Sky Harbour at Noble Capital Markets: Strategic Expansion in Aviation Real Estate

On Thursday, June 5, 2025, Sky Harbour Group Corp (NYSE:SKYH) presented at the Noble Capital Markets Emerging Growth Virtual Equity Conference. The discussion, led by Tim Erg, SVP of Finance and Treasurer, highlighted Sky Harbour’s unique business model in aviation real estate, focusing on both growth potential and challenges. The company outlined its strategic differentiation from traditional Fixed Base Operators (FBOs) and its ambitious expansion plans.

Key Takeaways

• Sky Harbour specializes in constructing and leasing hangars to business jet owners, focusing on home basing rather than transient services.
• The company is expanding from six to nine operational campuses, with a goal of 23 ground leases by year-end.
• Sky Harbour is leveraging tax-exempt municipal bonds to achieve attractive returns on equity.
• Revenue growth is driven by new campuses and strategic airport land acquisitions in major metropolitan areas.
• Competitive threats primarily come from external real estate developers, but securing airport leases remains a significant barrier.

Financial Results

• Revenue: Increases as new campuses become operational, with future potential from additional airfield acquisitions.
• Unit Economics:

- Development Costs: $300 per square foot

- Rental Rate: $45 per square foot (includes $40 in rent and $5 in fuel revenue)

- Operating Expenses: $7 per square foot

- NOI Yield: $38 per square foot (12-14%)

• Debt and Capital:

- Current cash reserves of $97.5 million

- Plans to issue $150 million to $175 million in debt this year

- $75 million equity raised to facilitate future developments

Operational Updates

• Current Operations: Six campuses operational, with three more nearing completion.
• Expansion Goals: Aiming for 23 ground leases by year-end, with various sites in pre-development and design stages.
• Vertical Integration: Acquired a hangar manufacturing company to reduce costs and improve construction efficiency.
• Leasing Activity: Initiated at Deer Valley, Addison, and Centennial, with a third of each campus achieving TCO.

Future Outlook

• Growth Strategy: Focus on securing leases in major metropolitan areas and expanding airport partnerships.
• Debt Strategy: Issuing $150 million to $175 million in debt to support development.
• Lease-Up Strategy: Balancing speed and rental rate targets, with leasing expected to continue through year-end.

Q&A Highlights

• Airport Land Acquisition: A "shotgun approach" is necessary due to the political nature of municipal negotiations.
• Construction Cost Savings: Vertical integration and potential internal general contracting could yield 10% savings.
• Competition: FBOs unlikely to compete directly; main threat from real estate companies facing land acquisition challenges.
• Boston Omaha’s Position: May reduce holdings for other investments, but Sky Harbour remains focused on shareholder returns.

In conclusion, Sky Harbour’s presentation at the conference outlined a robust strategy for growth in the aviation real estate sector. For a detailed understanding, readers are encouraged to refer to the full transcript below.

Full transcript - Noble Capital Markets Emerging Growth Virtual Equity Conference:

Pat McCann, Noble Capital Markets, Noble Capital Markets: Welcome, everybody. My name is Pat McCann with Noble Capital Markets. Today, we have Tim Erg, who’s the senior vice president of finance and treasurer for Sky Harbor. Before we get started, I just wanna mention that at Noble, we recently initiated coverage on the company, ticker SKYH, with an outperform rating and $23 price target based on a discounted free cash flow analysis. I think it’s a really interesting and unique company.

And so with that, I’ll I’ll give it over to Tim to tell you more about it, and hopefully, we’ll have some time for some q and a at the end. Over to you, Tim.

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Thanks, Pat. Appreciate the, the introduction. So as, as Pat mentioned, I’m the, treasurer and SVP of finance at, at Sky Harbor. We’re, we’re an aviation real estate company that does, hangar construction at campuses, at airports around the country, and we lease them to, general aviation business jet owners. I started my career in military aviation.

I was a navy pilot for ten years, and then got recruited by Tal as he was getting Tal Kainan, our founder and CEO, as he was getting Scott Herbert started. We we started as a company in in 2018, and and and here we are seven years later, you know, kinda just continuing our our growth phase. So I’ll get into that in in in a minute. At a high level, the company has has the like, essentially, stages of a of a life cycle of our of our projects. The first is securing land at US airfields around the country, typically in in major metropolitan areas.

We can’t own airport ground leases because, airports are are publicly owned by the local city or municipality that they’re located in. So we we acquire the land in the form of long term ground leases, usually with a term of fifty years. Then we design, construct, and finance, the the hangars that you see on the, on the right hand picture there. This is our, this is our campus at Addison Airport in the Dallas area. So so we construct, the campuses at at the land we’ve acquired at these airports, and then we lease them and operate them.

So our our, primary tenants are, high net worth individuals who own, who own business jets like the Global 7,500 that you see in the picture there. So so that’s, I’d say, the the majority of our tenants. We also lease to corporate, aviation, fleets, charter operators, and, and other general aviation users. We also operate the campuses. We provide, you know, aviation services like towing and, and importantly importantly, fueling, which is which is a source of, of of revenue for us as well.

We target, pretty attractive property level returns. So cuts kind of real estate people. We look at NOI yield or yield yield on cost as we target, kinda low to mid teen NOI yields, and then we, we drive the return on equity of this prop project level returns higher, through a type of, desk structure, which I’ll I’ll get into in a future slide. But, essentially, we are we’re allowed to issue tax exempt municipal bonds as a as a greenfield developer at at airports. So let me move on to I’m just gonna do a quick macro discussion of of what the market opportunity looks like, the demand, the demand drivers, for our business.

And, and then I’ll talk about kind of the the historical supply of Hanger’s base and why it’s been insufficient. So if you look at the chart on the right, the this chart is is kind of the critical, critical thesis of our business. So with without fail every year, the size of the, the business aviation fleet, which is if you if you think of an aircraft as a wingspan times a length, that’s a that gives you a square footage of the aircraft. And then if you add all the aircraft in the business aviation fleet together, that’s those are the kind of that total square footage that you see, you see increasing every year. And so it’s it’s driven by two factors.

One is, retirements have slowed, so aircraft are, are living longer. And then more importantly, new aircraft, like like the ones you see in the pictures there, new aircraft on average are are bigger, meaning their wingspan and length are bigger every year. So so the size and it’s not just the number of of, of business jets is increasing as well, but it’s it’s importantly the size or the average size of of each aircraft, is is getting bigger every year. And so the demand for hangar space is growing because of, because those aircraft need to be housed somewhere. The supply of hangars has not kept up, and, the two main reasons for that.

One is the owners of the airport. Remember, it’s the local city or municipality that they’re located in. The owners, are generally don’t wanna, risk the political and financial capital to build what’s viewed as storage for rich people’s aircraft. And so because the owners haven’t constructed hangars, they typically have partnered with, third party private companies called FBOs or fits fixed based operators, to, to construct hangars, for the airports. And, and FBOs, historically, have built hangars only because they have to, you know, to to be able to operate, on these airfields.

FBOs sell fuel as their primary, primary business. They don’t build hangar space as their primary business. So they typically build the minimum that they have to in order to in order to get the right to sell fuel from the, from their airport, air airport sponsors. And so that that kind of, you know, public private partnership, through the FBOs, it you know, that they’ve been the legacy kind of, constructor of hangars throughout the country, but it’s been insufficient to to meet the demand that I talked about on the previous slide. And so that’s that’s where Sky Harbor can comes in.

So we’re we’re not an FBO. We, we the main distinction between us and FBO is we don’t service transient aircraft. So we call ourselves a home basing, a home baser, which is when you when you own and operate an aircraft, we, we are where you live, full time, and then FBOs are where you go when you when you’re on the road. So as so we’re stepping in to partner with airports to build the, pardon me, to build the critical hangar infrastructure that, that’s been lacking, historically. This is a quick quick company overview.

I won’t won’t spend too much time on this slide. But but this this slide is is kind of shows where we currently operate and, and how we get onto onto airports. So, typically, airports come out with something called an airport master plan, where they, you know, they plan for future involvement of things like aircraft tankers, facilities, commercial terminals, that sort of thing. So we we partner with, with airports either through, one on one conversations, or in response to a request for proposal or an RFP to, you know, to to develop hangars in accordance with, with the master plans that the airports have laid out and, and, you know, construct our hangar campuses, construct our hangar campuses in order to to attract more aircraft more aircraft to that to that airport. So the map on the right is is where we’re located.

The the green circles are where we’re currently in operation. The the yellow circles are are three fields where we’re finishing construction, essentially, this month, so soon to be nine in in operation. And then the blue circles are in various various stages of predevelopment and and design as as we look to ramp up construction on those later this year and into 2026. So so right now, we have 18 ground leases in in our portfolio. We’re we’re aiming to get to 23 by the end of of this year, and and future growth, after that, we’ll, you know, we’re we’re not content at stopping at at twenty three.

It’s, you know, it’s it’s, you know, looking to to add airports, in a pretty regular clip, in the coming years to, to continue growing the company. This this chart just give you a sense of of what our, what our unit economics look like. So, just, we we often talk about, things on a rentable per square per per square foot basis. So our unit economics break down as follows. We we generally we like to construct that for an average of $300 per square foot.

So that’s our that’s our development costs. We look to rent for $45 per square foot. That’s a mixture of, approximately $40 in contractual rent for the hangar itself and then $5 in fuel revenue. We have OpEx of approximately, approximately $7 per square foot. That’s a combination of of ground rent to the airport, as well as, as well as payroll for our operating crew and and other ancillary expenses.

So that gives us an NOI yield of $38 a square foot. And when you you divide that by the $300 per square foot, that’s the, you know, 13, twelve, thirteen, 14 percent NOI yields that that we’re targeting on average across the portfolio. I mentioned the the the type of debt we use. It’s a it’s a type of debt called private activity bonds, which is a type of federally tax exempt municipal bond that’s available to nongovernment entities like Sky Harbor, and we’re able to to use that very attractive cost of financing to drive those, those mid you know, low to mid teen NOIs higher so the return on equity is, is is very attractive. And just to give you a sense of of the the, you know, the bonds that we issue, we issued our our first, our first round of these bonds a few years ago.

Long term debt, so it’s it’s thirty three years, average life excuse me. Thirty three years final twenty five year average life, and, and we issued these at 4.18%. So at a four four eighteen yield, which is, just a very, very competitive cost of capital for us. No interest rates have have risen. We’ve indicated to the market that we’re we’re gonna issue our our next round of debt this year.

But but we’d likely, you know, we’d likely issue debt in the, call it, 5 and a half to $5.75 range, this year. Our our if you look at, where our long bond, the existing long bond is trading, it’s it’s right in the the five and a half percent range. So that’s that’s kind of our oh, one last note on on kind of the capital stack. We we use 70% leverage. So so debt is 70% of of the capital stack.

The remainder remainder remaining 30% is is equity. So we we have raised equity equity in the past to to pair with our our debt issuances and and and may do that going forward. This is just a highlight of our of our latest quarter operating results. You can kinda see the the quarterly step, function of our revenues. Essentially, as each one of our campuses comes online, that revenue number jumps.

And so we’ll we’ll see if they jump this year when when those three campuses that I mentioned earlier come online, and get get leased up, through the end of this year. This slide just shows how we we think about the company. It’s it’s really adding each additional airfield and and the revenue potential for for each of those acquisitions. So the the ground getting the ground leases in our business is it’s the most critical part part of the company because it’s it’s really getting Beachfront property at, at the airports we we care about. So they’re not building you know, we as a country are not building new airports, where we need them in in major metropolitan areas.

So so each each ground lease that we get is, you know, represents this, you know, a specific amount of amount of revenue, that will capture, you know, following our, our our design and construction phases. So with the ground lease signing, you know, it it essentially represents, represents this future revenue, that we’re gonna be able to capture, following, the construction period. I mentioned we we, we do have fuel as a as a as a revenue driver driver for us. We do have some potential upside in in partnering with other other third parties, to provide other ancillary aviation services such as insurance and and aircraft management. Nothing we we haven’t really executed, on this piece yet except for the the fuel part.

That that is an important part. But it’s, it’s additional upside as we as we, you know, kinda look look to grow the business, beyond just our our fueling services. We’re capitalized. Currently, 97,500,000.0 in in in cash. A lot of that is designated to the the current construction we’re we’re on we’re undergoing as well as earmarked for the additional debt that we’re gonna issue this year.

Finally, just just an additional note on the on that additional debt, you know, looking to raise a hundred 50, possibly up to a hundred and 75,000,000 in That’s, gonna be that that’s because we issued approximately 75,000,000 in equity, at the end of last year, and so that equity is what’ll what will allow us to issue the debt, to fund, the blue circles that you saw on the previous slide, which are which are our future airfields under under development. So this has kind of been the the recent capital activity of the company that we’re that we’re gonna use to to fund that that debt closing this year. So so it just in in summary, pretty, you know, pretty straightforward business, bricks and mortar business. If anyone anyone listening wants to wants to take a tour and, you know, in any of our operating campuses, happy to happy to arrange that. And I can now wrap it up and and turn it over to Pat if if there are any questions.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Thanks, Tim. Yeah. We do have some questions. First of all, with with the airport land acquisition being very central to the model and I think an advantage for you, can you talk about how you scale your municipal engagement to maintain your lead on potential competition as far as signing land leases, long term land leases in in the future? Because because that’s mostly state and local or locally municipal owned airports.

What does that engagement look like? How do you keep your your competitive edge there?

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Yeah. The the adage in the industry is when you’ve seen one airport, you’ve seen one airport. Each each one is different. So so when we when we, you know, when we reach out to airports, it’s kind of figuring out the the best way to contact them. Sometimes it’s through the airport manager who may be unelected and is is kind of as a, you know, a civil servant.

It may be an airport authority, which is a a group or a board that that controls the airport. It may be political, maybe through the, you know, the local mayor or city council, who who kind of has the power for an airport. So it’s, you know, each each one is, is a little different, and you kinda have to figure out, you figure you have to figure out the the best way to, to approach them. That that also gets to the point that it’s because it is so political. We we never quite know when when each, when any one airport is going to, is going to materialize for us.

So we we really have to take we we have to take a a shotgun approach where we are in conversation with dozens and dozens of of airports, at at any one time, because, because you need to keep, you know the the pipeline of of future growth is, you know, depends on how many conversations you’re having at one time because you may be talking to one airport for years, and and and so the timing is is always a little uncertain. We always say our our our quickest airport signing or ground lease signing from initial airport outreach to to ground lease signing was is six months. That was at at Orlando, and the the longest is yet to be announced. So, you know, again, many airports we’ve been in conversation with for for years. You know, we we think eventually we’ll we’ll get there with, with ground leases.

It just, it it can sometimes be a process because you’re working with, you know, with public entities that that may not work as as fast as we do.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Great. And then turning to construction, something that the company has been been doing for a while is bringing more and more of that in house to boost margins and have greater controls just over costs and time delivery timelines and so forth. Could you talk about some of could you quantify, I guess, the expected cost savings and margin recapture by recapturing by bringing a general contracting in house? And, you know, will that show a project level economics?

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Yeah. So, so the we’ve we’ve already vertically integrated into, into kind of a critical piece of our business, which is the the the hanger manufacturing itself. So we we acquired a company, that does, that does hanger manufacturing a year or two ago, and that’s allowed us to to shave, you know, a pretty pretty significant, amount of money off of the actual metal building manufacturing itself. So, you know, you’re probably looking at, you know, looking at 5% of the of the actual hard costs of the, of the hangars themselves that, that we essentially save as a, you know, as a fee to ourself for, for for that vertical integration. A a couple other, a couple other efforts underway currently is the development of a of a prototype, which, which we which we’ve completed and kinda now essentially roll out across the various, campuses that were were be were beginning construction.

And so we you know, if you think of them as a we think of them as a as like our Lego sets. So, you know, each each one looks the same, and you, you bring it up. You know, we manufacture them in house, ship them to wherever they need to be, across the country, and then have, you know, kind of experienced directors who have who have worked with us before to, to put them up quickly and and and repetitively, to to to save on time and and and gain further efficiency in the in in the actual, actual construction on the site. And and lastly, as you mentioned, we’re we’re looking to bring in house, certain general contracting efforts, that will, again, allow us to save, call it, 5% on on general contracting fees that will now, you know, will will now accrue to us internally. We probably you know, we’re we’re nationwide.

We probably won’t be able to GC everything in in in every region of the country. Some some general contracting is still very local, But, but but as we internalize that that general contracting fun function and get, you know, get much better at, doing ourselves, we’ll we’ll accrue that savings, internally to the company.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Excellent. We have a few more questions, from the audience. Could you discuss the current condition, of of the lease ups at the three airports, that are now, built?

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Yeah. So so Deer Valley, in in Phoenix actually just got our TCO, last week. Addison and, and Centennial, which are the other two, approximately two hangars of call it a third of each of those campuses has has CEO. The others have have not yet CEO. So we’re not we’re not actually complete with with all of them yet, but but but leasing has has begun in earnest, so we, we we have, we have a few leases in place at, at each of those, currently.

And, and, you know, we’re we’re expecting to have a lease up period, through the end of this year as, as those campuses open, and and we, and we complete our efforts to, to lease them up. For a lease up, for a lease up, strategy, there’s always a you know, there’s a bit of a a bit of a pressure between wanting to lease it up fast and wanting to lease it up at high rents. So we could we could lease our hangar space up immediately if we wanted to, but generally not at not at the rents we would, we wouldn’t want. And so, you know, we we we’ve our our strategy, to date has been to, you know, to kinda roll out, roll out the TCOs sequentially to keep, you know, keep a bit of a a scarcity factor as we as as we as we go ahead and lease up so that we can we can target those those higher rents that we’re looking for for our for our shareholders. So, again, it’s it’s it’s balancing the, you know, the the speed with which we lease up with the, you know, with with the higher rents that that we’re targeting, and I think we have a good plan in place through the end of this year as we as we look to to get them to a % leased.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Excellent. And could you also talk a little bit more about the comp competition? You mentioned the FBOs. What would be serious threat, competitive threat? Would it be FBOs sort of shifting their model to align more with with what you’re already doing, would it be new entrants?

Could you just talk a little bit more about what what the serious competitive threats could could be for you?

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Yeah. First on the FBOs, they they’ve looked at what we’re doing. And to date, they, you know, they’ve chosen not to not to kinda enter, again, what we call the the home basing home home basing sector of the industry. FBOs are a a great business, and they’re driven by fuel revenue. And so, you know, I don’t think they necessarily have any have any incentive to change that.

And so, you know, they generally like being CapEx late, and, and and, you know, our business is certainly not that. So so even though, you know, even though the returns are there, I think they’ve made the decision to to focus on on their business, which, again, we we think they should, which is which is the fuel set you know, the the selling of fuel. So, you know, we may see we we may see an FBO, you know, choose to do, you know, kinda what we’re doing may maybe on, like, a a one airport basis, but, but don’t necessarily think that they’re gonna you’re gonna jump right in and, and and kinda try to compete with us on a, you know, on a national level like the the scale we’re we’re already seeing for our for our business. So so that leaves possible external threats, which which we we think, you know, we think may happen. It would it would probably be, you know, an external, an external, real estate development company that’s looking to expand and getting get into the aviation, niche like we have.

And, you know, the the biggest barrier to enter that is is kind of the the airport acquisition, challenge that I already spoke of. It’s, it’s not like you can go out and, if if you’re well you know, capitalized well, to acquire land at airports, because you can’t you can’t buy, you know, fee simple land, at at, at airports and have runway access. So it’s a real con you know, it’s a real constraint on on entering because you have to build, over time, the relationships that we have with, with all of these different airports, to, to actually hit those ground leases. So it it it just the the real on the development side, it just looks a lot different on, you know, in the land acquisition of of getting the ground leased versus traditional real estate development where where you can go out and and buy the land fee simple. So, again, we haven’t, you know, we haven’t seen it to date.

It doesn’t mean it’s not gonna happen eventually, but but that that is the barrier to entry for for us in terms of in terms of the ground leases.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Great. And then I know we’re running short on time, but if I could just get to one last question from the the audience. One member is is asking about the Boston Omaha Corp and the the selling, you know, the trimming of their position. If you could talk a little bit about what’s going on there, what may be the thought process.

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Yeah. So so Boston Omaha’s, you know, is if if the audience isn’t aware, they were we went public via SPAC. Boston Omaha was the sponsor of that SPAC, and they’ve been you know, they’ve they’ve put in a significant pipe along with the, you know, along with the SPAC, which, which is why why we elected to, you know, to raise capital with them, in in 2022. And to date, they’ve been they’ve been great, you know, long term partners, with us, but they are just you know, they’re they’re a shareholder. We can’t control, you know, we we can’t control what, you know, what what they do with with their position in our company.

And so, you know, it, it appears that, you know, that they have, they have other investments that they that they wanna make and and have, you know, have been trying to raise raise some cash for that. And, you know, the way they’ve been doing that is is selling, selling pieces of Sky Harbor, you know, when they when they can. So, it’s, yeah, it’s it’s it’s a challenge we, you know, we’ll we’ll have to deal with, but but it’s it’s it’s Boston Omaha making making those decisions. And, you know, we’re we’re really focused on kind of executing, you know, executing as a company, and and, you know, we’ll, you know, we’ll we’re we’re gonna try to drive shareholder return for for, you know, for all of our shareholders as as we go forward.

Pat McCann, Noble Capital Markets, Noble Capital Markets: Excellent. Well, Tim, I really wanna thank you for for being with us today, and thank you to the audience for for attending. It’s been my pleasure.

Tim Erg, SVP of Finance and Treasurer, Sky Harbor: Thanks, Pat.

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