Earnings call transcript: Sky Harbour Q2 2025 revenue climbs, stock stable

Sky Harbour Group Corp (SKYH) reported its second-quarter 2025 earnings, showcasing a strong increase in revenue and a stable stock performance. The company’s consolidated revenues rose 82% year-over-year to $6.6 million, exceeding the forecast of $6.43 million, continuing its impressive growth trajectory with last twelve months revenue growth at 102%. The earnings per share (EPS) forecast was set at -$0.1571. Following the earnings announcement, Sky Harbour’s stock showed a slight upward movement of 1.37% in aftermarket trading, reaching $11.10. According to InvestingPro analysis, the stock appears slightly overvalued at current levels, with analysts setting price targets between $12 and $25.

Key Takeaways

• Sky Harbour’s revenue increased 82% year-over-year, surpassing forecasts.
• The company opened three new campuses and is focusing on operational excellence.
• Stock price rose modestly by 1.37% in aftermarket trading.
• Future guidance remains optimistic with significant revenue growth expected in upcoming quarters.

Company Performance

Sky Harbour demonstrated robust performance in Q2 2025, with significant revenue growth driven by new developments and strategic initiatives. The company has been actively expanding its footprint, opening new campuses in Phoenix, Dallas, and Denver, which contributed to the positive financial results. The business aviation market’s demand for high-quality hangar facilities continues to support Sky Harbour’s growth trajectory.

Financial Highlights

• Revenue: $6.6 million, up 82% year-over-year and 18% sequentially.
• Cash flow used in operating activities improved to less than $1 million.
• Assets under construction and completed constructions reached nearly $300 million.

Earnings vs. Forecast

Sky Harbour’s actual revenue of $6.6 million exceeded the forecast of $6.43 million, marking a positive surprise. While the EPS forecast was -$0.1571, the exact EPS figure was not disclosed, but the revenue beat suggests a better-than-expected financial performance. This marks a continuation of the company’s trend of surpassing revenue expectations.

Market Reaction

Following the earnings release, Sky Harbour’s stock price experienced a modest increase of 1.37%, closing at $11.10 in aftermarket trading. This movement reflects investor confidence in the company’s growth prospects, especially given the strong revenue performance and optimistic future guidance.

Outlook & Guidance

Sky Harbour has provided an optimistic outlook for the remainder of 2025, expecting significant revenue increases in Q3 and Q4. The company is also targeting 5-6 new capital developments and continuing its site acquisition strategy. The secured $200 million warehouse bank debt facility will support these expansion efforts.

Executive Commentary

CEO Tal Cannon emphasized the company’s reputation as a first-choice provider in business aviation, stating, "If you can get into Sky Harbour, you have a jet, can get into Sky Harbour." CFO Francisco Gonzalez highlighted the strategic shift in construction and leasing risks to banks, enhancing financial stability.

Risks and Challenges

• Limited airport land availability could constrain future expansion.
• Dependence on the business aviation market’s continued growth.
• Potential financing challenges in a rising interest rate environment.
• Competition from other providers in the aviation infrastructure sector.

Q&A

During the earnings call, analysts inquired about the company’s revenue projections and the impact of new campus openings. Executives noted that revenues are exceeding original projections, with significant rent increases expected on second lease turns. The company is also exploring potential hangar sales to select tenants, indicating flexibility in its business model.

Sky Harbour’s strong Q2 performance and strategic initiatives position it well for future growth, with the company continuing to capitalize on the increasing demand for premium aviation facilities.

Full transcript - Sky Harbour Group Corp (SKYH) Q2 2025:

Sarah, Conference Operator: Good afternoon. My name is Sarah, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sky Harbor Second Quarter twenty twenty five Earnings Call and Webinar. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session.

Thank you. I would now like to turn the call to CFO, Francisco Gonzalez. You may begin your conference.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Thank you, Sarah. Welcome, everybody. I’m Francisco Gonzalez, CFO of Scar Harbor. Welcome to the twenty twenty five second quarter investor conference call and webcast for the Sky Harbor Group Corporation. We have also invited our bondholder investors in our parent subsidiary Sky Harbor Capital to join and participate on this call.

Before we begin, I have been asked by counsel to note that on today’s call, the company will address certain factors that may impact this and next year’s earnings. Some of the information that will be discussed today contains forward looking statements. These statements are based on management assumptions, which may or may not become true, and you should refer to the language on Slides one and two of this presentation as well as our SEC filings for a description of the factors that may cause actual results to differ from our forward looking statements. All forward looking statements are made as of today, and we assume no obligation to update any such statements. 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 Cannon our Treasurer, Tim Her our Chief Accounting Officer, Mike Smith our Accounting Manager, Tore Petro and our Assistant Treasurer, Andres Frank. We have a few slides we want to review with you before we open it to questions. These were filed with the SEC an hour ago in Form eight ks along with our 10 Q and we also and will also be available on our website later this evening. We also filed our second quarter Sky Harbor Capital obligated group financials with MSRP, EMA an hour ago. As stated by the operator, you may submit written questions during the webcast during the Q4 platform and we’ll address them shortly after our prepared remarks.

So let’s get started. In the second quarter on a consolidated basis, assets under construction and completed constructions continued to increase reaching close to $300,000,000 on the back of construction activity at the new campuses in Phoenix, Dallas and Denver. Consolidated revenues experienced an increase of 82% year over year and 18% sequentially, reaching $6,600,000 for the quarter, reflecting the acquisition of Camarillo last December and also higher revenues from our existing campuses. It is important to note that Q2 had roughly only $200,000 of revenues from our three new campuses that just opened. Operating expenses in Q2 increased moderately reflecting the purchase of fuel at Camarillo and the naked expenses of bearing the payroll and others of these three new campuses without associated revenues as we have been preparing in the past six months to open and commence operations there.

In terms of SG and A, we strive to keep our expenses in check as we grow, keeping cost as low as possible. Cash flow used in operating activities on the lower right hand quadrant improved and stood at less than $1,000,000 for the quarter, a significant improvement from the $5,000,000 used in Q1. This is a key metric we pay attention to. We reaffirm our guidance that we expect Sky Harbor to reach cash flow breakeven on a consolidated basis at the end of this year as we ramp up the leasing cash flow of these three new campuses over default. I need to note that the potential revenues for the three new campuses total a projected $14,000,000 annualized, which is why mathematically we feel confident of our profitability expectations in the near term given the operating leverage of our business.

Next slide please. This is a summary of the financial results of our wholly owned subsidiaries Cairo Capital that formed the obligated group. This basically incorporates the results of our Houston, Miami and Nashville campuses along with the CapEx and operating costs and slight little revenues that came in the quarter for our three projects in Denver, Phoenix and Addison, Texas. Revenues increased 20% sequentially from the first quarter. As just discussed, we expect a step function increase in revenues in Q3 and Q4 and into the New Year as these three campuses are leased up and rent and fuel revenues commence to flow.

Operating expenses increases we just discussed given the onboarding of all the line personnel and harbormasters in Q1 and Q2 in anticipation of the campus opening in Q2 and Q3. Cash flow from operations generated a positive $2,200,000 in the quarter and we expect this number to continue to increase with the higher cash flows from operations as the new three new campuses are leased. Let me now turn it to CEO, Tal Kanan, for an update on site acquisitions, leasing and construction. Tal?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Thanks, Francisco. So I think everybody has become pretty familiar with the chart on the right, which is self explanatory sorry, the chart on the left. The chart on the right, which we’ve been showing for the last few quarters, we’ve given a little bit more color here because we’re getting, questions on how this chart is derived. What you’re seeing in the bar chart itself is the rentable square footage of site plans on Sky Harbor existing ground leases times the Sky Harbor equivalent rent, which we that is the number we use for available revenue per square foot on each campus. And what you’ll see is, today, the revenue capture potential is at about $140,000,000 If we meet our guidance by the end of the year, we expect it to be approaching $200,000,000 of revenue.

I want to call everybody’s attention again, in response to questions from the last quarter for as to the methodology to the chart, the embedded chart right above the bar chart. The 2022 CBRE projected revenues are pretty close proxy for share for Sky Harbor equivalent rent, meaning that is what we underwrote going into these airports. The average expected revenue, on these airports is the revenue that we have contracted under leases plus additional fuel margin that we collect. And the highest expected revenue is a weighted average of the highest paying, residents on each existing campus, which gives we we put that in there to give people a sense of the step up in second leases. Right?

When you initially lease up a campus, or at least up until now, as we originally lease up a campus, we achieve one level of rents. When a campus is fully, leased and leases begin coming to terms, we have a significant step up in rents, and that’s what’s captured here. All of this just demonstrate why we feel that methodology of using share as the multiplier, against revenues, rentable square footage is a conservative methodology. Next slide, please. So this is, an update on leasing.

We’ve we’ve broken this slide into two components. One is the first five airports. We’re all we’re showing is actual results from Q2. And then the second is contracted. These are airports that are under lease out where we don’t have actual results yet.

The the contracted is what’s in the lease, what are you paying in rent. In some cases, we have a minimum minimum uplift guarantee for fuel. That’s also captured and contracted. In some cases, we don’t, in which case fuel margin is not captured here. And any fuel margin in excess of the minimum uplift guarantee is also not captured here.

So that’s for the remainder of those airports. And then I’ll call everybody’s attention and you’ll see it in our filings and our press release to this pilot project that we initiated this quarter to actually prelease hangars at campuses that have not begun construction yet. And we’re doing that now because we feel that within the business aviation community, Sky Harbor has established a strong enough reputation, that people, if you kind of if you can picture it for an aircraft owner to make a commitment a year or year and a half in advance, they and put down a hard deposit, for for that commitment, they’ve got to really be confident that we’re going to deliver exactly the product that we said we’re gonna deliver and that we’re going to deliver it on time. And that’s a service offering because, remember, these are long term leases. If the service is not there, there’s the value of the lease is not there, that the service offering is is really bulletproof.

And so we went to market, on two pilot airports, Dallas International and Bradley International in Connecticut, and have entered our first preleases at both of those airports and, more to come. And I think this is a good initial results from a pilot project might become part of the leasing strategy, going forward, where you could significantly prelease a lot of these future campuses. And what we’re seeing is that at least for the time being, we don’t feel like we’re paying a significant penalty in revenue preventable square foot. So when you see that $47 average for those two airports, that’s signed leases contracted, meaning that’s without the excess of fuel margin that is in line with our targets for those airports. Next slide.

Manufacturing construction. In the last quarter, we started, unveiling our plan to really scale up Sky Harbor’s construction efforts. We’ve gone from being a little bit of an upstart in airport land to a really not minor construction company. In fact, probably the largest developer bankers anywhere. And what we’ve done in order to, number one, increase quality, number two, accelerate the pace of our construction, and number three, lower our per square foot cost is this process of vertical integration.

So starting from the left side of the, of of the page, I’m looking at the at the bottom of the of the slide. The wholly owned development subsidiary of Sky Harbor is called Ascend Aviation Services. It’s run by Phil Emmis, who was actually the first general contractor that Sky Harbor ever worked with, built our Sugar Land campus on time and under budget. You know, Phil’s been doing just metal buildings for forty years. There a few people have more experience, in the space, a lot of airport experience as well, and we’ve we’ve brought in a lot of, a lot of players with, specific airport experience here.

The subsidiary is 100% dedicated to Sky Harbor. It does one thing. It builds the Sky Harbor 37, hangar across the country. We have our own in house general contracting capability now, which we’ll use selectively, and construction management where we’re not acting as a as as general contractor. And that that model or kind of the the breakdown of which projects we’re doing, you know, we’re kind of performing as general contractors and which ones are construction manager, will, I think, evolve over time.

But the fact that we have that capability brings a lot of advantages. And then manufacturing. Stratus Building Systems, I already saw a question come in on that. That that the old rapid built is now Stratus Building Systems, restaffed, retooled. New leadership has been in place for close to a year now, that has not only the experience, but the tooling and is, again, dedicated only to manufacturing Sky Harbor 37 hangars across the country.

Put that all together, and integrate it, you have or what the intention at least is to have, process coordination. We’re far less exposed to the vicitudes of supply chain, interruptions, which we’ve experienced in the past. We have our own design, which is constantly refined and value engineered in coordination with the field. So that’s that that, we we think that’s a big advantage, and maintaining Sky Harbor quality standards, not not being subject to other other manufacturers or other builders’ standards. So that’s, I think, the heaviest lift that we’ve undertaken in the company in the last, call it, three quarters, and, we’re really ready to roll with that now.

With that, let me hand it back to Francisco.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Thank you, Tal. As many of you know from prior webcasts and disclosures, we have been dual tracking our next debt issuance. We have finally settled in pursuing a warehouse bank debt facility with a major U. S. Financial institution.

The indicative terms are listed here, dollars 200,000,000 five year tax exempt with an expected floating rate equal to 80% of three months sulfur plus 200 basis points, which in the current market is approximately 5.47. We expect to close subject to final documentation approvals on or about August 28. With this facility and associated equity, we will have over $300,000,000 in funding to finance the next five to six capital developments. Please note that we’re contributing at cost our Cloud9 Hangar Complex at Camarillo that we acquired last December in an all cash 100% equity transaction as our first equity contribution to this portfolio of projects. Next slide please.

We illustrate here the sources and uses of this facility over time with red bean equity contributions beginning with Camarillo being the left hand power chart and the gray bean debt drawdowns. So we closed the quarter with approximately $75,000,000 in cash and U. S. Treasuries, which now will be enhanced with this $200,000,000 committed facility upon closing. So why do we like this warehouse facility versus a bond issued now?

First, it’s also tax exempt. Second, withdraw as needed, reducing significantly the negative arbitrage of about 125 basis to 150 basis if we were doing a bond deal upfront. We like being in a floating rate in the current market given expectations coming out of TCE for the next few months and years of potentially lower short term rates. We’re also comfortable with refinancing and going to the bond market in three or four years from now ahead of the five year term. We also like the fact that we can optimize the timing of our GMP maximum guaranteed price contracts with our general contractors and subcontractors in that you pay significantly by asking people in the construction industry to provide hard pricing too far in advance of groundbreakings.

Also we like that this represents a risk transfer of construction risk away from our permanent bond program and should be one more element as we strengthen our obligated group bond credit profile even further. This warehouse facility also provides flexibility in project sequencing. We have many projects in predevelopment and permitting and sometimes delays or acceleration in the final construction permits may have us shift the sequencing of projects. And lastly, this warehouse facility provides us flexibility if we decide to entertain an offer to sell any individual hangar. We have been approached recently a couple of times by potential tenants that prefer to own than to rather than rent and would like to enter into a thirty, forty or fifty year ultra long tenant lease in exchange for an upfront payment.

To the extent that any of these approaches materialize into a deal, the warehouse facility provides a flexibility not easily available in a bond setting. Also provides a new potential source of equity capital formation accretive to our current shareholders. Let me turn it back to Tal for Q2 highlights and forthcoming initiatives in the four pillars of our business.

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Thanks, Francisco. On Q2 highlights, I’m just going to focus on the Those are the ones that we think are most noteworthy. On-site acquisition, again, our targeting now is on what we call Tier one airports. I think we’re beginning to see that reflected in the rents.

I think the kind of the pre leasing numbers might give a hint as to the direction that we’re trying to head with that, really the best airports in the country. It’s not that we’re going to ignore tier two airports, when they materialize, and they do. Mean, remember, we’ve been at this for a number of years now. But the focus is increasingly on Tier one airports. On development, as we’ve discussed for the last two or three quarters, this this has been the heaviest lift lift in the company is is preparing us to scale on the construction side.

We’re very excited and confident in the leadership that we have in place. We’ve been very, very deliberate in in building the the machine that we have in place right now. Have burdens on us to to prove that that that that it works, but now is the time. On leasing, just wanna call everybody’s attention to that preleasing pilot, which, again, based on initial results, may end up being a key component of the leasing strategy going forward. We have a few more things that we want to confirm on that.

So please stay tuned, but that’s a big I think, a big change in in the way we, we conduct our leasing activities. And then lastly, on the operations side, you know, again, for people who’ve been tracking us for a while, we started off very dogmatic about being a real estate company and and focused on delivering a a real estate product. And, you know, as we grow and learn, it it’s becoming increasingly clear that operations are not just a necessity for kinda animating the value proposition of that real estate. They’re actually a key differentiator, and we’re we’re delivering not only a, a level of service, but specific services that really can’t be offered anywhere else in business aviation. And increasingly, that’s a big deal.

You know, we we we do significant survey work with our residents. And, increasingly, what’s coming back, yeah, people love the facilities, and they’re special. They’re different from what, you know, people see in aviation. They’re thoughtfully designed and high quality, but what most people come back to is the service. What what makes us particularly sticky is the service.

The fact that we have, you know, top tier residents around the country really evangelizing for Sky Harbor is exactly what allows us to go out and and prelease and and ask people to go out on a limb and put their faith in us that we’re going to deliver an outstanding physical offering and an outstanding service offering in twelve or eighteen months. So we’re going to continue to invest there. I think it’s one of the big maybe most noteworthy, areas for us and frankly kind of a relatively new insight for us as well, how important that has been. Next slide, please. So looking ahead, I’m going do the same thing and just focus on the bolds and happy to, take questions.

Everyone has the slides, feel free to drill down on anything that’s not bolded here. But starting on the, site acquisition side, again, target remains, maximize revenue capture. Okay? We have been, putting out guidance and targets in terms of number of airports, and that’s a good, you can call it, gross proxy for how we wanna grow this company. But the square footage of hangars is a tighter, more precise proxy, and the maximum revenue capture is the ultimate proxy.

That’s really what we’re what we’re going after. Right? You know, a 100,000 square feet on an airport, you know, that can generate a $100 per foot in in revenue, you know, is is is worth more than 200,000 feet on airport that could generate $40 a square foot in in revenue. So that that increasingly is the focus. And, you know, I would encourage people to to watch more closely as they look at our site acquisition.

As I I think you’ll see in the press release and and the and the filings, we continue to grow the site acquisition team, and it continues to be working for us to have military aviators. That it’s it’s a it’s an all veteran team, and that’s that’s been working very well for us, and we continue to grow, from that community. On the development side, yeah, I think we’ve we’ve spoken about enough. The system’s in in play in place. It’s time to execute.

On the, leasing side, I’d I’d say stay tuned for more pre leasing. Most of the leasing team’s focus now is on the new, standing campuses, Denver, Phoenix, Dallas. As soon as those start achieving or approaching their full first round revenue potential, you’ll see the focus increasingly, I think, moving to pre leasing, just based on the initial results that we’ve been able to post. And then lastly, on operations, I’ll say it again, we’re going to continue pressing. That resident feedback loop is critical for us.

It’s, maybe one of the most powerful assets that we have in the company is a very, very loyal and and and delighted resident base. And, we we are in very close touch with the residents. And I personally spend a lot of time with with our residents seeking feedback. And in general, they’re happy to give it and, happy to see us implementing it as well. They’re our best evangelist.

On the defensive side, we never wanna lose sight. We need to be absolutely bulletproof on safety, security, and efficiency. And we have delivered a, I think, a good track record on that. I think we are the best offering in business aviation from that perspective. But then on the offense side is just continue innovating, widening that value gap because I I think, you know, it’s been quite emphatic.

And, again, I think the pre leasing results, you will tend to corroborate this. But that that is perhaps the biggest component of value that Sky Harbor delivers to its residents. And with that, I think we’re ready to move on to questions.

Sarah, Conference Operator: Thank you. And your first question is from Gaurav Mehta with Alliance Global Partners. Can you provide details on actual revenues as compared to forecasted revenues? What’s the percentage variance between actual revenue and forecasted revenues? Are there any airports where you are seeing higher variance?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. It’s Francisco. Thank you, Gaurav, for the question and for your work at AGP covering the company. We don’t put our projections, but we do track how we’ve been doing, especially in the first group of campuses with the projections that were put together at the time of the bond offering by the CBRE, the consultants. And then those were updated a year later as part of the bond program.

And we are tracking to indeed exceed those projections for those various campuses that form the Olega Group number one, which are basically, as you may be aware, Houston, Nashville, Miami, Dallas, Dallas oh, no. I’m sorry. Dallas, Denver, and Phoenix. And it would track it By the way,

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Tim, can Tim put up that slide while Francisco is going through this.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. And so the projections the actuals are expected to exceed those projections, which means that and this is an important element because the opening of these three campuses, as I mentioned earlier, is going to have a step function effect in our revenues and our cash flows now in the next two or three quarters. And that will be for also the coverage on the bondholders to be at or exceed what we what the consultants forecasted at the time of the bond deal three years ago. In terms of any airports where we see higher variance, I will say that and Tal chime in if you wish. I think Miami has proven to be a very strong market.

Some of you who have participated before know that our first lease was at $32 per square foot and our last lease or one of the last leases was around $46 And now that we’re working on a second phase of Obaloca 2 that’s under construction, we are expecting and feeling that those leases will be higher rates than our highest in the Phase one.

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Yes, Gaurav, I’d say the biggest variance we’re seeing is not actually between airports. It’s what Francisco just said. It’s between the first round of leases and the second round. If you do a two year lease that comes to term and the resident either renews or we, you know, replace that resident with a new one, that’s where you see this kind of big jump in, in revenue per square foot. That’s probably where the biggest variance is.

Sarah, Conference Operator: Thank you. As a follow-up, can you provide details on the pre leasing hangar space at Bradley And Duals Airports? Is there opportunity to do more of these at other airports? And how much is the intro pricing advantage?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Yeah. It’s, it’s Kyle. It’s a good question. Look. We we haven’t we haven’t made any decision yet as to whether this is going to be adopted as our kind of main strategy.

What we can say is we’ve it is working well initially. We have signed leases with deposits, and we like the pricing. You know, the one hand on the one hand, it’s it’s, you know, I think we’re giving a a kind of an advantageous introductory pricing to the first residents, and they’re very blue chip residents. So the kind of people that we want anchoring, these these these campuses. On the other hand, they’re above our target revenues for those campuses.

So I think it’s happy. We’re leaving something on the table, maybe a little bit. We probably are. But all told, I think it’s a good it it it it’s looking like a good approach. And, of course, you know, the idea that you’re going to achieve certificate of occupancy, you know, with a significant roster of residents already, you know, in itself is at least a partial payback if you are leaving any value on the table with those initial pre leases.

Sarah, Conference Operator: The next question is from Ryan Myers with Lake Street. Congrats on the continued progress. If we think about the nine campuses in operation and the operating expenses associated with them, do you feel like you are seeing the scale gains in line with expectations?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Thank you, Ryan, for the question and for the coverage from Lake Street, our company. Interesting comment that you made because, yes, our first set of campuses ended up being from a schedule perspective, took us a little bit longer than our real plan, even though the revenues as we just discussed exceeded our original forecast. And but this is a scale business. And now on the back of these three campuses starting to cash flow, we’re going to we’re all going to feel and see the operating leverage of our business model because SG and A will remain fairly constant and we already incurred or from a run rate basis in Q1 and Q2 the type of operating expenses for the setup of these three campuses. So as these revenue come in, they obviously are able to flow directly to the operating line in terms of profitability from a run rate perspective.

The other thing I will add is from an accrual perspective, something that Mike has mentioned in the past because the way we account for ground leases, we every time we sign ground leases, we have been incurring expenses even though they’re not cash. Similarly, given that we compensate all our employees, top to bottom, everybody is a shareholder, we also have noncash expenses in the context of our compensation policy. So as we scale, those things remain fixed or something fixed. And you’re going see the improvement in profitability also from an accounting perspective in our financial statements. Next question?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: By way, I’m going add on that, Brian. Just to add on that is the I think we’re going to see the most benefit from scale is going to be in development costs. Again, I don’t wanna speak before we actually post results on that, but, you know, just conceptually, that’s that’s where you’re likely to see the most gains. The operating cost on campuses, yeah, there definitely are efficiencies, but I I think you’ll see more on the development side.

Sarah, Conference Operator: As a follow-up, you mentioned that you’re seeing higher than forecasted revenue at campuses and operation. Just wondering if you can walk us through and highlight what these, drivers are.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. Thank you, Ryan, for the follow-up. I think there are a couple of drivers. I’ll mention a few and then Tal, please chime in. I mean, first and foremost, simply our rents that we’d be able to secure were higher than originally expected.

And I think that’s driven by the fact that there’s scarcity for hangars at these airports. The second thing is our ability to secure fuel margin as part of our revenue work. That’s also important. For those of you who have been following us for three years ago, at the time of the bond deal, we really were not looking at fuel margins and fuel revenues. They were not even in the projections from CBRE back from three four years ago.

So fuel revenues and fuel margin will be an important driver as well. And then lastly, what I will drive is the when we moved to have not only private hangars, but also semi private, the possibility to back to Tal’s point about achieving occupancy levels higher than 100% from the standpoint of being able to rent the same space twice and sometimes even three times has basically finds way into revenue per rentable square foot and per hangar being higher, especially when you are able to have semi private settings. And as we move forward in our campuses and our prototype has doubled in size, Yes, there’ll be some tenants that will take an entire hangar because they have fleets, but more and more you’re going to see semi private hangars as part of our offering. And theoretically, if you’re able to maximize the way you play the Tetris game in terms of, you know, putting and and and the latest models into our new prototype, you can achieve theoretically 137%, close to 140% occupancy from the standpoint of stacking, which again, that will reflect itself into a higher revenues than originally forecasted at our campus for operations and our future campuses.

Tal, if you have anything to add there?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: I agree with all those. Look, I’ll add three things. Number one, look at the second turn of the lease. I think it’s very important. Part of that is is is really a supply and demand issue.

Because if you think about it, when you’re when you’re leasing up a campus in the traditional way, take Miami. Right? You open up 12 hangars. There’s 12 vacancies when you start leasing, and they’re operating. There’s a full line crew.

You know, you’re and and, you know, as you can imagine, we’re we’re, you know, we’re dealing with financially sophisticated residents. They understand that they have a lot of leverage in that negotiation. So, you know, Francisco’s point about that $32 foot first lease in Miami and the, you know, dollars 46 a foot, you know, less than a year later, a lot of that has to do with the supply and demand. On the second turn of the lease, there’s only one hangar available by definition. So and typically, there are many, takers for that hangar.

So your leverage is reversed on the second turn. The second is, again, it’s difficult to measure this, but our feeling is that our reputation in the business aviation community is such that we are increasingly the first choice. If you can get into Sky Harbor, you have a jet, can get into Sky Harbor. From a security, safety, efficiency perspective, that’s where you wanna be. It’s more expensive.

But, you know, if you’re flying a 50 or $60,000,000 airplane, your time is very expensive. And the fact that you’re you’re you’re very unlikely to encounter delays at Sky Harbor, for example, is an advantage that increasingly people are saying, willing to actually I see value there. I’m willing to pay a premium for it. And then I think the third is just inflation. And I think it’s worth watching that.

We think airport inflation has absolutely nothing to do with CPI. It’s simply supply and demand. You cannot build a new airport. Where there’s land for an airport, there’s no need for an airport. Where there’s a need for an airport, there’s no land.

We are stuck with the inventory of airports that we have right now and the size. I mean, if people look on the website, they can see we track this. The size of The U. S. Business aviation fleet in square footage terms grows every year dramatically.

It’s simply a supply demand question. When Francisco’s mentioning these prospective residents who have called us asking if they can if they can purchase or do an ultra long term lease on a hangar, you know, I I I’m I’m in those conversations myself personally, and they typically start with, we agree with your assumptions on inflation at airports. We don’t want to be subject to that, you know, with the five year lease. We we want to own this thing. So we we understand that.

So I think those three factors are all all all playing.

Sarah, Conference Operator: The next question comes from Alan Jackson. Are you seeing any changes to the electric aviation industry since the Trump administration has been elected? Will this have any impact on the electric optionality on current Sky Harbor campuses? Does Sky Harbor have any intention of acquiring any construction trades that are currently not in house?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Okay. So two questions. On the electric aviation side, yes, look, I think the Trump administration has probably successfully removed some of the regulatory hurdles that we’re facing electric aviation. There are a lot of other hurdles. We think it’s coming, perhaps not quite as fast as a lot of the market does.

But as, it seems, you know, from your your question, we do prewire our campuses to be able to accommodate electric aviation. You know, we we think we’ve been pretty thoughtful on how you lay out the infrastructure that’s gonna support electric aviation at scale and how you do it in a way that’s not expensive today. It’s expensive when you hit go, but you’re ready to hit go. You don’t have to reconfigure anything on the campus in order to accommodate, you know, electric aviation. So we’ll see.

On the second question, so I think we’re we’re probably not not there for now, on on actually acquiring the trades, meaning manufacturing and general contracting is probably enough.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: A lot of

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: the trades are, by definition, going to be very local anyway. There are a few exceptions. You know, one of them that we, you know, kind of look at every once in a while is erection, because we’re manufacturing it. We’ve got a good feedback loop. We’ve got a couple of erectors around the country that we like, that are increasingly learning how to do it.

I I I think of it as kind of assembling IKEA furniture is, you know, if you’ve got a set of eight chairs to assemble, you, the the first one, you’re gonna get something wrong. You’re gonna, you know, mix up left and right, and you’re gonna have to disassemble it and and do it again. The second one, you probably get it all right. The third one, you don’t need the instructions anymore. And then fourth through rate go faster than, you know, than than the first one did.

It’s it’s quite similar here. We’ve got very specific kind of connection mechanisms, very specific sequencing for erecting our hangars. There might be a case for specialization there. But, again, I I I I’d probably I think it’s less than fifty fifty because right now, I think we’ve got some very good partners, on that side that are learning exactly how to assemble Sky Harbor hangers. But it’s a good question and something we do discuss quite a bit internally.

Sarah, Conference Operator: The next question comes from Alex Fossert. What aspects of your product offerings, service, training differentiate Sky Harbor from what a tenant would receive at an FBO? And second, many of your ground leases include land for a future phase two. Have you considered ways to utilize this vacant land to generate income while awaiting a suitable time to proceed with phase two construction?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Okay. Thanks, Alex. Thoughtful questions. So look, on the product product offering and service offerings, I’m glad you phrased it like that because they do go together. Right?

It it’s difficult to put put out the service offering that we put out, on a different physical infrastructure. Right? Cloud nine was was was an exception is that they really built it to our standards. But in terms of, you know, everything from, you know, four eighty electrical to drainage to lighting, it it all has to work together if you’re going to marry it with with a successful service offering. And one of the things that we we keep thinking maybe we should try try to start measuring, and we’re we get this input from our residents is time to wheels up.

So I’m just giving you one example. On time to wheels up is, you know, when when you are remember, everybody in business aviation flies at the same time. Everybody’s flying on Friday afternoon. Nobody’s flying on Wednesday at midnight. That is when the system, you know, particularly the FBO system that that’s managing transient traffic is at its, at peak peak capacity utilization, and that’s when service suffers the most.

Right? That’s where line crews are stretched the most thin, ground support equipment is stretched the most thin. That’s where the delays happen. So I’d say right now, if you’re leaving New York on a, you know, Friday afternoon in the wintertime, you better have decided a few days in advance that you need the airplane ready or you lose all your spontaneity, and and they’re going to be delayed. We don’t have delays.

And not because we’re so clever, but because we don’t have transients. And so that’s, you know, that that’s an example of one differentiator. And on the training side, specifically, kind of something, again, we don’t we don’t really advertise this because we’re we’re we’re we’re not trying to poke poke anybody else in the eye. But if you think about how a line crew member learns how to train and, to tow an aircraft, it’s by towing aircraft. And it’s not the FBO’s aircraft.

It’s the customer’s aircraft. So the the greenest line crew members are, you know, towing $50,000,000 aircraft on a regular basis. As, as you may know, hangar rash or kind of the the fender benders that happen in and around aircraft hangars are the most frequent insurance claim in business aviation. I mean, and it’s a huge problem in the industry. We look at that.

Again, we’ve got a steel manufacturer. We developed our own training rig, where, you know, we train already experienced line crew, both in initial and recurrent training on a rig that simulates an aircraft. You know, it has the same wheel base, it’s adjustable with us. You can simulate different types of aircraft, connection, disconnection, that kind of thing. It’s subtle, but it’s something that our residents really take note of is that we’re we we are treating them very, very differently, and the result is, is very different.

So I don’t know if it’s one big thing, but it is a of small things that end up making a big difference for aircraft owners. And then what the second question was on phase two, trying to think Tim Francisco, have we ever generated revenue on Phase two land predevelopment?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Not really because it requires you to pave the apron and then that’s expensive. And we don’t want to just do that and then have to break it again in the context of the construction. So actually, I take that back. In Miami, we actually rented to NBAA, I think, two years in a row for the regional conferences, that empty lot for parking, and we got NBAA passes for free for the company for a couple of conferences. So we have used it tactically to make a little bit of money.

But the short answer is not really.

Sarah, Conference Operator: The next question comes from Andy Binner. What is your estimate of timing for DVT Phase one, ADS Phase one and BFI to be fully leased? Any one timers in the ground lease expense line this quarter? Or is this representative relative to ongoing square footage build out? Second question, any one timers in the ground lease expense line in this quarter?

Or is this representative relative to ongoing square footage build out?

Mike, Accounting Manager, Sky Harbor Group Corporation: Hi, Randy, it’s Mike. Thank you for your question. As discussed in our earnings release and in the slide deck, our estimate for the timing on DBT Phase 1 Addison and BFI to be fully leased is within the next six months. With respect to the ground lease, the impact you see in the quarter is actually just the impact of the recognition of the Hillsboro and Stuart International leases that were signed during the second quarter. As Francisco touched on earlier in the call, as soon as we sign those leases, we start recognizing expense, under GAAP, regardless of whether or not we’re paying cash.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Next question, please.

Sarah, Conference Operator: The next question comes from Pat McCann with Noble Capital Markets. Can you talk about how you expect to finance new campuses over the long term? As you continue to scale, how might new long term PABs fit into the picture relative to options like the warehouse facility?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Pat, Francisco, thank you for the question. We are flexible and also deliberate, meaning ultimately, we’re going to end up in the bond market with the program that we started three years ago that as you know, it’s a programmatic approach, meaning that as we do new bond deals with permanent debt, it becomes joint and several with existing bondholders and so on and so forth. With the recent past six months or nine months, we’ve seen long term rates spike up to a certain extent. But for all the reasons that I discussed earlier, we decided to take the opportunity and do this financing with a tax exempt with a major financial institution in The U. S.

And we’re to announce all the details further details when we close in a couple of weeks. But ultimately, in year three or four, we will go ahead and do a long term pass offering and take out the warehouse facility. And then depending on market conditions at the time, we may do more bonding and pre fund whatever campuses we are working on at that point or we might decide to do the bond deal and then have another warehouse facility to deal with our new projects. Time will tell. But a critical thing here, especially for our current bondholders, is that with this strategy, we are shifting the construction risk and even some of the early leasing risk to the banks and not to the bond program.

So this will further strengthen as we look to approach the rating agencies to rate the existing bondholders. We’re basically derisking the program going forward by doing this warehouse facility strategy.

Sarah, Conference Operator: The next question comes from Buck Hartzell from The Motley Fool. You’ve done a lot of work on scaling and vertically integrating construction activities. Can you provide an update on the impact this might have on future build costs per square foot?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Thank you.

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Look. I I I think at this point, the proof is gonna be in the pudding and, you know, or the proof of the pudding is gonna be in the eating. You’re right. We’ve invested a lot in this. We do have some very ambitious target targets, you know, on quality, time and cost.

I Francisco, don’t if we’ve actually put out anything specific, but bottom line, you know, now’s the time to perform and demonstrate it.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. No. Well, that is the following. Yes, we have invested in terms of being vertically integrated on manufacturing. And then my analogy and some of you may have heard this on the one on ones.

My analogy is LEGO sets. Once you have a prototype like we have now, narrower to our Skyward 37, we’ll be building so many of manufacturing and then constructing and building so many of these by being vertically integrated and given the scale that we’re going to now enjoy, it should result in lower cost per square foot or at least be something that helps us minimize the construction inflation that the economy has been exhibiting in the past several years. So other than that, obviously, we’re going to be doing more work on presenting as we scale what has been the benefit. And let me say the following. There’ll come a time, given our growth, that even Stratos, our manufacturing facility, will be insufficient in terms of capacity, which is fine.

We still have and continue to enjoy the benefit of being able to outsource to other manufacturers of prefabricated metal buildings. And that will be also a good opportunity to keep tabs of what the market out there, even though they might cost a little bit more what they charge. And similarly on general contracting, we are going to be able to general contract internally through Ascend, but that doesn’t stop us in some particular markets to, hire third party GCs and and be able to leverage the the private market as well. So we’re going to continue being deliberate and and tracking what costs are internally or externally and obviously do what’s best for the company.

Sarah, Conference Operator: The next question comes from Philip Ristow. How will future pre leasing influence future debt offerings such as the time frame for investment grade rating in the future?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. Thank you, Philip, the question. I think what pre leasing does is, as Tal mentioned earlier, allows a little bit of derisking for some of these campuses. And as we contemplate debt offerings, either in the bond market or in the bank market, it supports obviously a better credit profile for the projects. If you already have a hard lease on a project that you have even broken ground on like we just signed in this quarter in Bradley and in Dallas.

So if anything, it’s again going to be supportive of the credit profile of either a bank facility or on deal. And I agree with you that investment grade rating will also be supported with this type of activity of pre leasing campuses.

Sarah, Conference Operator: The next question comes from Robert Lynch. Is the SH-thirty seven hangar prototype now fully standardized? And what’s the impact on speed unit economics?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Yeah. Thanks, Robert. The answer is yes. I’ll refer to what we said earlier to Buck that we don’t we’re not going to put out any projections yet, but it absolutely, the intention is to increase speed, decrease cost, increase quality. That’s, that’s the idea behind it.

And you can see how that’s happening. Right? It’s through procurement. You know, we know exactly how many lighting units we need for the next, you know, ten ten campuses. We can do that as a single deal.

We know exactly what, you know, each each component is, going into this. You know, any value engineering insights that we gain will now apply to every hangar going forward. So, you know, you based on your question, I think you you you understand the value of having a prototype. Now, you know, we’re burdens on us now to maximize and demonstrate that that we can achieve those efficiencies.

Sarah, Conference Operator: The next question comes from Gaurav Mehta. Why did you choose bank facility instead of bond? Can you provide details on the five year down, sorry, drawdown? Is the structure like a credit facility?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Yes. Thank you, Gurra, for the question. Yes. As I said earlier, we see all the benefits next page. Yes, we saw a of see a lot of benefits of at this juncture tapping a bank facility than the bond deal.

They’re listed here, as I mentioned earlier. And then here’s the detail also of what we expect the drawdown to be. It allows us to draw as we need it. Also, it allows us to put the equity that contribution later than if we were to do a bond deal right now where you have to put it all upfront. And it is structured as a committed drawdown facility that we can also refinance without penalties when the time comes that we find that the opportunity arises to go ahead and do a bond deal in a couple of years.

Next question.

Sarah, Conference Operator: Thank you. The next question comes from Atul Joshi. Was there any cash stock consideration involved in the creation of Ascend Aviation Services? How does this impact your approach to RFPs for greenfield development? To what extent would this move also help you play offense on brownfield situations, like in the case of Camarillo, where you were able to take over a world class facility at the low replacement cost?

Does the creation of Ascend impact your view on how many development projects your team is capable of managing simultaneously?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Todd, do you want to take that one?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Yes, sure. Thanks, Atul. So no cash or stock consideration, meaning Ascend was established, not acquired. There is as part of the compensation packages of the leadership, there there is cash and stock consideration. But we didn’t we didn’t pay to acquire.

We we we established it. The approach to RFPs for greenfield developments. So, you you know, there is so much more that’s standardized now going forward. A lot of, you know, what was inside the kind of development and predevelopment bucket of activities is now in the site acquisition bucket of activities. So we’re we’re a lot more integrated, a lot more systematized.

You know, I I think on RFPs, for example, or, you know, kind of any approach to greenfield developments, we we can and and look. This is not just because of Ascend. It’s also you know, it’s a Sky Harbor 37 prototype. It’s just the experience that we’ve, you know, accumulated as we as we go. We can be a lot more precise on rough order of magnitude price cost, for a project before we go into it.

You know, we had to make some very conservative assumptions before, you know, which which might have been validated certain projects. In fact, I’m thinking of one specific project that it did invalidate that that ended up being a mistake. It’s a project we should have done. So we’re you know, I think it makes us a lot a lot better on that. On brownfield situations, you know, look.

I I I think having in house diligence capability is is always a a benefit. It’s a lot more decisive, of course, in greenfield than in in in in in in brownfield. And then lastly, does it impact our view on how many development projects we can manage simultaneously? Yes. I mean, that that’s, you know, a big part of this idea is this allows us to scale, and it’s only justified by scale.

Right? You know, this would not have made sense, to do when we had, you know, you know, two or three projects, in development. And it’s almost a necessity now, you know, where you’ve got a dozen. You you’ve got to, you you’ve you’ve gotta run simultaneously. Like we said earlier, and I wanna make it clear, you know, we’re we’re easing into that, meaning we’re taking a hybrid approach at the beginning.

Some of these projects, we will GC. Some of the projects, we’re just gonna construction manage. Again, you can you can construction manage a lot more intelligently when you’re you’re yourself a general contractor on, you know, very similar projects, you know, building an identical hangar at other airports. But, you know, I I I don’t think the it’s certainly not our intention to be able to, you know, be general contractors across the country on a dozen projects at the same time. It’s certainly not not at this point.

And then as Francisco noted on the Stratus side, you know, Stratus will reach its capacity limitations at some point, as well. So, you know, we’re we’re always looking to have good partners in the pre entry and middle building space, for you know, to handle that excess, demand when when it hits us. And, again, at some point, if we do if we do all this well, we’ll be looking to expand, Stratus’ capacity also, but but we’re not there yet.

Sarah, Conference Operator: The next question comes from Connor Keem. With OPF Phase two coming online next year, do you expect there to temporarily be lower step ups in the lease rates less than the 25% you’ve been seeing for leases renewals given the increased supply at the location?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Yeah. It’s good question, Connor. We’ll see. Opelika Phase 2 was not in the preleasing pilot, but, you know, again, based on results, that that’s probably the natural next airport to start looking at, preleasing. So we’ll have a a kind of a more empirical idea of what that’s gonna look like once that gets underway.

And that’s that’s probably something that happens in the fall. That’s kind of Miami leasing season anyway. But demand at Opelika is extremely high. You know, our our waiting list on on phase one is longer than the you know, much longer than the resident list on on phase one. Yes.

So I I I don’t think we come anywhere close to fully satisfying Opelika demand with Sky Harbor phase two, at Opelika. That said, you’re right. It is you know, it’s it’s a lot more supply coming out to the market. So we’ll we’ll we’ll have to see what that what that looks like. But I think we’re we’re quite optimistic.

Francisco noted it earlier, one of the markets that’s really surprised more on the upside than many of the others.

Sarah, Conference Operator: The next question comes from Gabe Owners. Does the new debt facility alleviate your need to raise equity for the next few years? The presentation suggests you need 75,000,000 of cash to your unrestricted $40,000,000 Also, do you plan to fund the properties not addressed by the $20,000,000 facility?

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Gabe. This is Francisco. Thanks for the question. So yes, so the presentation suggests that we will need about $75,000,000 And yes, we have a restricted $40,000,000 but remember, we’re contributing Camarillo that was paid with cash and all equity as basically equity. So $32,000,000 is going to be contributed by contributing Camarillo, as you can see in the sources as uses here.

And then how do we plan to fund future properties? Yes, we have more ground leases and more projects that can be satisfied with the $200,000,000 So a couple of things there. We left that with the bank. Again, more details to come in a couple of weeks that in the future, once we’re close with $200,000,000 we can go back and potentially increase this up to $300,000,000 another $100,000,000 obviously that’s subject to credit approvals and so on at the time. And if we do a bond deal alternatively to a takeout, we could refinance the $200,000,000 and then do another $100,000,000 of new money, for example, to on a $300,000,000 bond deal.

And yes, we will need additional growth equity in the future, but not yet, but in the future to given the our pace of growth and so on. And then we could satisfy some of that with now that we’re going to be operationally breakeven or positive next year with Topaloch at two and so on. And as we mentioned earlier, there are a couple of other ways that we will continue to grow. We’ve had discussions with people about a sidecar with some private equity infrastructure funds. And also we have introduced in this call the concept of potentially selling a hanger here, hanger there, but that will be something that we will entertain on a case by case basis as these discussions proceed.

So we feel very comfortable where we are in terms of the runway in front of us and our liquidity resources right now.

Sarah, Conference Operator: The next question comes from Robert Lynch. What’s the expected quarterly pace for signing the remaining five ground leases by year end?

Tal Cannon, CEO and Chair of the Board, Sky Harbor Group Corporation: Thanks, Robert. I wish we could be precise on this. We debated whether we should be there even be giving annual guidance on ground lease signing. So while we are confident on the on an annual basis, it’s it’s very difficult to break it out, month by month. Maybe as as as we continue to scale and we grow, bigger, we’ll get a little bit more precise in our, you know, in our visibility.

But it’s not like it you know, as you can imagine, none of these really work on our schedule. And by the way, all five, six, seven of the next ground leases are processes that we started years ago and, you know, are are are are just kind of coming to termination and kind of we’ve we’ve banged out the the terms. We’ve, you know, we’ve jumped through whatever local hoops we needed to jump through to to to get to these. But to kinda say, hey. We expect, you know, you know, two in October, one in November.

It’s not, unfortunately, we’re we’re not not able to get that precise.

Sarah, Conference Operator: Is all the time we have for questions. I’d now like to turn the call back to Francisco Gonzalez for closing remarks.

Francisco Gonzalez, CFO, Sky Harbor Group Corporation: Thank you, operator. And I noticed that indeed there were more questions that remain unanswered. I encourage everyone who had questions that we couldn’t get to, to submit those through investors at Carajardo Group, and we’ll be happy to answer those in the coming days. We want to thank you all again for joining this afternoon and for your interest in Sky Harbor. You can also check our website at wwwskyharbor.group for additional information.

So with this, we have concluded our webcast. Operator, thank you.

Sarah, Conference Operator: Thank you. This concludes today’s conference call and webcast. Thank you for joining. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.