Sky Harbour Group Corporation Class A

Good afternoon. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply submit a question online using the webcast URL posted on our website. Thank you. CFO Francisco Gonzalez, you may begin your conference.

Thank you, Tina. I'm Francisco Gonzalez, CFO of Sky Harbor. Hello and welcome to the 2025 First Quarter Investor Conference call and webcast for the Sky Harbor Group Corporation. We have also invited our bondholder investors in our borrowing subsidiary, Sky Harbor Capital, to join and participate on this call. Before we begin, I've 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 we'll discuss today contains forward-looking statements. These statements are based on management assumptions, which may or may not come true, and you should refer to the language on slides one and two of this presentation, as well as our ACC 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. Wanted to note the picture here on the deck is one of our new hangars at our new campus that just opened in the city of Addison just north of downtown Dallas. This hangar is beautiful. If you notice in the picture, it has a mezzanine level and floor-to-roof wall windows in the office space overlooking the hangar. The jet shown is a Bombardier Global 7500. one of the largest jets in business aviation and fits nicely into our hangar space. We're now moving to even larger size hangars in our future campuses to accommodate even larger single jets or customers with fleets. So now let's get started. The team with us this afternoon, you know from prior webcasts, our CEO and chair of the board, Tal Kanan, our treasurer, Tim Herr, our chief accounting officer, Mike Smith, and our accounting manager, Tori Petro. We also have Marty Creshman with us. Some of you remember he joined us as head of airports about a year ago after a successful career at Singletary Aviation. We have a few slides we'll want to review with you before we open it to questions. These were filed with the SEC about an hour ago in Form 8K, along with our thank you, and will also be available on our website later this evening. We also filed our first quarter Sky Harbor Capital obligated group financials with MSRP EMA also about an hour ago. As the operator stated, you may submit breathing questions during the webcast, during the Q4 platform, and we'll address them shortly after our prepared remarks. So let's get started. Next slide, please. In the first quarter, on a consolidated basis, assets under construction and completed construction continued to accelerate, reaching over $275 million as of quarter end on the back of construction activity in Phoenix, Dallas, and Denver. Revenues experienced an increase of 133% over a year ago, and 20% sequentially as we incorporate the operations from the acquisition of the Camarillo Campus last December. Operating expenses in Q1 increased moderately due to several factors which Mike, our Chief Accounting Officer, will break down shortly in more detail. We strive to keep SG&A in check as we grow, keeping frugality front and center in our expense and cost management initiatives. Cash flow using operating activities moved higher, which usually happens in each of our first quarters, but this quarter in particular for the increase in operating costs that Mike will explain now. We wanted to also reaffirm our prior 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 and cash flowing of the new three campuses over the summer and fall.

Next slide, Mike. Thank you, Francisco. I'd like to discuss a few of the factors impacting the comparability between some of our reported operating expenses this quarter as compared to the prior. Of the one and a half million increase, approximately a third of the increase relates to an increase in our reported fuel expenses, which is simply a function of us reporting fuel growths at our Camarillo hangar campus as opposed to net, as we do with many of our others. Two other impactful factors include our startup expenses, including increases in headcount at our ADS, APA, and DBT locations. This was further impacted by a full quarter of our operations at our Camarillo hangar campus, which, as you may recall, was acquired in December of 2024. Similarly, our cash use and operating activities was impacted by many of the things I just went over. but was also impacted by a decrease in accounts payable, largely just due to timing of payment driven by an effort to speed up the time in which we pay our vendors. Thank you. Back to Francisco.

Thank you, Mike. Next slide is a summary of the financial results of our wholly owned subsidiary, Sky Harbor Capital, and its operating subsidiaries that form the obligated group. This basically incorporates the results of our Houston, Miami, and Nashville campuses, along with the capex and operating costs and soon revenues of our three projects that just opened up in Phoenix, Addison, and Denver that's expected to open up in a few weeks. Revenues were basically flat for the last few quarters. We expect a step function increase in revenues in Q2, Q3, and Q4 at these three campuses as they're at least up and random field revenues commenced to flow over the coming months. Operating expenses increased, as we just discussed, given the onboarding of all the line personnel and hardware masters in Q1 in anticipation of this campus becoming operational a few weeks ago. Next few quarters are expected to see the increase into higher positive cash flow from operations as the three new campuses are leased. With that, let me pass it on to Tal for an update on our grant lease pipeline. Thanks, Francisco.

So this is a slide that draws the most questions and comments. So I'll dwell on it for a few minutes before we go on with the rest of the presentation and just highlight a few things that we've added. So what you see on the right is our growing map of Sky Harbor ground leases, self-explanatory. The two new ground leases that you see are in the Pacific Northwest. That's Seattle and Portland. The chart on the left is, I think, maybe the key chart to understand in terms of how we perceive or conceive a value creation at Sky Harbor, which is the chart that tracks the revenue that is available to Sky Harbor. And we added a few points just to make sure that people understand because we've gotten questions about this on the last two or three earnings calls. The first is, what does that bar chart actually represent? It's rentable square footage under ground lease times sky Harbor equivalent rent. Okay. Airport, sorry, rentable square footage, uh, under ground lease times sky Harbor equivalent rent. That is the total revenue that's available to sky Harbor from ground leases that we currently control the box on the upper left. is a direct answer to a lot of people's questions from previous calls. How do we calculate that and why do we think it's a conservative starting point for estimating, kind of call it terminal NOI in the entire Sky Harbor portfolio? Sky Harbor equivalent rent is what people are paying today at those airports. Now the closest function that we have to compare it to is the original CBRE estimate from 2022 on available rent on the airfield that we had. So what we're looking at here is $29.08. That was the original estimate. That is what we went out to the bond market with originally. That was for 2022. And we're looking at three airports there. That's Sugar Land in Houston, Opelika in Miami, and Nashville International in Nashville. Where we are currently is at $35.75 a square foot. So that is the actual, that's about 23% higher than the Sky Harbor equivalent rent, which is half of the reason that we feel that this chart is conservative. What we see on the lowest line is the highest expected revenue, which is $40.06. That is a blended average of the most recent leases signed in Miami, Nashville, and Houston, which represents a 38% premium over the original CBRE estimate. So, there's two things that we feel are going on here. The first is the premium that top jet owners in the country are willing to pay for the home basing offering. Sky Harbor is a completely unique offering in aviation. It doesn't exist today, and we think that that's part of the reason that we're commanding such a premium over Sky Harbor equivalent rents. And the second is inflation on airports, which is a central piece of our thesis, which is we're not building new airports in this country. The available land on existing airports, or let's say the readily developable land on existing airports, is already quite scarce. We tend to take up all of the readily developable land on an airport that we come to. And that really makes the case. It's really a supply demand question for airport inflation outstripping CPI by a very significant margin. And I think that's part of what we're seeing. So the last line on that chart captures, we believe, a lot of that inflation, meaning the most recent rents that we're seeing are much higher than our average rent. A lease that we signed on the first round, right after opening a campus, comes in at a lower total revenue than a lease signed more recently. So that is on site acquisition. The next slide is just a quick overview of our most recent site acquisition deal. This is Hillsborough, Oregon, which is the primary business aviation airport for Portland. And everybody has the slides. I'm not going to spend much more time on it. Next slide is where we've spent most of our time and effort over the last two quarters, which is in a total revamping of our construction. Sky Harbor is becoming a construction company in many ways. And we have, you know, today we have the scale that, you know, both, I'd say, demands that we do this, but also presents a big opportunity for doing it. So if you look on the left side of the chart, you see the story of vertical integration at Sky Harbor, which largely was not a factor in the early days. We did do our own prototypes very early on, and I think that was a big piece of our value proposition. But almost everything else was outsourced in the construction stack. And what you can see over the course of 2024, where we purchased our pre-engineered metal building manufacturer subsidiary and brought all of our steel and materials procurement in-house, what we've done over the last, call it two or three quarters, was integrate the ability to conduct our own pre-construction services, design, architecture, engineering, and increasingly now general contracting in-house. So what does all that do? And that trend, I believe, will continue as we continue to scale. What does all that do? The center column is the intended effect of those moves. The first, for everybody who's looking closely at our unit economics, is to manage costs. And that's not just a question of cutting out margin to the various suppliers that used to be on the outside. But it's also getting a lot more efficient in our processes because, again, we're not relying on people who do a lot of different things. We're now talking about people who do only one thing, which is build a prototype Sky Harbor 37 hangar. That'll also manifest in speed, which lowers our costs as well and also starts revenues flowing earlier. about a half a million dollars a month in NOI per campus. The effect of shaving, you know, two, two and a half months off of our construction campus is it certainly moves the needle even in the grand scheme. Build quality, which, you know, as a lot of people on the call who follow us closely have known, we've had a very mixed experience with build quality and design quality in our space. And we've worked with with the blue chip suppliers It just happens that in this space there are quality issues, and that's something that we want to address by taking it in-house. Fundamentally, the ability to manage scale, you know, really inoculate ourselves from the effects of supply chain disruptions or anything like that and have nothing get in the way of scaling our business. And then lastly, versatility. If we need to make modifications to the prototype, you know, retrofits, whatever it might be, having all of that ability in-house and the ability to prioritize because, you know, we're not competing with other customers for those services, I think is a big deal. And the ultimate benefit that we're trying to get from this is on the right column, obviously, our unit economics is yield on cost is what we measure. The denominator is our construction cost. The lower we get those, the better our unit economics. One level more subtle, but I think very important for people who are trying to value this company, is our addressable market. If you just do the math, if you're looking at it, if you're trying to target a minimum of a 12% yield on cost in all of our new construction, if you're building at $250 a foot versus $300 a foot, the universe of airports that will bear that yield grows dramatically. The addressable market grows if we're successful. in all of our efforts to reduce our construction costs, the total addressable market grows very significantly for Sky Harbor. And then third, you know, arguably most important is is product differentiation. Right. And we have a bundled real estate and service offering that has to go together. You have to build it this way in order to put forward the service offering that we have. We aim to be the six star offering always in our space. and we're differentiating ourselves on build quality. It's not just about the quality of construction and the durability of our structures, but it's the design itself and the fact that we have a rapid feedback loop where you solicit direct feedback from our residents and then introduce that into the portfolio. I think we continue to gain an advantage, and that will increasingly be part of the moat around this entire business. With that, I'm going to hand it over to Tim.

Thanks, Al. We continue to enjoy strong liquidity with approximately $97.5 million of cash in U.S. Treasuries. Our cash management strategy focuses on investing our cash in short-term U.S. Treasury bills and money market funds dedicated to future construction use, while the various reserve funds required by our bonds are invested in longer-term Treasuries. The chart on the right-hand side shows the latest trading of our long bond, which continues to rally over the past year. We stand by our expectation that the future debt service coverage ratios for these bonds will exceed those that we forecasted at the time of the bond issuance. We appreciate the continued interest in our bonds by our bondholders as we gear up for our next offering this year to fund our airports currently under development. Back over to Francisco.

Thank you, Tim. Very quickly, in terms of capital formation, we continue to work ahead in preparation of our next debt issuance. which we discussed in prior calls, we have been dual tracking upon offering or a bank term facility. And let me also note, you know, we keep our eye on developments in D.C. about the future of tax exemption for municipal debt. And, you know, all that we've seen, at least in public news, is that what's coming out of D.C. seems to be leaving tax exemption on touch, which obviously is great news. for one of the pillars of our business model, which is raising tax exempt debt to fund our growth. Separately, we continue to receive inquiries from investors looking to invest in the company and also from certain real estate and infrastructure funds looking to partner with us in potentially looking at existing hanger assets already in operations. we'll report soon on these potential structures and finances that we are working on as soon as they're materialized or get formalized. Let me turn it back to Tal to discuss and look ahead and highlights of our Q1 in terms of developmental leasing.

Thanks, Francisco. So, Q1 highlights, I'm going to focus uh on development in in in this slide and when we look ahead i'm going to focus on leasing because you know as we've described the business before it's an exercise in shifting bottlenecks right we had a very big site acquisition bottleneck uh we're coming into a place where our success on the site acquisition side has built a development bottleneck which is welcome that's that's what we want uh but starting at the beginning on that acquisition uh two new leases in the last quarter, both in the Pacific Northwest. As always, more to come. The pipeline is full. We will not take our foot off the gas on site acquisition. It is the binary entry ticket into this entire business. And we remain focused on pulling down the best airports in the United States for Sky Harbor. Development is where the biggest action has been in the last quarter. We are on the eve of some big announcements and some big introductions for new leadership in our construction team and a significant expansion of the roster of players. Not just in number, but in fit for our mission. These are what I consider the top veterans of the pre-engineered metal building industry in this country. coming in-house, things that I referred to earlier that we really are excited about. I think that's a huge piece. It's both a necessary gear up for the scale of development that we're entering right now, but also an opportunity to really just maximize the advantage and economies of scale of a construction effort of this magnitude. More near term and tactical Phoenix, Dallas and Denver are all nearing completion. All three of those have part of their hangers under certificate of occupancy already. We've commenced operations in two of those airports and leasing at all three of those airports. We have two more campuses scheduled for delivery by the beginning of 2026. That's Dallas phase two and Miami phase two, and then 16 additional campuses in development. So, you know, certainly, you know, an exponential ramp up in development activities. I would say coming into the second and even third quarters, that will remain a major focus for management is making sure we're properly prepared for that, but also maximizing the benefit that we can draw from scale. On the leasing side, all three of the new campuses are in round one lease up. Remember, we're also completing leasing at Camarillo, which we acquired, and we're beginning lease up in Boeing Field in Seattle, which we just acquired. We are experimenting now. I think a lot of people who follow us closely have noted and challenge this strategy of waiting until we actually are ready for operations, certificate of occupancy, full ground support equipment and staff trained and ready to go before we actually start leasing a campus. The idea behind that is that we have maximum pricing leverage at that point in that aircraft owners tend not to pre-plan and pre-lease. One of the things we're seeing though is inbound demand is real when we announce a new airport, we we increasingly get calls from a lot of the business aviation community in that jurisdiction looking to pre-lease. And increasingly, we feel like people are aware of the differentiated value of the Sky Harbor home basing offering and frankly, are aware of the premium that you pay in order to to get it. So we've taken one airport, which we'll perhaps name it at the next opportunity. And we are going to lease up part of that campus well in advance before we've even broken ground and see, and this is an experiment, but to see what that does for us. I would say certainly for the bondholders on the call, and I say people who are looking at downside scenarios on the equity side, that should be welcome news. And we're going to see if we are really forced apart with significant upside by doing that. Obviously, the the the intention is to try to have our cake and eat it, too. But we'll see how that goes. Releasing has become a central piece of our activity, and that's just a function of scale at this point is that we have, you know, seven, eight, nine airports with leases coming to term now sort of significant I don't want to call it a distraction, but a significant portion of the leasing team's focus has been diverted to releasing. And that's also key because of the premiums that we're getting on releases. The second round is, I don't know if we have updated statistics, but let's say between 20 and 30% higher than the first round of leasing. So we want to continue to maximize that. that's on leasing, on operations. I don't think people on this call have met Marty Kretschmann, our Senior VP of Airports. So this is a good opportunity to meet him. So Marty, let me ask you to cover operations.

Sure. Thanks, Sal. So quarter one, strong quarter of execution for the operations team. As Sal mentioned, when it comes to value differentiation, that really is where the rubber meets the road for our customers. We ramped up our three new campuses, Phoenix, Addison, and Denver with personnel and equipment, getting ready for the first residence and bringing the Sky Harbor model to more aircraft owners and operators across the country. Tal mentioned we also established our initial operating presence at Boeing Field. We began support of our first incumbent residents there while we're negotiating towards a longer term agreement with the airport. And then at Camarillo, we continued refining the service offering from our December acquisition to align with our distinct and elevated standards. With nine campuses now actively serving our residents we're we're demonstrating the scalability and, in particular, the appeal of our unique model and we're introducing this differentiated value proposition to a growing segment of the industry as we expand further.

Thanks Marty. Okay, so moving on to the next one or two quarters. Again, the theme that you will see is a gradual shift of management attention away from the bottleneck that we're now contending with, which is development, to the next bottleneck, which will be leasing. Okay, we have a skeletal leasing team today, and that's going to have to change as all this volume comes online. Again, starting from the beginning on site acquisition, Our focus is on the best airports in the country, right? Just referring us back to that bar chart, it's primarily about revenue capture and maximizing that. We are, I'll reiterate, on course to meet our 2025 acquisition target, which will have us at 23 campuses by the end of this year. And we continue to grow our team to support that acceleration. Development. Again, we've discussed it quite a bit already, and I'm guessing there are going to be some questions on this, but vertical integration has been the theme. More and more is coming under our roof, and that is both a necessity and also a big opportunity for us to increase our build quality, speed up, scale up, and lower our development costs. Leasing, like I said, will increasingly be the center of management's focus in the coming quarters. We're going to have to build up a national leasing team. Definitely a challenge. Again, I think one of the areas is going to take a lot of focus. It was and it has been on the development side. It will be on the leasing side. It's not obvious who the right players are to actually manage a process like this. There's no obvious pool to be fishing in for talent. A lot of it, I think, is cultivated in-house. And that might be the strategy going forward. As we do that, and again, I'm going to ask Marty to speak about operations in a minute, but a lot of that takes care of itself if we continue firing on all cylinders on operations and really bringing that differentiated value. So increasingly, we're seeing the Sky Harbor brand growing in the business aviation community. There are fewer and fewer people whether that's aircraft managers, pilots, aircraft maintainers, and in many cases, aircraft owners who are aware of Sky Harbor and want it. Again, we're seeing that when we announce new ground leases, the calls that we get from flight departments looking to pre-lease these properties. We're seeing it in expansions. People who have, let's say, one hangar who are now going to two hangars, or in one case, two hangars going to six, I guess now seven hangars. residents in one location who are looking for a dedicated hanger in a second location. So increasingly, I think the word is out and that's really about just delivering every day. So we've been worried a little bit less about messaging and more letting that take care of itself when we just deliver, which is a good segue to let me hand it back to Marty again to talk about operations in the coming quarters.

Sure. So as we look ahead, we continue refining our standard operating platform with input from our residents and their support teams. What we offer is a comprehensive aircraft home-based solution, and it is truly unique in the space. Our model means we don't serve any transient traffic. So we have up to 10 times fewer aircraft movements than a traditional FBO at the same airports. And there's an inherent operational simplicity here that enables tighter security, improved safety performance, and ultimately a more seamless transition into the air for our residents. We're also focused on building partnerships with select FBOs, maintenance providers, and other aviation service providers. where they can help enhance convenience, increase aircraft uptime, and just generally improve the Sky Harbor value proposition and deepen that resident loyalty that's so critical to our model. And as we scale beyond the current nine campuses we've got operating, we're focused on building strong, self-sufficient teams at each campus within our campus service delivery system, as we call it. As Tal said, we're not marketers, but we're good operators. And that's where our empowered local leaders deliver this unique service model for their residents every day and continue to seek to refine and improve it.

Thank you, Marty. Operator, this concludes our prepared remarks. We now look forward to investor and participant questions. Operator, please go ahead with the queue.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please submit it online using the webcast URL We'll pause for just a moment to compile the Q&A roster. And our first question comes from Randy Biner with B Raleigh Securities. Can you provide more color on your plans to to raise debt this year? You have mentioned 150 million in the past calls. Thank you.

Thank you, Randy Francisco. Thanks for the question. Yes, we are. are gearing up to, as we've said in prior calls, to do a financing for our new projects that are coming up. And we are diligently preparing for that. We continue to do a track. We keep an eye on interest rates. We keep an eye on what's happening in the markets, in the municipal market, and inflows and outflows into the funds in that market. So it's not just about just being ready ourselves, it's also making sure the market is a good market to go into. And as you guys know, they have been a lot of volatility in the past few weeks. And then as I mentioned earlier in the past, we do all track the bond issuance also with some very attractive term financing that we have received from some of our relationship banks that are able to actually lend money on a tax-exempt basis. So yes, we're tracking 150. It could actually end up being a little bit more from 150 to 175 million in terms of our next debt issuance. Next question.

Our next question is from the line of Pat McCann with Noble Capital Markets. Could you speak to the prospect for increased competition over time from operators? that would seek to replicate your model versus FBOs? And does this concern you? And what would harbor competitive advantage in the face of new competition?

Yeah, this is Tal. Pat, thanks for the question. The answer is yes, it does concern us. It's probably my biggest concern today in the business is new competition. That said, as the quarters go by, I feel that the lead that we have is increasingly sustainable in that if you look at the different silos of our activities independently, site acquisition, which is really the binary entry ticket, you're just not in the game if you can't acquire the land, is probably our most special skill in the company. We couldn't import it from anywhere else. We had to develop that skill set internally. I think we have the best site acquisition team of anybody on airports today. And even, even then you're talking about a many year process to actually get landed at an airport. We have plenty of, I look at our pipeline, you know, which, which is, you know, well over a hundred airports today that we're working on. There are airports that have been in there for five or six years, and we're optimistic about them. We're in good shape, but this is a very long process. So I think it takes quite a bit of time to break into it. Rather than go through every other silo, I'll just add that the integration of all four silos, right, site acquisition, construction, leasing, and operations, it's not that easy a trick. It's definitely a lot less easy than I thought it would be when we started this business to actually get them working together. And it's key, right? I mean, it doesn't make sense if they're not working together correctly. We used to think we were a real estate company. We just put up hangers and people would come in and lease them. I think today, if you polled Sky Harbor residents, and it doesn't matter if it's the aircraft owner, pilot, maintainer, aircraft manager, it almost doesn't matter. They're going to talk about the people that they interact with every day at Sky Harbor and the level of service that they get. you can't put forward that type of service without a very specifically designed hangar and a very specifically designed campus so it is all integrated and if you can't build it you know at the quality level that we need at a price that actually works uh you know for for the for the uh uh business plan uh it's almost you know don't don't bother coming so increasingly you know again it's we're not putting uh people on mars here we we understand that uh it it is a straightforward and fairly simple business model. And I do imagine we will have eventually, and every quarter we get this question, every quarter I say it's coming, we will have competition. For the time being, we haven't seen it. And I think as more quarters go by, it gets harder and harder to compete with us. Again, I think it's inevitable that we will have competition, but I also think we have a much better chance of maintaining our lead as time goes by.

Our next question is from Philip Risto. If Sky Harbor was segmented only for New York and Connecticut locations, what would the unlevered and levered returns be?

OK. Thank you, Philip. It's Tal again. I understand where you're getting at. And I think a lot of people have said, forget the rest of the country. Just be a New York company. And it would be a great company. I agree with that. You know, we are fundamentally, we are in the real estate business, right? There's a big operational component to it, but it is about location at the end of the day. New York is the richest market. There's well over a dozen airports that would work really well for our model in the New York area. So in terms of yield on cost, if you're only looking at unit economics, Yeah, you'd be looking at New York. Again, I think it'd be very conservative to say 15% yield on cost is achievable in New York. I think you'd do a lot better than that in this area. That said, first of all, there are other jurisdictions where you can do that. The scale of the opportunity, again, I think we're very happy to see 13s as well, which we are seeing in in other jurisdictions. So if you get a 15, 16, 17 in New York, I think it still makes sense as long as the capital is there to do the rest of the country as well. I think that's what you're getting at in the question. In terms of leverage, I do think it's an interesting cost of capital question. Again, I think all day long at our current cost of capital, yeah, do 13% yield on cost. I think you could, I'll ask Francisco to weigh in on this as well. You could increase our cost of capital significantly and would still be worth pursuing those. But that's, I think that's what I have to say on that. Francisco, you want to add anything?

No, I think that's a good answer. We are, you know, the projects in the New York area, Connecticut area, may also have a slightly higher cost than some other regions in the U.S. So so at the only day you know that but but but nowhere that does not offset the much higher a least revenues and and potential for revenues in in this area. So so indeed, that's what we're so focused this area and also will say some areas of in Florida, some areas in California, some areas in in Texas is not just in New York area, but but but yes, a all these all these projects. pencil out nicely for our business model. Next question.

Our next question comes from Alex Buzzard. You've stated that you typically achieve income per square foot double that of the FBO's charge. What are the FBO's charging at your four New York metropolitan airports And do you believe any of the airports you have grand leases at could generate income per square foot exceeding $100? Yeah, thanks.

Thanks for the question, Alex. It's Tal. I want to be cautious about that sort of forecast. I think maybe what we could say is we don't have any New York area airports open today, but we already have leases that are generating 70, 80, and almost $90 a square foot outside of New York. So if you kind of fuse that with the previous question, I think from Philip Bristow, you can perhaps form your own view on the likelihood of that. Great, next question.

Our next question comes from Ezra Kodik, your initial projection saw the entire obligated group being completed in 2024 versus more than half slipping into 2025 and 2026 now. Considering these delays, the door issues and the new delays in all the locations expected in Q1, why is the correct strategy to accelerate the pace of the lease

acquisition instead of focusing on those already signed out yet to start construction yeah it's tal again ezra thank you for the question it's a great question um and look we we have debated and continue to debate questions like this all the time um i i say this cautiously we we've invested so much in perfecting our prototype and minimizing the development risk going forward. A lot of things you're inevitably going to learn the hard way. I'll say this. One of the good things we did in the early days of the business was we intentionally stayed away from New York. We said, look, we don't know which geographies we want to be in for sure. We're going to try to take the path of least resistance. It ended up that Houston was the first market that we made headway in. One rule that we did say is we're going to stay out of New York, we're going to stay out of Southern California, we're going to stay out of Pacific Northwest. Some of the best markets that we knew already were the best markets in the country where we knew we would make mistakes. Unfortunately, we didn't know which mistakes we'd be making at the beginning, but we knew they were going to happen. Not all of those have been in design and construction, but a lot of the big ones have, as you point out. So we have spent really a lot of time perfecting a prototype that works, that is functional in a way that no other hangar is in aviation, and is constructible at scale and efficient cost. And we feel confident going in that we're in a good place on this. So we believe that You know, this is kind of a walk and chew gum situation. We've got great people on the construction side and on the design side. We don't see any reason to slow down on the on the site acquisition side. I'll say two more things and I'll link this to one of the earlier questions about competition. Yes, the model is increasingly difficult to replicate, but the deepest moat around this entire business is site acquisition. If you can get land, I think Denver International is the last airport. that was developed in this country that was a generation ago. We do not make new airports in this country. It is almost impossible. You cannot come to Nashville International Airport today and compete with Sky Harbor. We took all of the available land at that airport. It is a key piece of our strategy. And then the last thing I'll say on that is if we do hit log jams on the development side, it's important to understand that there are either no performance obligations in in most of our ground leases or very loose lenient performance commitments in in those ground leases meaning if you do have to delay by a year or even two years the start of construction you can do it we don't want to do it we're you know we are all about speed and growing and growing fast we feel we have our ducks in a row and we're ready to do that again we've a lot of the last Two quarters have been exactly about that. That has been the focus of is getting our construction ducks in a row so that we can we can handle this scale and take advantage of it maximally. But I think it's a great question. It's something that we talk about here all the time.

Yeah, in fact, it's Francisco because this is a really, really good question. And as Todd mentioned, you know, we got to continue doing both, you know, this acquisition and then development of those leases. But we're definitely in a rat race. You know, we are a rat race because this land is sacred in the sense of that, as Todd mentioned, there's just no new airports that are going to be developed in the U.S. They all are there. And we're probably also competing with the development of expansions of commercial aviation terminals, cargo, facilities, and so on. And we want to get our hands at not every airport, at the airports that we care about. and lock that ground lease for 50 years. And once we do that, the rest is about execution. So the economic value to our investors, to our equity holders in our business model, it happens the moment we lock in that ground lease. Next question, please.

Our next question comes from Randy Biner. Have construction timelines been affected by macro uncertainty this year? If so, how are you managing around the delays? Any delays? Thank you.

Randy, it's Tal. Thank you for the question. Short answer is no. I think, again, one of the benefits of insourcing a lot of those functions is that we're really not as exposed to supply chain issues or any kind of supply demand issue along that vertical supply chain. So the timelines have not been affected. We did pre-purchase a lot of steel in February out of an abundance of caution. That's paid off for us. Again, I think that was more kind of tactical luck than anything else. To be clear, I think two things that we see going on is Business aviation does not seem to be affected by any of this stuff. We're seeing zero change in the demand for our offering. And if we did go into, call it a construction recession, maybe that's too strong a word. If we went into a construction slowdown in the United States, that wouldn't be such a bad thing for Sky Harbor. We kind of welcome that.

Our next question comes from Clinton Harris. Are you seeing any impacts to lease term negotiations given the uncertainty in the markets?

I think the short answer is no.

Our next question is from Peyton Skill. Could you please provide some color on Nashville occupancy?

Nashville occupancy is 92%. It's important to understand, though, that I'm going to say something nuanced right now. Of the 92% that is occupied, it is more than 100% occupied, okay? When we say 92% occupancy, just so everybody understands our parlance here, it means that 8% of the campus is not leased. We have higher than 100% occupancy in the part that is leased, right? particularly in a place like Nashville, where we have a lot of what we call semi-private hangars, where you have multiple residents in the hangar. You might have 12,000 feet of hangar space, but 13,500 feet of airplane in that hangar space. And again, it's not a video call, so we can't show you what the geometry looks like when you put aircraft in a hangar, but I think there's actually some some cutouts on our website where you where you can see that. So, you know, it's important. And we you know, we debate this sometimes. How do we how should we be reporting occupancy in light of that? I don't think we've come up with a with a good answer to that. But basically, our occupancy is is what is vacant is 100% minus what is vacant. But that again, that can be a little bit of a misleading number, right? So like in Miami, for example, you know, in Miami or in Houston, we're publishing 100% occupancy. We are at above 100% occupancy. All right. We've got more. If you've got 160,000 square feet of hangar, you've got more than 160,000 square feet of airplane in Miami.

I wanted to add Francisco to this good question. Two things, as you probably know, when we have semi private hangers, that means a hanger that has roommates. We rent those in the box that is the square footage between the wing to wing width and the nose to tail box. And when those boxes overlap in the Tetris game that you do in terms of hangering these planes, that's what results in more than 100% occupancy. Then you add to that certain campuses where we have been, because of demand, able to lease space in the apron outside. And then if there's availability in the semi-private hangar, then the plane sleeps inside. Then that further allows the same square footage to be rented now a third time. And that is what drives this occupancy. And one last comment. As we grow in our prototype from the Skyboard 16 to the Skyboard 37, the bigger the hangar, the more potential you have for occupancy to be further higher than 100% because the optimization becomes bigger and bigger, the bigger the hangar.

Our next question comes from . What is the expected interest rate and timing on the expected term financing and or bond insurance in 2025?

Yeah, thank you, Gaurav, for the question. You know, obviously it's going to be market dependent, but if we do a bond deal, we're going to go long, you know, call it 30-year final, and then trying to push the term on the bond deal. Obviously, we're constructing and financing 100-year assets, so we're looking to get as long a term as possible. And then if we do a bank facility, it likely might be kind of like a five-year term to allow us to construct a new portfolio and be able to bond it out before the maturity of that term facility. And then in terms of interest rates, we talked earlier about our long bond being where it is in the five area and you add a new issue discount. So if you were to ask me right now, it probably have 550 average yield if you're looking at bond deal. And in terms of the bank facilities, we've been looking at proposals. I think with this, yeah, we disclosed this last time, a couple of quarters ago, we received proposals in the SOFR plus 200 area. That gives you a sense of the interest rate cost.

Our next question comes from Ezra Kodik. Using the low end of your total projected cost, For the obligated group, you seem to have $61 million of remaining spend compared to the $47 million of cash. Will you have to make another contribution to Sky Harbor Capital?

Yes. Ezra, thank you for your question. Good question. Yes, of course, we will monitor the obligated group constantly. And it's important as you look at your analysis that you're missing the fact that the cash earns interest income in between now and the end of construction. Remember, we have OPA LOCA 2 that just started Phase 2 that just broke ground a few weeks ago, and then the second phase at Denver, which is really the last two remaining projects. And so if you add interest income, and then you add the net income, basically the cash flow available for debt service that will be generated now and the end of the finishing those two phases, then the delta between the cash in hand and the remaining spend is diminished. Lastly, we have been in conversations with a particular party that may look to get and do something in our Denver phase two. We have nothing concrete yet to announce, but if that were to happen, the CapEx need there will be decreasing by potentially about $10 million. So that also is in play. But to answer your last part of your question, we will always come to support Sky Harbor Capital and our bondholders. As we've said in the past, It's sacrosanct, our commitment to our bondholders and to that program, which is part of the livelihood of our growth. Thank you for the question.

Our next question comes from Philip Rousseau. How conservative is the share slide of close to $20 million by the end year or by the year end?

what kind of premium could we see for the upside of the multiples of cpi for sky harbor's business model continues yeah thanks for that uh phil so how conservative is the is the 200 million you know can we go back do people still see slides sorry if we can go back to the bar chart uh so Phil, I'll tell you what we're trying to do. It's not a forecast. It's more a statement of intent. I spoke when we talked about this slide a little bit about what the current premium is and where it's trending. And I think you're right to mention that kind of CPI benchmark. And hopefully we achieve both of that. but what we're trying to do really relates to what Marty was, uh, was, was talking about. And that's okay. I don't know the numbers here. I'm betting that people on the call who do know the numbers, but I think the premium that you pay for courtside seats and for an MBA team, if you compare courtside to second row, my guess is that's a much, much bigger premium than second row to third row. That's my guess. Um, and we are courtside. We are the premium offering. The best flight departments in the country, the best funded flight departments, the best managed flight departments in the country are at Sky Harbor, and they insist on being at Sky Harbor. If we can continue operating and enhancing, right, we're not done. I mean, we're adding functionality to our offering all the time. If we can continue being that courtside seat in business aviation, then I think the premium that we end up commanding goes up. I don't know to what extent that's going to succeed. I don't even know if that analogy from basketball actually holds. There's probably people who know the numbers better than I do. But that would be the intent.

Our next question comes from Alec . How meaningful to your revenue could the add on services be over time? And how much do you anticipate this may add to your income per square foot?

Thanks, Alex. So one of the things people may have noticed is as we continue to introduce services and I've given examples in the past, I'll give one or two right now. What we've been doing is not charging for them in order to essentially you try to capture that on just our basic rent and say, look, the value of the offering is this much higher because of the following services. So, for example, if you take if you take our secure boarding service right where and we have a lot of public personalities as as residents who don't want exposure to, you know, to And this happened after the two attempted assassination attempts of Donald Trump, people who don't want exposure to shooters outdoors and want to do all of their boarding indoors. You know, they come in, you know, in their car into a closed hangar. They're boarding an airplane in a closed hangar. We pull them out, and they start their engines outside. And by the way, we've perfected that to a three-minute, it's a three-minute delay to your departure. to have that kind of boarding. We don't charge for that. That's a service that if you want it, we'll provide it. We're about to roll out a light maintenance service where you can have a crew come and pre-flight your airplane 12 hours or 24 hours before a flight, address any kind of squawks, whether avionics, small things like tire pressure, strut pressure, things like that. We're not charging for that. That's a We're looking at these things as things that will enhance the value of the offering, and you capture that in the rent. By the way, there's a third-party provider who charges for that. We just don't take any cut of that business. Over time, these are things that I think we'll be able to circle back and look at. But frankly, I think right now we're running so fast on site acquisition, development, leasing, and operations. Just going in and conducting the... exercise of trying to price and market services like that is frankly, I think at this point, a distraction. If we can provide them and they don't cost us too much to provide, do it. Try to capture the upside of that in your rents and then circle back because once you have a loyal following that really says, okay, home basing is the only way we're going to operate going forward, then look for opportunities to potentially break those out. And, you know, and again, I don't know if that actually results in a net increase in revenues or not. We'll see. But right now we find it just cleaner, easier, smarter to roll these things out without charging extra for them.

And I will say these are the services that we will provide as we are discussing prior calls. We're in discussions with people who provide catering services, security services, rental car services, the detailing. There's a financing program to financing institutions that would like to offer refinancing to our tenants when they look to upgrade their planes and so on. So, and obviously our goal is to, you know, have referral agreements and things like that that allow us to participate in if these third party providers provide services to our tenants.

Our next question is from Ezra Koenig. For all the leases signed outside of the obligated group, What do you estimate the total construction cost being? When do you expect to start and finish the construction on these leases?

Yes, thank you, Ezra, for the question. You know, we, as Tal mentioned, have spent a lot of time in the past few months to gear up and enhance our construction development efforts to accelerate the start and the finish of this construction of these new leases. And in terms of, and there's a schedule that we have provided in page 24 of our 10Q that you can see the latest start of construction dates for all our leases that we have signed. So we are looking to exploit these things, as Tal mentioned, every month results in higher revenues the company so there's a lot of value in us accelerating and you're going to see that in the coming eight quarters there are no further questions at this time mr gonzalez i would now turn the call back over to you Thank you, Operator, and thank you all for joining us this afternoon and for your interest in Sky Harbor. Additional information may be found on our website at www.skyharbor.group, and you can always reach out directly with any additional questions through the email investors at skyharbor.group. Thank you again for your participation, and with this, we have concluded our webcast. Thank you, Operator.