers and other aviation service providers where they can help enhance convenience, increase aircraft uptime, and just generally improve the Sky Harbour value proposition and deepen that resonant loyalty that's so critical to our model.
Marty Kretschmann: and as we scale beyond the current nine campuses we've got operating we're focused on building strong self-sufficient teams at each campus within our campus service delivery system as we call it.
Marty Kretschmann: as Tal said, we're not marketers, but we're good operators. And that's where our Empowered Local Leaders deliver this unique service model for their residents every day and continue to seek to refine and improve it.
Marty Kretschmann: Thank you, Marty. Operator, this concludes our prepared remarks. We now look forward to an investor of these questions. Operator, please go ahead and with a cube.
[inaudible]
Speaker Change: Thank you. At this time, I would 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: And our first question comes from Randy Biner with B. Raleigh Securities. Can you provide more color on your plans to raise that this year? You have mentioned $150 million in the past calls. Thank you.
Francisco Gonzalez: Thank you, Randy, it's Francisco. Thanks for the question. Yes, we are giving up to, as we've said, in prior calls to...
do a financing for our new projects that are coming up.
Francisco Gonzalez: and we are diligently preparing for that. We continue to do a truck.
Francisco Gonzalez: You know, we keep an eye on interest rates, we keep an eye on...
Francisco Gonzalez: What's happening in the markets, in the musical market, and Infos and Outflows into the funds in that market. So it's not just about just being ready ourselves, also making sure the market is a good market to go into. And as you guys know, they have been a lot of volatility in the past few weeks.
Francisco Gonzalez: And then, as I mentioned earlier in the past, we do all track the money insurance also with some very attractive term financing that we have received from some of the relationship banks that are able to actually loan land money on a tax exam basis.
Francisco Gonzalez: So, yes, we're tracking 150, it will actually end up being a little bit more from 150 to 108, 5 million in terms of our next detachment.
Next question.
[inaudible]
[inaudible]
Francisco Gonzalez: Our next question is from the line of Pat McCann with Noble Capital Markets. Could you speak to the prospect for increased competitive, I'm sorry.
Francisco Gonzalez: Competition over time from operators that would seek to replicate your model versus FBOs. And does this concern you and what would Sky Harbour's competitive advantage in the face of new competition?
Francisco Gonzalez: Yeah, this is Tal. Pat, thanks for the question. The answer is yes, it does concern us, it's probably my biggest concern today in the business is new competition. That said, as the quarters go by.
Francisco Gonzalez: I feel that the lead that we have is increasingly sustainable in that, you know, if you take
Francisco Gonzalez: If you look at the different silos of our activities independently,
Francisco Gonzalez: Site acquisition, which is really the binary entry ticket. You're just nodding the game if you can't acquire the land.
Francisco Gonzalez: is probably our most special skill in the company. We couldn't import it from anywhere else we had to develop.
Francisco Gonzalez: That skill set internally, I think we have the best side acquisition team of anybody on airports today and
Francisco Gonzalez: Even then, you're talking about a many-year process to actually get landed at an airport. We have plenty, I look at our pipeline, which is well over 100 airports today that we're working on.
Francisco Gonzalez: There are reports that have been in there for five or six years, and we're optimistic about them. We're in good shape but this is a very long process. So I think it takes quite a bit of time to break into it.
Thank you.
Francisco Gonzalez: Rather than go through every other silo, I'll just add that the integration of all four silos, set acquisition, construction, leasing, and operations.
Francisco Gonzalez: It's not that easy a trick. It's definitely a lot less easy than I thought it would be when we started this business to actually get them working together. And it's key, right? It doesn't make sense if they're not working together correctly. We used to think we were a real estate company. We just put up hangars and people would come in and lease them. I think today if you pulled Sky Harbour residents, and that does matter if it's the aircraft owner.
Pilot, maintainer aircraft manager, it almost doesn't matter.
Francisco Gonzalez: They're going to talk about the people that they interact with every day at Sky Harbour and the level of service that they get. Now you can't put forward that type of service without a very specifically designed hanger and a very specifically designed campus. So it is all integrated.
Francisco Gonzalez: and if you can't build it at the quality level that we need, at a price that actually works for the business plan, it's almost, don't bother coming. So increasingly, again, it's...
We're not putting people on Mars here, we understand that.
Francisco Gonzalez: It is a straightforward and fairly simple business model, and I do imagine we will have.
Francisco Gonzalez: Eventually, in every quarter we get this question, in every quarter I say it's coming. We will have competition for the time being we haven't seen it, and I think as more quarters go by.
Francisco Gonzalez: It gets harder and harder to compete with us. Again, I think it's inevitable that we will have competition, but I also think we have a much better chance of maintaining our lead as time goes by.
[inaudible]
Our next question is from Philip Ristell, with...
Francisco Gonzalez: If Sky Harbour was submitted only for New York and Connecticut locations, what would the Unlivert and Leverd Returns be?
Francisco Gonzalez: Okay, thank you, Philip, it's time again. I understand what you're getting at, and I think a lot of people have said, you know...
Francisco Gonzalez: and that would be a great company. I agree with that. You know, we are fundamentally, we are on the real estate business, right? We're with this big operational component to it, but it is about location at the end of the day. New York is the richest market. There's will over a dozen airports that that that would work really well for a model in in the New York area.
Francisco Gonzalez: So in terms of yield on cost, if you're only looking at unit economics, yeah, you'd be looking into New York, you know, you know, again, I think it'd be very conservative to say 15% yield on cost is achievable in New York, but you do a lot better than that in this area.
Francisco Gonzalez: That said, first of all, there are other jurisdictions where you can do that.
V.
to.
Francisco Gonzalez: Do the rest of the country as well. I think that's what you're getting at in the question. In terms of leverage, I do think it's an interesting cost of capital question. Again, I think all day long at our current cost of capital. Yeah, I do 13% yield on cost.
Francisco Gonzalez: I think you could, I'll ask Francis to go to weigh in on this as well. You could increase our cost of capital significantly and would still be worth pursuing those. But that, that's...
Francisco Gonzalez: I think that's what I have to say on that. Francisco, you want to add anything? No, I think that's a good answer. You're weird.
Francisco Gonzalez: We are, you know, the projects in the North, New York area, Connecticut area may also have a slightly higher cost than some other regions in the U.S. So, so the only they, you know, that, but nowhere that does not offset the much higher.
Speaker Change: The least revenues and potential for revenues in this area, so indeed that's what we're so focused.
Speaker Change: This area and also will say some areas in Florida, some areas in the...
California, Sumerias, and...
Our next question comes from Alex Boussart.
Alex Bazart: You've stated that you typically achieve income per square foot double that of the FBO's charge. What are the FBO's charging at your four New York metropolitan airports? And do you believe any of the airports you have grand leases at could generate income per square foot exceeding $100?
Alex Bazart: Thanks for the question, Alex. It's pal. I want to be cautious about that sort of forecast. I think maybe what we could say is
We don't, we don't have any New York area airports open today.
Alex Bazart: But we already have leases that are generating $70, $80, and almost $90 a square foot outside of New York. So if you kind of fuse that with the previous question, I think from Philip Bristow.
Alex Bazart: You can perhaps form your own view on the likelihood of that.
[inaudible]
[inaudible]
Great, next question.
He's here. Our next question comes from Ezra Codid.
Speaker Change: Your initial projections saw the entire obligated group being completed in 2024, versus more than half slipping into 2025 and 2026 now.
Speaker Change: Acquisition instead of focusing on those already signed out yet to start construction.
Speaker Change: Yeah, it's Tal again Ezra. Thank you for the question. It's a great question. And look, we have debated and continue to debate questions like this all the time.
I'd say that it's cautiously weak.
We have invested...
Speaker Change: so much in perfecting our prototype and minimizing the development risk going forward. You know, we certainly look a lot of things you're inevitably going to learn the hard way. I'll say this, one of the good things we did in the early days of the business was we intentionally stayed away from New York.
Speaker Change: We don't know which geographies we want to be in for sure.
Speaker Change: We're going to try to take the path of least resistance and ended up that Houston was the first market that we've made headway in.
Speaker Change: One rule that we did say is we're going to stay out of New York, we're going to stay out of Southern California, we're going to stay out of the Pacific Northwest, some of the best markets that we knew already were the best markets in the country, where we knew we would make mistakes. Unfortunately, we didn't know which mistakes we'd be making at the beginning, but we knew they were going to happen.
Speaker Change: Not all of those have been in design and construction, but a lot of the big ones have as you point out. So, we have spent really a lot of time perfecting a prototype that works, that is...
Speaker Change: Functional in a way that no other hanger is in aviation and it's constructible at scale and at an efficient cost, and we feel confident going in that we're in a good place on this.
Speaker Change: So we believe that this is kind of a walk-and-choo gum situation.
Speaker Change: We've got great people on the construction site and on the design side.
Speaker Change: We don't see any reason to slow down on the side acquisition side.
Speaker Change: I'll say two more things and I'll link this to one of the other questions about competition.
Yes, the model is increasingly difficult to replicate.
Speaker Change: But the deepest moat around this entire business is site acquisition. If you can get land, I think Denver International is the last airport.
Speaker Change: that was developed in this country, that was, you know, a generation ago.
Speaker Change: We do not make new airports in this country. It is almost impossible. You cannot come to National International Airport today and compete with Sky Harbour. We took all of the available land at that airport. It is a key piece of our strategy. And then the last thing I'll say on that is...
[inaudible]
Speaker Change: If we do hit log jams on the development side, it's important to understand that there are either no performance obligations in most of our ground leases or very loose, lenient performance commitments in those ground leases, meaning
Speaker Change: If you do have to delay by a year, or even two years,
Speaker Change: The start of construction, you can do it. We don't want to do it, we are all about speed and growing and growing fast.
Speaker Change: We feel we have our ducks in a row and we're ready to do that again.
We've got a lot of the last...
Francisco Gonzalez: We can handle this scale and take advantage of it, maximally. But I think it's a great question that's something that we talk about here all the time.
Speaker Change: and as Tal mentioned, we will continue to involve this acquisition and then development of those leases.
but we're definitely a rat race.
Speaker Change: You know, we are red-rays because this land is sacred in the sense that Tal mentioned there's just no new airports that are going to be developed in the U.S. They all are there. And we're probably also competing with the development of expansion, commercial aviation terminals, cargo, a facility and so on. And we want to get our hands at not every airport that we care about.
Speaker Change: and luck that ground is for 50 years. And once we do that, the rest is our execution. So the economic value to our investors, to our equity holders, in our business model, it happens the moment we look in that ground is.
[inaudible]
Next question, please.
Speaker Change: Our next question comes from Randy Biner. Have construction timelines been affected by macro uncertainty this year? If so, how are you managing around the delays? You need delays. Thank you.
Speaker Change: You know, I think again, one of the benefits of in sourcing a lot of those functions is that we're really not as
Explosive, yep.
Speaker Change: to supply chain issues or any kind of supply demand issue along that vertical supply chain.
Speaker Change: So the timelines have not been affected. We did pre-purchase a lot of steel in February out of an abundance of caution that's paid off for us. Again, I think that was more kind of tactical luck than anything else.
Speaker Change: to be clear. I think two things that we see going on is business aviation does not seem to be affected by any of this stuff. We're seeing zero change in the demand for our offering.
Speaker Change: and if we did go into, you know, call it a construction recession, maybe that's too strong reward. If we went into a construction slowdown in the United States, that wouldn't be such a bad thing for Sky Harbour. We kind of welcome that.
Speaker Change: Our next question comes from Clinton Hara. Are you seeing any impacts to least-time negotiations given the uncertainty in the markets?
I think the short answer is no.
Speaker Change: Our next question is from Payton Skill. Could you please provide some color on Nashville occupancy?
Nashville, AXC is 92 percent. It's important to understand, though, that...
Speaker Change: I'm going to say something new on this right now. Of the 92% that is occupied, it is more than 100% occupied. When we say 92% occupancy, just so everybody understands our parlance here, it means that 8% of the campus is not least.
Speaker Change: We have higher than 100% occupancy in the part that is least, right? You often...
Speaker Change: Particularly in a place like Nashville where we have a lot of what we call semi-private anchors.
We have multiple residents in the anger.
Speaker Change: You might have 12,000 feet of hangar space, but 13,500 feet of airplane in that hangar space. And again, we, it's not a video call, so we can't show you what the geometry looks like when you put aircraft in a hangar. But I think there's actually some...
Speaker Change: some cutouts on our website where you can see that. So, it's important and we...
Speaker Change: You know, we debate this sometimes, how should we be reporting occupancy in light of that?
Speaker Change: I don't think we've come up with a good answer to that, but basically our occupancy is what is vacant? Is 100% minus what is vacant? But again, that can be a little bit of a misleading number, right? So like in Miami, for example,
in Miami or in Houston.
Speaker Change: We're publishing 100% occupancy. We are at above 100% occupancy. We've got more if you've got 160,000 square feet of hangar, you've got more than 160,000 square feet of airplane in Miami.
I wanted to add, it's Francisco Pei.
to this good question.
It's two things. As you probably know, when we have sent me private...
He hangers, that means a hanger that has a roommate.
Speaker Change: We rent those in the box that is the square footage between the wing to wing.
with Andy Knows to tell a box. And when those boxes...
Speaker Change: A overlap in the pictures game that you're doing in terms of, you know, hangaring these planes That's what results in more than 100% occupancy. Then you add to that
Speaker Change: a certain campuses where we have been, because of the man, able to lease space in the apron outside, and then, if there's availability in the semi-private hangar, then the plane.
Slip's inside.
Speaker Change: then that further allows the same square footage to be rented now a third time.
Speaker Change: and then is what drives a disability. And one last comment.
Speaker Change: As we grow in a prototype from this Cabo 16 to this Cabo 37, the bigger the hanger, the more potential you have for occupancy to be higher than, further higher than 100% because the optimization becomes bigger and bigger, the bigger the hanger.
[inaudible]
Speaker Change: Our next question comes from Oroz Mehta. What is the expected interest rate and timing on the expected term financing and or bond insurance in 2025?
Speaker Change: Thank you, Grav, for the question. Obviously it's going to be market dependent, but if we do a bond deal, we're going to go long. Call it 30-year final and then try to push the term on the bond deal. Obviously, we're constructing and financing 100-year assets, so we're looking to get as long a term as possible. Then if we do a bank facility, likely it might be kind of like a five-year term to allow us to do that.
Francisco Gonzalez, Will Whitesell, Michael Schmitt
Speaker Change: We've been looking at proposals. I think with these closets last time a couple of quarters ago, we received proposals in the SOFR plus 200 area. That gives you a sense of the interest rate cost.
John Mellon: and John Mellon. Thank you. Thank you. Thank you. Thank you.
Our next question comes from Ezra Kodig.
Speaker Change: Using the low end of your total projected cost for the obligated group, you seem to have 61 million of remaining spin compared to the 47 million of cash, will you have to make another contribution to Sky Harbour Capital?
Speaker Change: Yes, yes, Ron, thank you for your question. Good question. Yes, of course we are. We will monitor the Olegary Group.
is constantly and it's important as you look at your
Aura Melosis.
Speaker Change: that you're missing the fact that the cash earns interest income in between now and the end of construction. Remember, we have Opal Look at Two that just started phase two, that just broke ground a few weeks ago, and then the...
Speaker Change: So if you add interest income and then you add the net income, basically the cash level for the service that we'll be generating to now and the end of um...
of the finishing those two faces.
Speaker Change: is then the delta between the cash in hand and the remaining spend.
is diminished.
Lastly, we have been in conversations.
Speaker Change: and with a particular party that may look to get and do something in our Denver Phase 2.
Speaker Change: You have nothing concrete yet to announce, but if that were to happen, the capex need there will be decreasing by potentially about $10 million, so that also is in play.
Speaker Change: But to answer your last part of your question, you know, we will always come to support.
Speaker Change: capital and our bondholders, as we've seen in the past, you know, it's sacrosan our commitment to our bondholders and to that program, which is partly a livelihood of our growth. Thank you for the question.
[inaudible]
Speaker Change: Our next question comes from Philip Roestell. How conservative is the share slide of close to 20 million by the end year or by the year end? What kind of premium could we see for the upside of the multiples of CPI for Sky Harbour's business model continues?
Speaker Change: Yeah, thanks for that, Phil. So, how conservative is the 200 million? Can we go back to people still see slides? All right, we can go back to the bar chart.
Thank you. Bye.
So...
Speaker Change: Phil, I'll tell you what we're trying to do. It's with that it's not a forecast, it's more a statement of intent.
Thank you very much. Thank you.
[inaudible]
Speaker Change: The, you know, I spoke when we talked about this slide a little bit about what what the current premium is, you know, and where it's where it's trending. And I think you're right to mention that that kind of CPI benchmark, and hopefully we achieve both of that.
Marty Kretschmann: But what we're trying to do really relates to what Marty was was was talking about and that's okay I don't know the numbers here I'm betting that people on the call who do know the numbers but I think the premium
that you pay for courtside seats.
for an MBA team.
if you compare Courtside to Second Row.
Marty Kretschmann: My guess is that's a much, much bigger premium than Second Road of Third Road. That's my guess.
Marty Kretschmann: and we are courtside. We are the premium offering, the best flight departments in the country.
Marty Kretschmann: The best funded flight departments, the best managed flight departments in the country are at Sky Harbour, and they insist on being at Sky Harbour.
Marty Kretschmann: If we can continue operating and enhancing, right, we're not done, I mean we're adding functionality to our offering all the time.
Marty Kretschmann: If we can continue being that courtside seat in business aviation
Marty Kretschmann: then I think the premium that we end up commanding goes up. I don't know to what extent that's going to succeed. I don't even know if that analogy from basketball actually holds for the fellow people who know the numbers better than I do, but that would be the intent.
[inaudible]
Speaker Change: Our next question comes from Alec Boseg. How meaningful should your revenue could the add-on services be over time? And how much do you anticipate this may add to your income per square foot?
Thank you.
Yeah, thanks Alex.
Speaker Change: So, one of the things people may have noticed is, as we continue to introduce services and I've given examples of the past, so I'll give one or two right now.
What we've been doing is not charging for them.
Speaker Change: in order to essentially try to capture that on just our basic rent and say, look, the value of the offering is this much higher because of the following services. So, for example, if you take
Speaker Change: If you take our secure boarding service and we have a lot of public personalities as residents who don't want exposure to
Speaker Change: and that this happened after the two attempted assassination attempts of Donald Trump, people who don't want exposure to shooters, outdoors, and want to do all of their boarding indoors. They come in in their car.
Speaker Change: into a closed hanger, their board and airplane in a closed hanger. We pull them out and they start their engines outside. And by the way, we've perfected that to a three minute, it's a three minute delay to your departure to have that kind of board. We don't charge for that. That's a service that if you want it, we'll provide it.
Speaker Change: or about to roll out a light maintenance service where you can have a crew come in pre-flight or airplane, 12 hours or 24 hours before a flight, address any kind of squawks whether they're avionics, small things like tire pressure, a strut pressure, things like that.
We're not charging for that. That's a...
Speaker Change: We're looking at these things as things that will enhance the value of the offering and you capture that in the rent. By the way, there's a third party provider who charged for that. We just don't take any cut of that business.
Speaker Change: Over time, these are things that I think we'll be able to circle back and look at, but frankly, I think right now we're running so fast on site acquisition, development, leasing, and operations.
Just going in and you know, conducting the... the...
Speaker Change: and then circle back because once you have a loyal following that really says, okay home-basing is the only way we're going to operate going forward.
Speaker Change: Then look for opportunities to potentially break those out and, you know, and again I don't know if that actually results in a net increase in revenues or not, we'll see, but right now we find it's just cleaner, easier, smarter to roll these things out without charging after for that.
and I will say these are these services.
Speaker Change: that we will provide as we have discussed in protocols when discussions with people who provide catering services, security services, rental car services.
Speaker Change: The detailing, there's two financing institutions that would like to offer the financing to our tenants when they look to operate their planes and so on, so obviously our goal is to have referral agreements and things like that that allows to participate in these third-party providers for white services to our tenants.
[inaudible]
Speaker Change: Our next question is from Ezra Konik, for all the Lisa signed outside of the obligated group. What do you estimate the total construction cost to be cost-begin-being?
Speaker Change: When do you expect to start and finish the construction on these releases?
Speaker Change: Yes, thank you Ezra for the question. You know, we, as Tal mentioned, are spent a lot of time with past few months.
Speaker Change: to gear up and enhance our construction development efforts to accelerate the start and the finish of this construction of these new leases.
Speaker Change: and in terms of, and there's a schedule that we have provide, you know, in the in the in page 24 of our of our 10 queue, then you can see the latest start and construction dates for all our leases that we have signed.
Speaker Change: So, we are looking to, you know, explain these things as Tal mentioned every month, results in higher revenues for the company. So, there's a lot of value in us accelerating, and you're going to see that in the coming eight quarters.
I don't know for the questions at this time.
Speaker Change: Mr. Gonzalez, I would now turn the call back over to you.
. . . . . . .
Thank you.
Speaker Change: Thank you, thank you Operator, and thank you all for joining us this afternoon and for your interest in Sky Harbour. Additional information may be found on our website as www.skyharbour.group. And you can always reach out directly with any additional questions through the email investors at Sky Harbour.group. Thank you again for your participation, and with this we have concluded our webcast, thank you Operator.
Thank you.
Let's conclude today's conference call you may now disconnect.
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