Sky Harbour at 15th Annual LD Micro: Strategic Expansion and Financial Growth

Sky Harbour Group Corp (NYSE: SKYH) presented its strategic initiatives and financial performance at the 15th Annual LD Micro Invitational 2025 on Thursday, 10 April 2025. The company, specializing in acquiring long-term ground leases for constructing and operating hangars, highlighted its growth trajectory and financial strategies amidst industry challenges. While the company is seeing a steady increase in revenue with each new airport, it faces hurdles in site acquisition and financing.

Key Takeaways

• Sky Harbour is expanding its operations, aiming to have 23 airports by the end of 2025.
• The company projects to be cash flow positive from an operating perspective by year-end.
• Financing strategies include private activity bonds, with a new $150 million issuance planned.
• Revenue is primarily derived from rent (85%) and fuel sales (15%) to Sky Harbour clients.
• Lease renewals are seeing a 20% increase from initial rates.

Financial Results

• Q4 Results: Revenues have increased as new airports come into operation.
• Revenue Model: Sky Harbour's revenue grows with each new airport, with a significant portion from rent.
• Cash Flow: Expected to be positive by the end of the year as new hangars in Phoenix, Denver, and Dallas are leased.
• Debt Financing: The company uses federally tax-exempt municipal bonds, with a $166 million issuance at 4.18% and a planned $150 million issuance at around 5.5%.
• PIPE Offering: Raised $75 million in equity at the end of the previous year.

Operational Updates

• Ground Leases: Currently operating 17 leases, with plans to expand to 23 by year-end. New sites are opening in the Dallas, Denver, and Phoenix areas.
• Site Acquisition: Challenges include negotiations with airport sponsors and existing leaseholders.
• Leasing: Average lease terms are 3.5 years, with a 20% increase in rates upon renewal.
• Construction Costs: Approximately $300 per square foot, with a lease rate of $45 per square foot.
• Net Operating Income: Generates about $38 per square foot, with NOI yields between 12% and 14%.

Future Outlook

• Focus Areas: Prioritizing land acquisition in major metropolitan areas with high business jet concentrations.
• Construction Pipeline: New projects are set to begin later this year, extending into 2025.

Q&A Highlights

• Service Limitations: Fuel sales are exclusive to Sky Harbour clients, with no transient aircraft services or maintenance currently offered.
• Lease Renewals: Experiencing a 20% increase in rates during renewals or when new tenants are signed.

Readers are encouraged to refer to the full transcript for a detailed account of Sky Harbour's conference call.

Full transcript - 15th Annual LD Micro Invitational 2025:

Tal Kanan, Founder, Skyharbor: Joined our our founder, Tal Kanan, at a business school as he was getting Skyharper started. And also in attendance here today is is our CFO, Francisco Gonzalez, a a former muni banker and and now our CFO. So so at a high level, we look very much like like a real estate company. It kind of three main parts of our business. One is securing land at airports around the country.

You typically can't own airport land because it's publicly owned. So even even large, you know, international airports, it's not federally owned. Very few are are state owned and operated. Almost all of them are are locally locally owned and operated by the municipality or county that the airport is located in. So you can't own the airport land, so we we get the land in the form of long term ground leases typically in the range of forty to fifty years.

So once we have the ground lease, then we we design and finance the the hangars that you saw in the previous picture. That was our development in Nashville. This one you see in the picture on the right here is our is our campus at Sugar Land Airport in the Houston area. So we we design, construct, and construct the hangars that you see there, and then we lease them and operate them. So we lease them to to business jet owners and operators.

Those tend to be kind of one of three main categories. One is high net worth individuals who use their airplanes for, you know, a mix of business and personal use. The second is corporate entities. Actually, the the Gulfstream g six fifty you see in the picture there is Chevron Corporation's six fifty, and and they they base with us in in our Sugar Land campus in Houston. So so that's that's kind of the second flavor.

And then the third flavor is I'll I'll call it kind of an other group. So it's part one thirty five operators, are charter operators. We have some government tenants. The you know, that's that's kind of the you know, only a handful of those types, but that's that's kind of the third category of tenants. And we operate the the campuses as well.

So, you know, our we we our general manager this is our general manager, Dan, in the red there on the right hand side. We do aircraft towing, aircraft fueling, water service, all the other kind of ancillary services on the ground that that the jet owners need to get the aircraft out of the hangars and into the air. So that's that's the business at a high level. It's conceptually simple, you know, sometimes, you know, a little more little more complicated in in in actuality, but it it looks very much just like real estate, land acquisition, construction, and operation. Our return goals are the kind of low to mid teens stabilized yield on cost.

We're able to do that because our our land acquisition costs are effectively zero. Yes. It's it's sweat equity in in getting the ground leases from the airports, but there's no upfront payment like you would in a features fee simple transaction for acquiring real estate. So our only cost is actually the, you know, the construction of the actual hangars themselves. And then we use a kind of a unique form of federally tax exempt municipal bond for our debt financing, and I'll get into that a little bit later.

But it's a it's a very low cost of debt capital for us that drives our high equity returns. Alright. So let me start at the macro level, and then and then I'll I'll go down to into into what the, you know, what the company actually does. This chart on the right hand side explains our business in in kind of a half slide. It's it's the fact that every year, the size and it's not just the number of aircraft that are increasing, but the size of the business aviation fleet in The United States is growing every year.

So if you think of an aircraft as length times wingspan, that square footage is you know, and then you add up all the business jets in The United States, that total square footage is increasing every year. And there's a couple of main factors for that. One is retirements are slowing, so older aircraft are extending their useful life lives. But then more importantly, new aircraft, one there are more of them coming out every year, but then also the average size of those new aircraft are increasing every year. So again, the length and the wingspan of the average aircraft is increasing every year.

You have more more aircraft that are on average bigger, and that's that total square footage is just increasing every year. And then one note on so that's that's kind of on the demand side. On the supply side, there's been a chronic underinvestment in hangars around the country for two main reasons. One is they're publicly owned and operated, as I previously mentioned, by the local, you know, city or county municipality that the airport is located in. And frankly, those municipalities don't have the political will to spend a significant capital on what's seen as rich people's, you know, storage for their for their jets.

So the the airport sponsors themselves don't invest a lot of capital in hangar construction. The FAA provides money for other types of airport maintenance like runway resurfacing, tax rate taxiway repairs, that sort of thing. But but no money is actually spent on hangar infrastructure itself. And then the so then the airport sponsors have essentially farmed out the responsibility for hangar infrastructure to companies called FBOs, are fixed based operators. You can think of them as the gas stations on an airport.

They're the ones who sell fuel to based and transient aircraft at an airport with a minimum amount of hangar space. But remember, FBOs are in the fuel business. They're not in the hangar business, so they kinda spend the minimum of what's necessary and don't don't build beyond that because they're you know, the vast majority of their revenues are in fuel. You can't fuel an aircraft in a hangar. So, again, they they build hangars because they have to, not necessarily because they want to.

So that's the that those two factors kind of on the public and then on the private side has has just led to a chronic underinvestment in in hangar space around the country. And so that's that's kind of where where we've stepped in. So Sky Harbor is we're not an FBO. We do sell fuel to our clients, you know, our own clients, but we don't service transient aircraft, meaning aircraft that come to the airport and and visit an airport and and get fuel. That's still serviced by by the FBOs that I mentioned earlier.

So we we very much focus on the real estate side of things, so the hangar development. And then we do have a small fuel component with just our own clients. So how do we get onto these onto these airfields? So first, the the map on the right, this is where we're we're currently we currently have ground leases. So we we actually just announced our seventeenth ground lease last week at at Boeing Field in Seattle.

So we're in we're in operation in in five campuses now. That's Sugar Land, I mentioned, Nashville International, Miami, Opalaca, Camarillo Airport in in the LA area, and San Jose International in California. We're opening up in in the Dallas area, Denver, and Phoenix area airports this month. And then we have a, you know, a number of other ground leases in various stages of predevelopment around the country. And so we're, you know, we're adding airports every week.

But it's the it's the site acquisition part, essentially getting those ground leases. That's that's the most difficult part of our business. And so there's, you know I won't get into them too deeply, but the kind of the the three primary ways we we get on airports are either one is going direct to the airport sponsor. That's going to the airport saying, hey. You know, we've done market research on this airport.

We like it. We wanna come develop. The fact that we're not an FBO is an advantage a lot of the times because we're increasing the, you know, the size of the airport in terms of the number of aircraft that that can be based there. So airports like us a lot in that respect. And so, you know, a lot of times we can just go straight to the airport as long as our development kind of fits in with their FAA approved master plan.

A lot of times, they just go into direct talks with us. And so, you know, these talks can sometimes last years. It's not necessarily easy, and there's there's various ways to, you know, to to get to the the actual decision makers. But it's it's one we've we've had a lot of success with. Sometimes when we go to an airport, we we trigger an RFP, which is a request for proposal, and that's where politically the airport deems that it has to go out to other potential airports aren't required to do it.

Just a lot of times, it's political transactions where it actually we're we're negotiating directly with a with another business who already has the ground lease. And so it can be a lot simpler and a lot faster than dealing with the the airport sponsor themselves. So that's that's on-site acquisition. Again, this is this is probably the hardest part of our business, and it's it's, you know, kind of our our area of expertise because getting the ground leases is is the most difficult part of of the entire business. Oops.

Okay. We just we just announced the q four results a few a few weeks ago. You you can kinda see, you know, we're our our our revenues are a step function. So each new airport that we that we bring into bring into operation here just translates to a direct increase in in revenues as we start leasing them up. So, you know, sometimes it can, you know, it takes it can take a year or two to actually get a campus from ground lease through through permitting, through construction, and then through leasing.

But once once those airports come online and once our airport campuses come online and we start leasing them up, then we see the step function in our revenues as as we fill up each of those hangars with with business jet owners. So kind of the next step function, I mentioned the three that are coming online, it's Deer Valley in Phoenix, Centennial in Denver and Addison Airport in Dallas. Those are just starting their lease up process as we speak. And so you'll start to see the next step up step up function in revenues happening this year as as we as we lease those up. And we're, you know, we're projecting by the end of this year, we're gonna be cash flow positive from an operating perspective once those once those hangars are are leased up Because we still have kind of corporate SG and A expenses, so we're reaching kind of a critical mass where the number of properties in operation will start generating positive cash flow for us on an operating basis.

Even though we'll still spend a significant amount in investment capital as we continue building out the additional ground leases that we have and future ground leases that we'll obtain. So I I, you know, I mentioned revenues. This is how we this is how we think about the business. It's once you sign the ground lease, that's the hard part. Yes, we need to execute on construction and leasing, but kind of the the market capture is is already there.

So, you know, we we now have 17 ground leases announced. We're guiding to an additional additional six airports. So 23 total by the end of this year. And then it's, you know, the all of that potential revenue will start being recognized over the next few years as as they get constructed and put into operation. So I mentioned we are a capital intensive business.

One of the ways we raise capital is through the debt markets. We use a type of federally taxed municipal bond that I mentioned earlier. It's called a private activity bond where certain types of infrastructure qualify for that federal tax exemption. One of those importantly is on airports. And so new construction at airports qualifies us for this for this tax exemption, and we can just raise very attractive debt capital.

So we did our our first issuance a few years ago, a hundred and 66,000,000 in debt at at $4.18, a yield of 4.18%. So very, very low cost of debt that can drive our equity returns higher. And it's long term debt. It's it's it's 33 your final with a diff, and it travels it's assumable, meaning it travels with the company even if there's a change of control. So it it it kinda looks like a funky home mortgage.

So it's it's just very, very attractive debt capital. We use a leverage ratio of about 70%, and we're gearing up to issue our next tranche of these bonds this summer to fund kind of the airports that you see in blue here. So the initial funds we issued kind of funded the green and the yellow ones that we have in the map here. Our next issuance will be for the blue airfields that you see here that are in various stages of permitting and design. I mentioned our revenue streams.

Kind of our breakdown right now is 85% in rent revenue and call it 15% in fuel revenue. So we do fuel our own clients. But having kind of the the real estate on the airport is a really powerful tool, and we think there are other areas of business aviation that we may be able to enter. Maybe not ourselves, but becoming kind of a, you know, we'll have preferred third parties that have access to kind of our high value tenants. And we can, you know, we can kind of offer services to our clients through those third parties at attractive rates for them and additional revenue for us.

This is just kind of a current snapshot of our cash. So plenty of cash on the balance sheet. That's the fund, kind of our initial airport, the kind of the yellow airports that I highlighted in the previous slide as well as equity for the next round of bonds that we're going to issue this year. And you can kind of see our bond finance our bonds have been trading kind of in the low to mid 5%. So yes, interest rates have risen from when we issued our bonds a few years ago, but we're gearing up for our next issuance this summer probably in the, you know, the 5.5% range.

I mentioned this earlier, raised $75,000,000 in a pipe this at the end of last year. That's going to be the equity that we pair with the debt that we're going to raise this summer for the construction of those new airfields. So we're looking at approximately $150,000,000 in debt issuance, again, looking to close this year or this summer. All right. Next twelve months, big focus is still on site acquisitions.

It's trying to get land at the best airports around the country. That's typically, you know, major metropolitan areas with a high concentration of business jets and a lack of associated hangar space. So that's still our main goal. But we're also now very much focused on, you know, construction, leasing and operation as well. We have a lot of new fields.

Those blue fields that I talked about kind of coming, you know, coming online, those are going to start construction later this year into 2020 So it's it's kinda gearing up our construction team to be able to to handle, you know, multiple fields in construction at one time and then leasing multiple fields at one time. So I mentioned kind of the three that are coming online this month. Kind of leasing has started there in earnest. And then maintaining kind of our safe operations at the ones currently in operation and adding our new team members in operations at the three new fields. Alright.

So why don't I end it there, open the floor to to questions. And sir?

Unidentified speaker: Services that you might provide in the future. Yep. Considering that you're not an FBO, are there services you cannot provide or just selling fuel to people who

Unidentified speaker: aren't on?

Tal Kanan, Founder, Skyharbor: It's pretty much just selling fuel to transit aircraft. It it does depend a little bit. Certain airports have or all all airports have something called minimum standards, which if you're classified as a certain type of business, you may not be able to do one or two things. Like, we would you know, as we're currently constructed, we wouldn't provide maintenance right now on on aircraft. But it's not necessarily the airport prohibiting that.

But you're right. The big thing is we cancel fuel at our airports to transient aircraft, meaning the aircraft that come visit the airport. So we're just allowed to sell fuel to our clients.

Unidentified speaker: And just real quick on on the with the clients you have, how long are the leases that they apply for?

Tal Kanan, Founder, Skyharbor: Yeah. About an average term length of of three and a half years. So kind of our sweet spot is that that three to five year range. We do have a few that are longer than that, like up to ten years for for the right client. We we have a couple that are shorter, call it one to two years.

That's a way to, you know, kinda get maybe a high value tenant in for a year, get them used to the service. Because we are quite different from an FPO, just a much higher level of service than the FPO because we have so so many fewer operations than they do. So, you know, so we sometimes will tend shorter to, you know, to get someone in, get them used to our offering, and then and then sign them up for a longer term. But three point five years is the average.

Unidentified speaker: You showed very high IRRs. Can you talk about what the specific unit economics are on your longest duration stores right now? Basis. However, how long they've been open, what the revenue base, what the revenue and OpEx looks like, NOI, you know, I mean

Tal Kanan, Founder, Skyharbor: Yeah. So so let's use Miami as an example. Actually, my Miami was actually constructed with pre COVID prices, so maybe maybe not a great great example now. But kind of on average, what we're what we're constructing right now is we're constructing we construct a $300 a square foot, so that's that's hard and soft costs. We lease on average for about $45 per square foot, and these are all annualized numbers.

Our OpEx is, call it, you know, dollars 7 to $8 per square foot. So that's generating NOI of $38 per square foot. So if you do the 38 over the 300, that's kind of the 12%, thirteen %, fourteen % yield on costs NOI yields that we're looking to generate. Miami is in right around that area, just above $45 per square foot on average.

Unidentified speaker: So I'm trying to back into the math because I just looked at you you're doing $4,000,000 a quarter of rental revenue. Is that correct?

Tal Kanan, Founder, Skyharbor: Correct. Yes.

Unidentified speaker: So how does that 16 centers and

Tal Kanan, Founder, Skyharbor: so on? So yes. So right now, it's right now, we only have five airports in operation. So it's Sugar Land Airport, Nashville International Airport and Miami Opalock Airport. Camarillo Airport was an acquisition we added in December.

So actually, very little of its revenue was kind of seen in 2024. So that's that's just starting to show up. And then San Jose International is our our final operating campus. So it's it's really those those four airports in 2024 that were in in operation.

Unidentified speaker: Yep. What What has been your experience in new rental rates every time a lease expires?

Tal Kanan, Founder, Skyharbor: Yes. So I mentioned kind of the shorter term leases. So a couple of things can happen at the end of the lease term. We sometimes the aircraft move, so, you know, the principal may move and move the aircraft. That happens occasionally, but not as frequently.

What happens more often is we re sign them for a longer term ground lease at higher rates. So on average, we're seeing about 20% increases from the kind of initial rate to the re up rates and that's either through signing up the same tenant or bringing someone else in to replace them. So, you know, we're kinda seeing that in in Miami right now. As an example, we have a tenant who's moving his aircraft out of our hangars to to another airport, And so we're we're trying to find a tenant to to replace him. And it looks like, you know, we're gonna be getting a a nice jump from, you know, a rent that's currently in in the, know, around $40.40 dollars per square foot into the high forties per square foot.

So, you know, we're seeing really, really nice bumps in rent when either re ups or new tenants come in. I see forty seconds left if any one last short question. Alright.

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