Sky Harbour Group Corporation Class A

using the webcast URL posted on our website. Thank you. I would now like to turn the call to CFO Francisco Gonzalez. You may begin your conference.

Thank you, Sara. Welcome, everybody. I'm Francisco Gonzalez, CFO of Sky Harbor. Welcome to the 2025 Second Quarter Investor Conference Call and Webcast for the Sky Harbor Group Corporation. We have also invited our bondholder investors in our borrowing subsidiary, Scarborough Capital, to join and participate on this call. Before we begin, I have been asked by counsel to note that on today's call, the company will address certain factors that may impact this and next year's earnings. Some of the information that will be discussed today contains forward-looking statements. These statements are based on management assumptions, which may or may not become true, and you should refer to the language in slides one and two of this presentation, as well as our SEC filings for a description of the factors that may cause actual results to differ from our forward-looking statements. All forward-looking statements are made as of today, and we assume no obligation to update any such statements. So now, let's get started. The team with us this afternoon, you know from our prior webcasts, our CEO and Chair of the Board, Tal Kanan, our Treasurer, Tim Herr, our Chief Accounting Officer, Mike Schmidt, our Accounting Manager, Tori Petro, and our Assistant Treasurer, Andres Franco. We have a few slides we want to review with you before we open it to questions. These were filed with the SEC an hour ago in Form 8K, along with our thank you, and will also be available on our website later this evening. We also filed our second quarter Sky Harbor Capital obligated group financials with MSRP EMA an hour ago. Stated by the operator, you may submit written questions during the webcast, during the Q4 platform, and we'll address them shortly after our prepared remarks. So let's get started. In the second quarter, on a consolidated basis, assets under construction and completed construction continue to increase, reaching close to $300 million on the back of construction activity at the new campuses in Phoenix, Dallas, and Denver. Consolidated revenues experienced an increase of 82%, year-over-year and 18% sequentially, reaching $6.6 million for the quarter, reflecting the acquisition of Camarillo last December and also higher revenues from our existing campuses. It is important to note that Q2 had roughly only $200,000 of revenues from our three new campuses that just opened. Operating expenses in Q2 increased moderately, reflecting the purchase of fuel at Camarillo and the naked expenses of bearing the payroll and others of these three new campuses without associated revenues, as we have been preparing in the past six months to open and commence operations there. In terms of SG&A, we strive to keep our expenses in check as we grow, keeping costs as low as possible. Cash flow used in operating activities on the lower right-hand quadrant improved and stood at less than $1 million for the quarter. a significant improvement from the $5 million used in Q1. This is a key metric we pay attention to. We reaffirm our guidance that we expect Sky Harbor to reach cash flow break-even on a consolidated basis at the end of this year as we ramp up the leasing and cash flowing of these three new campuses over the fall. I need to note that the potential revenues for the three new campuses total a projected $14 million annualized. which is why mathematically we feel confident of our profitability expectations in the near term, given the operating leverage of our business. Next slide, please. This is a summary of the financial results of our wholly-owned subsidiary, Sky Harbor Capital, that form the obligated group. This basically incorporates the results of our Houston, Miami, and Nashville campuses, along with the CAPEX and operating cost and SLUB revenues that came in the quarter for three projects in Denver, Phoenix, and Addison, Texas. Revenues increased 20% sequentially from the first quarter. As just discussed, we expect a step function increase in revenues in Q3 and Q4 and into the new year as these three campuses are leased up and rent and fuel revenues commence to flow. Operating expenses increases we just discussed given the onboarding of all the line personnel and hardware masters in Q1 and Q2 in anticipation of the campus opening in Q2 and Q3. Cash flow from operations generate a positive $2.2 million in the quarter, and we expect this number to continue to increase with the higher cash flows from operations as new campuses are leased. Let me now turn it to CEO Tal Kanan for an update on site acquisitions, leasing, and construction. Tal?

Thanks, Francisco. So I think everybody has become pretty familiar with the chart on the right, which is self-explanatory. Sorry, the chart on the left. The chart on the right, which we've been showing for the last few quarters, we've given a little bit more color here because we're getting, you know, questions on how this chart is derived. What you're seeing in the bar chart itself is the rentable square footage of site plans on Sky Harbor Gorge. existing ground leases times the Sky Harbor equivalent rent, which is the number we use for available revenue per square foot on each campus. And what you'll see is today the revenue capture potential is at about $140 million. If we meet our guidance by the end of the year, we expect it to be approaching $200 million of revenue. I want to call everybody's attention again in response to questions from the last quarter as to the methodology to the chart, the embedded chart right above the bar chart. The 2022 CBRE projected revenues are pretty close proxy for share for Sky Harbor equivalent rent, meaning that is what we underwrote going into these airports. The average expected revenue on these airports is the revenue that we have contracted under leases plus additional fuel margin that we collect. And the highest expected revenue is the weighted average of the highest paying residents on each existing campus, which gives, we put that in there to give people a sense of the step up in second leases, right? When you initially lease up a campus or at least Up until now, as we originally lease up a campus, we achieve one level of rent. When a campus is fully leased and leases begin coming to terms, we have a significant step up in rents, and that's what's captured here. All of this to demonstrate why we feel that methodology of using share as the multiplier against rentable square footage is a conservative methodology. Next slide, please. So this is an update on leasing. We've broken this slide into two components. One is the first five airports where all we're showing is actual results from Q2. And then the second is contracted. These are airports that are under lease out. uh where we don't have actual results yet the the contracted is what's in the lease what are you paying in rent in some cases we have a minimum uh minimum uplift guarantee of for fuel that's also captured and contracted in some cases we don't in which case fuel margin is not captured here and any any fuel margin in excess of the minimum uplift guarantee is also not captured here. So that's for the remainder of those airports. And then I'll call everybody's attention, and you'll see it in our filings and our press release, to this pilot project that we initiated this quarter to actually pre-lease hangars at campuses that have not begun construction yet. And we're doing that now because we feel that within the business aviation community, Sky Harbor has established a strong enough reputation that people, if you can picture it, for an aircraft owner to make a commitment a year or year and a half in advance and put down a hard deposit for that commitment, they've got to really be confident that we're going to deliver exactly the product that we said we were going to deliver and that we're going to deliver it on time. And that's a service offering because remember these are long-term leases. If the service is not there, um, there's the value of the lease is not there that the service offering is, is really bulletproof. And so we went to market, uh, on two pilot airports, Dulles international and Bradley international in Connecticut, uh, and have entered our first pre leases at both of those airports and, uh, more to come. And I think this is a good initial result from a pilot project might become part of the leasing strategy going forward where you could significantly pre-lease a lot of these future campuses. And what we're seeing is that, at least for the time being, we don't feel like we're paying a significant penalty in revenue per rentable square foot. So when you see that $47, average for those two airports, that's signed leases contracted, meaning that's without the excess of fuel margin that is in line with our targets for those airports. Next slide. Manufacturing construction. In the last quarter, we started unveiling our plan to really scale up Sky Harbor's construction efforts. We've gone from being a little bit of an upstart in airport land to a really not minor construction company. In fact, probably the largest developer of hangers anywhere. And what we've done in order to, number one, increase quality, number two, accelerate the pace of our construction, and number three, lower our per square foot cost is this process of vertical integration. So starting from the left side of the page, I'm looking at the bottom of the slide. The wholly owned development subsidiary of Sky Harbor is called Ascend Aviation Services. It's run by Phil Emmes, who was actually the first general contractor that Sky Harbor ever worked with. Built our Sugar Land campus on time and under budget. Phil's been doing just metal buildings for 40 years. A few people have more experience in the space, a lot of airport experience as well. And we've brought in a lot of players with specific airport experience here. The subsidiary is 100% dedicated to Sky Harbor, does one thing, it builds the Sky Harbor 37 hangar across the country. We have our own in-house general contracting capability now, which we'll use selectively. and construction management where we're not acting as general contractor. And that model or kind of the breakdown of which projects we're doing, you know, we're kind of performing as general contractors and which ones are construction manager will, I think, evolve over time. But the fact that we have that capability brings a lot of advantages. And then manufacturing Stratus building systems. I already saw a question come in on that, uh, that, that the old rapid built is now Stratus building systems, uh, restaffed retooled, uh, you know, new leadership that's been in place for close to a year now. Um, that has, you know, not only the experience, but the tooling, and it's again, dedicated only to manufacturing sky Harbor 37 hangers across the country. Put that all together and integrate it, you have, or the intention at least, is to have process coordination. We're far less exposed to the vicissitudes of supply chain interruptions, which we've experienced in the past. We have our own design, which is constantly refined and value engineered in coordination with the field. So we think that's a big advantage. And maintaining Sky Harbor quality standards, not being subject to other manufacturers or other builders' standards. So that's, I think, the heaviest lift that we've undertaken in the company in the last, call it three quarters, and we're really ready to roll with that now. With that, let me hand it back to Francisco.

Thank you, Tal. As many of you know from prior webcasts and disclosures, we have been dual-tracking our next debt issuance. We have finally settled in pursuing a warehouse bank debt facility with a major U.S. financial institution. The indicated terms are listed here, $200 million, five-year, tax-exempt, with an expected floating rate equal to 80% of three-month SOFR plus 200 basis points, which in the current market is approximately 5.47%. We expect to close subject to final documentation approvals on or about August 28. With this facility and associated equity, we will have over $300 million in funding to finance the next five to six campus developments. Please note that we're contributing at cost our Cloud 9 hangar complex at Camarillo that we acquired last December in an all-cash 100% equity transaction as our first equity contribution to this portfolio of projects. Next slide, please. We illustrate here the sources and uses of this facility over time, with red being equity contributions, beginning with Camarillo being the left-hand bar chart, and the gray being debt drawdowns. So we closed the quarter with approximately $75 million in cash and U.S. Treasuries, which now will be enhanced with this $200 million committed facility upon closing. So why do we like this warehouse facility versus a bond issue now? First, it's also tax exempt. Second, we draw as needed, reducing significantly the negative arbitrage of about 125 to 150 basis points if we were doing a bond deal up front. We like being in a flowing rate in the current market given expectations coming out of D.C. for the next few months and years of potentially lower prices. short-term rates. We're also comfortable with refinancing and going to the bond market in three or four years from now ahead of the five-year term. We also like the fact that we can optimize the timing of our GMP, maximum guaranteed price contracts with our general contractors and subcontractors in that you pay significantly by asking people in the construction industry to provide hard pricing too far in advance of groundbreakings. Also, we like that this represents a risk transfer of construction risk away from our permanent bond program and should be one more element as we strengthen our obligated group bond credit profile even further. This warehouse facility also provides flexibility in project sequencing. We have many projects in pre-development and permitting, and sometimes delays or acceleration in the final construction permits may have us shift the sequencing of projects. And lastly, this warehouse facility provides us flexibility if we decide to entertain an offer to sell any individual hanger. We have been approached recently a couple of times by potential tenants that prefer to own rather than rent and would like to enter into a 30-, 40-, or 50-year ultra-long tenant lease in exchange for an upfront payment. To the extent that any of these approaches materialize into a deal, The warehouse facility provides a flexibility not easily available in a bond setting. Also provides a new potential source of equity capital formation accretive to our current shareholders. Let me turn it back to Tal for Q2 highlights and forthcoming initiatives in the four pillars of our business.

Thanks, Francisco. On Q2 highlights, I'm just going to focus on the bolded lines. Those are the ones that we think are most noteworthy. On site acquisition, again, our targeting now is on what we call Tier 1 airports. I think we're beginning to see that reflected in the rent, and I think the kind of the pre-leasing numbers might give a hint as to the direction that we're trying to head with that, really the best airports in the country. It's not that we're going to ignore Tier 2 airports when they materialize, and they do. I mean, remember, we've been at this for a number of years now. but the focus is increasingly on tier one airports. On development, as we've discussed for the last two or three quarters, this has been the heaviest lift in the company is preparing us to scale on the construction side. We're very excited and confident in the leadership that we have in place. We've been very, very deliberate in building the machine that we have in place right now. It burdens on us to prove that it works, but now is the time. On leasing, I just want to call everybody's attention to that pre-leasing pilot, which, again, based on initial results, may end up being a key component of the leasing strategy going forward. We have a few more things that we want to confirm on that, so please stay tuned, but that's a big... I think a big change in the way we conduct our leasing activities. And then lastly, on the operation side, you know, again, for people who've been tracking us for a while, we started off very dogmatic about being a real estate company and focused on delivering a real estate product. And, you know, as we grow and learn, it's becoming increasingly clear that operations are not just a necessity for kind of animating the value proposition of that real estate, they're actually a key differentiator. And we're delivering not only a level of service, but specific services that really can't be offered anywhere else in business aviation. And increasingly, that's a big deal. We do significant survey work with our residents And increasingly with coming back, yeah, people love the facilities and they're special. They're different from what people see in aviation. They're very possibly designed and high quality. But what most people come back to is the service. What makes us particularly sticky is the service. The fact that we have top tier residents around the country really evangelizing for Sky Harbor is exactly what allows us to go out and pre-lease and ask people to go out on a limb and put their faith in us that we're going to deliver an outstanding physical offering and an outstanding service offering, you know, in 12 or 18 months. So we're going to continue to invest there. I think it's one of the maybe most noteworthy areas for us, and frankly, kind of a relatively new insight for us as well, how important that has been. Next slide, please. So looking ahead, I'm going to do the same thing and just focus on the on the bold and happy to take questions. Everyone has a slide, so feel free to drill down on anything that's not bolded here. But starting on the site acquisition side again, our target remains maximize revenue capture. OK, we have been putting out guidance and targets in terms of number of airports, and that's a good call it gross proxy for how we want to grow this company. But the square footage of hangers is a tighter, more precise proxy. And the maximum revenue capture is the ultimate proxy. That's really what we're going after, right? You know, 100,000 square feet on an airport that can generate $100 per foot in revenue is worth more than 200 000 feet on the airport they could generate 40 square foot in in revenue so that that increasingly is the focus and you know what i would encourage people to uh to watch uh more closely as they look at our site acquisition um as i think you'll see in the press release and and the and the filings we continue to grow the site acquisition team and it continues to be working for us to have military aviators. It's an all veteran team, and that's been working very well for us, and we continue to grow from that community. On the development side, I think we've spoken about it enough. The system's in place. It's time to execute. On the leasing side, I'd say stay tuned for more pre-leasing. Most of the leasing team's focus now is on the new standing campuses, Denver, Phoenix, Dallas, As soon as those start achieving or approaching their full first round revenue potential, you'll see the focus increasingly, I think, moving to pre-leasing, just based on the initial results that we've been able to post. And then lastly, on operations, I'll say it again, we're going to continue pressing That resident feedback loop is critical for us. It's maybe one of the most powerful assets that we have in the company is a very, very loyal and delighted resident base. And we are in very close touch with the residents. I personally spend a lot of time with our residents seeking feedback. And in general, they're happy to give it and happy to see us implementing it as well. They're our best evangelists. On the defensive side, we never want to lose sight. We need to be absolutely bulletproof on safety, security, and efficiency. And we have delivered, I think, a good track record on that. I think we are the best offering in business aviation from that perspective. But then on the offense side is just continue innovating, widening that value gap, because I think it's been quite emphatic. And again, I think the pre-releasing results You will tend to corroborate this, but that is perhaps the biggest component of value that Sky Harbor delivers to its residents. And with that, I think we're ready to move on to questions.

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

Yes, it's Francisco. Thank you, Gaurav, for the question and for your work at AGP covering the company. You know, we don't put out projections, but we do track how we've been doing, especially in the first group of campuses with the projections that were put together at the time of the bond offering by the CBRE, the consultants, and then those were updated a year later as part of the bond program. And we are tracking to indeed exceed those projections for those various campuses. uh, uh, that formed the, you know, the omega group number one, which are basically, as, as you may be aware, uh, Houston in Nashville, Miami, a Dallas, a, um, uh, Dallas, I'm sorry, Dallas, Denver, and Phoenix. And, um, it would track it.

Tim put up that slide while, while Francisco is going through this.

Yeah. And, um, so. The projections, the actuals are expected to exceed those projections, which means that, you know, this is an important element because the opening of these three campuses, as I mentioned earlier, is going to have a step function effect in our revenues and our cash flows now in the next two or three quarters. And that will lead for also the coverage on the bondholders to be at or exceed what we expected what the consultants forecasted at the time of the bond deal three years ago. In terms of any efforts where we see higher variance, I will say that, and I'll chime in if you wish, I think Miami has proven to be a very strong market. Some of you who have participated before know that our first lease was at $32 per square foot, and our last lease, or one of the last leases, was around $46. And now that we're working on a second phase of Ovaloka II that's under construction, we are expecting and feeling that those leases will be higher rates than our highest in the phase one. First, Gaurav.

Gaurav, I'd say the biggest variance we're seeing is not actually between airports. It's what Francisco just said. It's between the first round of leases and the second round. You know, if you do a two year lease that comes to term and the resident either renews or we replace that resident with a new one, that's where you see this kind of big jump in revenue per square foot. That's probably where the biggest variance is.

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

Yeah, it's a good question. Look, we haven't made any decision yet as to whether this is going to be adopted as our kind of main strategy. What we can say is, you know, it is working well initially. You know, we have signed leases with deposits. And we like the pricing. You know, on the one hand, it's, you know, I think we're giving a kind of an advantageous introductory pricing to the first residents. And they're very blue chip residents. They're the kind of people that we want anchoring these campuses. On the other hand, they're above our target revenues for those campuses. So I think it's happy, you know, we're leaving something on the table, maybe a little bit. We probably are. But all told, I think it's a good, it's looking like a good approach. And of course, you know, the idea that you're going to achieve certificate of occupancy, you know, with a significant roster of residents already, you know, in itself is at least a partial payback if you are leaving any value on the table with those initial pre-leases.

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

Thank you, Ryan, for the question and for the coverage from Lake Street of our company. You know, interesting comment that you make because, yes, you know, our first set of campuses ended up being From a schedule perspective, it took us a little bit longer than our original plan, even though the revenues, as we just discussed, exceeded our original forecast. But this is a scale business. And now, on the back of these three campuses starting to cash flow, we're all going to feel and see the operating leverage of our business model. Because SG&A will remain fairly constant, and we already incurred or from a run rate basis in Q1 and Q2, the type of operating expenses for the setup of these three campuses. So as these revenues come in, they obviously are able to flow directly to the operating line in terms of profitability from a run rate perspective. The other thing I will add is from a, accrual perspective, something that Mike has mentioned in the past, because the way we account for ground leases, every time we sign ground leases, we have been incurring expenses, even though they're not cash. Similarly, given that we compensate all our employees, top to bottom, everybody's a shareholder, we also have non-cash expenses in the context of our compensation policy. So as we scale, Those things remain fixed or something fixed, and you're going to see the improvement in profitability also from an accounting perspective in our financial statements. Next question.

By the way, I'm going to add on that. Brian, just to add on that is I think we're going to see the most benefit from scale is going to be in development costs. Again, I don't want to speak before we actually post results on that, but, you know, just conceptually, that's where you're likely to see the most gains. The operating costs on campuses, yeah, there definitely are efficiencies, but I think you'll see more on the development side.

As a follow-up, you mentioned that you were seeing higher than forecasted revenue at campuses in operation. Just wondering if you can walk us through and highlight what these drivers are.

Yes, thank you Ryan for the follow up. I think there are a couple of drivers. I'll mention a few and then Tal, please chime in. I mean, first and foremost, simply our rents that we'll be able to secure were higher than originally expected. I think that's ruined by the fact that there's scarcity for hangers at these airports. The second thing is our ability to secure fuel margin as part of our revenue work, that's also important. For those of you who have been following us from three years ago, at the time of the bond deal, we really were not looking at fuel margins and fuel revenues. They were not even in the projections from CBRE back from three, four years ago. So fuel revenues and fuel margin will be an important driver as well. And then lastly, what will drive is the when we moved to have not only private hangers but also semi-private the possibility to back to tal's point about achieving you know a occupancy levels higher than 100 percent a from the standpoint of being able to rent the same space twice and sometimes even three times has uh basically finds way into revenue uh per rental square foot and per hanger being higher especially when you are able to have semi-private settings. And as we move forward in our campuses and our prototype has doubled in size, yes, there'll be some tenants that will take an entire hangar because they have fleets, but more and more you're gonna see semi-private hangars as part of our offering. And theoretically, if you're able to maximize the way you play the Tetris game in terms of you know, putting planes and the latest models into our new prototype, you can achieve theoretically 137, close to 140% occupancy from the standpoint of stacking, which again, that will reflect itself into a higher revenues than originally forecasted, our campus from operations and our future campuses. And I'll tell you if you have anything to add there.

I agree with all those. Look, I'll add three things. Number one, look at the second turn of the lease. I think it's very important. Part of that is really a supply and demand issue. Because if you think about it, when you're leasing up a campus in the traditional way, take Miami, right? You open up 12 hangars, there's 12 vacancies when you start leasing, and they're operating. There's a full line crew. And as you can imagine, we're dealing with financially sophisticated residents, they understand that they have a lot of leverage in that negotiation. So, you know, Francisco's point about that $32 foot first lease in Miami and, you know, $46 a foot, you know, less than a year later, a lot of that has to do with the supply and demand. On the second turn of the lease, there's only one hanger available by definition. So, and typically there are many takers for that hanger. So your leverage is reversed on the second turn. The second is, you know, Again, it's difficult to measure this, but our feeling is that our reputation in the business aviation community is such that we are increasingly the first choice. If you can get into Sky Harbor, you have a jet, you can get into Sky Harbor. From a security, safety, efficiency perspective, that's where you want to be. It's more expensive, but if you're flying a $50 or $60 million airplane, your time is very expensive. And the fact that you're very unlikely to encounter delays at Sky Harbor, for example, is an advantage that increasingly people are saying, okay, I'm willing to actually, I see value there, I'm willing to pay a premium for it. And then I think the third is just inflation. And I think it's worth watching that. We think airport inflation has absolutely nothing to do with CPI. Simply supply and demand. You cannot build a new airport. Where there's land for an airport, there's no need for an airport. Where there's a need for an airport, there's no land. We are stuck with the inventory of airports that we have right now. And the size, I mean, if people look on the website, they can see we track this. The size of the U.S. business aviation fleet in square footage terms grows every year dramatically. It's simply a supply and demand question. Francisco is mentioning these prospective residents who have called us asking if they can purchase or do an ultra long-term lease on a hangar. I'm in those conversations myself personally, and they typically start with, we agree with your assumptions on inflation at airports. We don't want to be subject to that with the five-year lease. We want to own this thing. So we understand that. So I think those three factors are all playing

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

Okay, so two questions. On the electric aviation side, yeah, look, I think the Trump administration has probably successfully removed some of the regulatory hurdles that we're facing electric aviation. There are a lot of other hurdles. You know, we think it's coming, perhaps not quite as fast as a lot of the market does, but as it seems, you know, from your question, We do pre-wire our campuses to be able to accommodate electric aviation. We think we've been pretty thoughtful on how you lay out the infrastructure that's going to support electric aviation at scale and how you do it in a way that's not expensive today. It's expensive when you hit go, but you're ready to hit go. You don't have to reconfigure anything on the campus in order to accommodate electric aviation. So we'll see. On the second question, so I think we're probably not there for now on actually acquiring the trades, meaning manufacturing and general contracting is probably enough. A lot of the trades are, by definition, going to be very local anyway. There are a few exceptions. One of them that we kind of look at every once in a while is erection because we're manufacturing it. We've got a good feedback loop. We've got a couple of rectors around the country that we like, um, that are increasingly learning how to do it. But I think of it as kind of assembling Ikea furniture is, you know, if you've got a set of eight shares to assemble, you, uh, the first one, you're going to get something wrong. You're going to mix up left and right, and you're going to have to disassemble it and do it again. The second one, you probably get it all right. The third one, you don't need the instructions anymore. And then four through eight go faster than, you know, than the first one did. It's quite similar here. We've got very specific kind of connection mechanisms, very specific sequencing for erecting our hangers. There might be a case for specialization there, but again, I probably, I think it's less than 50-50 because right now I think we've got some very good partners on that side that are learning exactly how to assemble Sky Harbor hangers. But it's a good question and something we do discuss quite a bit internally.

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

okay thanks alex thoughtful questions so look on the product product offering service offerings i'm glad you phrased it like that because they do go together right it's difficult to put put out the service offering that we put out uh on a different physical infrastructure right cloud nine was was was an exception is that they really built it to our standards uh but in terms of you know everything from uh you know uh 480 electrical to drainage to lighting, it all has to work together if you're going to marry it with a successful service offering. And one of the things that we keep thinking maybe we should try to start measuring, and we get this input from our residents, is time to wheels up. So I'm just giving you one example on time to wheels up is when you are, remember everybody in business aviation flies at the same time. Everybody's flying on Friday afternoon, nobody's flying on Wednesday at midnight. That is when the system, particularly the FBO system that's managing transient traffic, is at its peak capacity utilization, and that's when service suffers the most. That's where line crews are stretched the most thin, ground support equipment is stretched the most thin. That's where the delays happen. So I'd say right now, if you're leaving New York on a Friday afternoon in the wintertime, you better have decided few days in advance that you need the airplane ready or you lose all your spontaneity and they're going to be delayed. We don't have delays. And not because we're so clever, but because we don't have transients. And so that's an example of one differentiator. And on the training side specifically, kind of something, again, we don't really advertise this because we're not trying to poke anybody else in the eye. But if you think about how a line crew member learns how to tow an aircraft, it's by towing aircraft. And it's not the FBO's aircraft, it's the customer's aircraft. So the greenest line crew members are towing $50 million aircraft on a regular basis. As you may know, hangar rash or the fender benders that happen in and around aircraft hangars are the most frequent insurance claim in business aviation. And it's a huge problem in the industry. We look at that. Again, we've got a steel manufacturer. We developed our own training rig where we train already experienced line crew, both in initial and recurrent training, on a rig that simulates an aircraft. It has the same wheelbase. It's an adjustable wheelbase. You can simulate different types of aircraft, connection, disconnection. That kind of thing, it's subtle, but it's something that our residents really take note of, is that we are treating them very, very differently, and the result is very different. So I don't know if it's one big thing, but it is a lot of small things that end up making a big difference for aircraft owners. And then the second question was on phase two. Trying to thank Tim Francisco. Have we ever generated revenue on phase two land pre-development?

Not really, because, you know, it requires you to pave the apron, and then, you know, that's expensive, and we don't want to just do that and then have to break it again in the context of deconstruction. So actually, I take that back. In Miami, we actually rented to MBAA I think two years in a row for the regional conferences, that empty lot for parking, and we got NBAA passes for free for the company for a couple of conferences. So we have used it tactically to make a little bit of money. But the answer is not really.

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

Hi, Randy, it's Mike. Thank you for your question. As discussed in our earnings release and in the slide deck, our estimate for the timing on DBT phase one, Addison and BFI to be fully leased is within the next six months. With respect to the ground lease, the impact you see in the quarter is actually just the impact of the recognition of the Hillsborough and Stewart international leases that were signed during the second quarter. As Francisco touched on earlier in the call, as soon as we sign those leases, we start recognizing expense under GAAP, regardless of whether or not we're paying cash. Next question, please.

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

Pat, Francisco, thank you for the question. You know, we are flexible and also deliberate, meaning ultimately we're going to end up in the bond market with the program that we started three years ago, that, as you know, it's a programmatic approach, meaning that as we do new bond deals with permanent debt, it becomes joint and several with the existing bondholders and so on and so forth. In the past six months or nine months, we've seen long-term rates spike up to such an extent, but for all the reasons that I discussed earlier, we decided to take the opportunity and do this financing with a tax exempt, a major financial institution in the US and we can announce all the details, further details when we close in a couple of weeks. But ultimately in year three or four, we will go ahead and do a long-term PAPS offering and take out the warehouse facility. And then depending on market conditions at the time, we may do more bonding and pre-fund whatever campuses we are working on at that point, or we might decide to do the bond deal and then have another warehouse facility to deal with our new projects. You know, time will tell. But a critical thing here, especially for our current bondholders, is that with this strategy we are shifting the construction risk and even some of the early leasing risk to the banks and not to the bond program. So this will further strengthen as we look to approach rating agencies to rate the existing bondholders, we're basically risking the program going forward by doing this warehouse facility strategy.

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

Thank you. Yeah. Look, I think at this point, the proof is going to be in the pudding. And the proof of the pudding is going to be in the eating. You're right. We've invested a lot in this. We do have some very ambitious targets on quality, time, and cost. Francisco, I don't know if we've actually put out anything specific, but bottom line, now's the time to perform and demonstrate it.

Yes. Well, that is the following. Yes, we have invested in terms of being vertically integrated on manufacturing. And then my analogy, and some of you may have heard this on one-on-ones, My analogy is, you know, Lego sets. Once you have a prototype like we have now, narrow it to our Skyward 37, I'm going to be building so many of manufacturing and then constructing and building so many of these by being vertically integrated and giving the scale that we're going to now enjoy should result in lower cost per square foot, or at least be something that helps us minimize the construction inflation that the economy has been exhibiting in the past several years. So that obviously we're going to be doing more work on presenting as we scale what has been the benefit. And let me say the following, come a time, given our growth, that even Stratus, our manufacturing facility, will be insufficient in terms of capacity, which is fine. We still have, continue to enjoy the benefit of being able to outsourced to other manufacturers of prefabricated metal buildings. And that will be also a good opportunity to keep tabs on what the market out there, even though they might cost a little bit more, what they charge. And similarly on general contracting, you know, we are going to be able to general contract internally through Ascend, but that doesn't stop us in some particular markets to hire third party GCs and be able to Luis Chavez, leverage the private market as well, so we're going to continue being deliberate and tracking a what costs are internally or externally and obviously do what's best for the company.

The next question comes from Philip or still how will future pre leasing influence future debt offerings, such as the timeframe for investment grade rating in the future in the future.

Yes, thank you, Philip, for the question. I think what pre-leasing does is, as Tal mentioned earlier, allows a little bit of de-risking for some of these campuses. And as we contemplate debt offerings, either in the bond market or in the bank market, it supports, obviously, a better credit profile for the projects if you're already have a hard lease on a project that you haven't broken ground on, like we just signed in this quarter in Bradley and in Dulles. So if anything, it's, again, going to be supportive of the credit profile of either a bank facility or a bond deal. And I agree with you that investment grade rating will also be supported with this type of activity of releasing campuses.

The next question comes from Robert Lynch. Is the SH-37 hangar prototype now fully standardized, and what's the impact on speed unit economics?

Yeah. Thanks, Robert. The answer is yes. I'll refer to what we said earlier to Buck, that we're not going to put out any projections yet. But absolutely the intention is to increase speed, decrease cost, increase quality. That's the idea behind it. And you can see how that's happening, right? It's through procurement. You know, we know exactly how many lighting units we need for the next, you know, 10 campuses. We can do that as a single deal. We know exactly what, you know, each component is going into this. You know, any value engineering insights that we gain, will now apply to every hanger going forward. So, you know, based on your question, I think you understand the value of having a prototype. Now, you know, it burdens on us now to maximize it and demonstrate that we can achieve those efficiencies.

The next question comes from Gaurav Mehta. Why did you choose bank facility instead of bond? Can you provide details on the five-year drawdown? Is the structure like a credit facility?

Yes, thank you, Greta, for the question. Yes, as I said earlier, we see all the benefits. Next page. Yeah, we see a lot of benefits at this juncture, tapping a bank facility than the bond deal. They're listed here, as I mentioned earlier. And then here's the detail also of what we expect the drawdown to be. It allows us to draw as we need it. Also, it allows us to put the equity, that contribution, later than if we were to do a bond deal right now, where you have to put it all up front. And it is structured as a committed drawdown facility that we can also refinance without penalties when the time comes that we find that the opportunity arises to go ahead and do a bond deal in a couple of years. Next question.

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

Todd, do you want to take that one? Yeah, sure. Thanks, Attil. No cash or stock consideration, meaning a cent was established, not acquired. There is, as part of the compensation packages of the leadership, there is cash and stock consideration. But we didn't pay to acquire it. We established it. The approach to RFPs for greenfield developments. So, you know, there is so much more that's standardized now going forward. a lot of what was inside the kind of development and pre-development bucket of activities is now in the site acquisition bucket of activities. So we're a lot more integrated, a lot more systematized. I think on RFPs, for example, or kind of any approach to greenfield developments, we can, and look, this is not just because of Ascend, it's also, it's the Sky Harbor 37 prototype. It's just the experience that we've accumulated as we go. We can be a lot more precise on rough order of magnitude cost for a project before we go into it. We had to make some very conservative assumptions before, which might have invalidated certain projects. In fact, I'm thinking of one specific project that it did invalidate that ended up being a mistake. It's a project we should have done. So I think it makes us a lot better on that. On Brownfield situations, you know, look, I think having in-house diligence capability is always a benefit. It's a lot more decisive, of course, in Greenfield than in Brownfield. And then lastly, does it impact our view on how many development projects we can manage simultaneously? Yes. I mean, that's, you know, a big part of this idea is, This allows us to scale, and it's only justified by scale, right? You know, this would not have made sense to do when we had, you know, two or three projects in development. And it's almost a necessity now, you know, where you've got a dozen that you've got to run simultaneously. Like we said earlier, and I want to make it clear, you know, we're easing into that, meaning we're taking a hybrid approach at the beginning. Some of these projects we will GC. some of the projects we're just going to construction manage. Again, you can construction manage a lot more intelligently when you're yourself a general contractor on very similar projects, building an identical hangar at other airports. But I don't think the it's certainly not our intention to be able to be general contractors across the country on a dozen projects at the same time. It's certainly not at this point. And then as Francisco noted on the status side, You know, Stratus will reach its capacity limitations at some point as well. So, you know, we're always looking to have good partners in the pre-entry and middle building space for, you know, to handle that excess demand when it hits us. And again, at some point, if we do all this well, we'll be looking to expand Stratus's capacity also, but we're not there yet.

The next question comes from Connor Keene. With OPF Phase 2 coming online next year, do you expect there to temporarily be lower step-ups in the lease rates, less than the 25% you've been seeing, for leases renewals given the increased supply at the location?

Yeah, it's a good question, Connor. We'll see, you know, Opelika phase two was not in the pre leasing pilot. But, you know, again, based on results, that's probably the natural next airport to start looking at pre leasing. So we'll have a kind of a more empirical idea of what that's going to look like once that gets underway. And that's that's probably something that happens in the fall. That's kind of Miami leasing season anyway. But demanded Opelika is David Miller- Extremely high you know our waiting list on phase one is longer than the much longer than the resident list on phase one. David Miller- Yes, so I don't think we come anywhere close to fully satisfying opelika demand with sky harbor phase two. David Miller- At opelika that said you're right, it is, you know it's a lot more supply coming out to the market. So we'll have to see what that looks like. But I think we're quite optimistic. I think Francisco noted it earlier. It's one of the markets that's really surprised more on the upside than many of the others.

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

Yes, Gabe, this is Francisco. Thanks for the question. So yes, so the presentation suggests that we will need about $75 million. Yes, we have a restricted $40 million, but remember we're contributing Camarillo that was paid with cash and all equity as basically equity. So $32 million is going to be contributed by contributing Camarillo, as you can see in the sources of uses here. And then how do we plan to fund future properties? Yes, we have more ground leases and more projects that can be satisfied with the $200 million. So a couple of things there. We left it with the bank. Again, more details to come in a couple of weeks. That in the future, once we're close to $200 million, we can go back and potentially increase this up to $300 million, another $100 million. Obviously, that's subject to credit approvals and so on at the time. And if we do a bond deal alternatively to a takeout, we could refinance the $200 million and then do another $100 million of new money for example, on a 300-liter bond deal. And yes, we will need additional growth equity in the future, but not yet, but in the future, given our pace of growth and so on. And then we could satisfy some of that now that we're going to be operationally breakeven or positive next year with OPA LOCA 2 and so on. And as we mentioned earlier, there are a couple of other ways they will continue to grow. We have discussions with people on a sidecar, with some private equity infrastructure funds, and also we have introduced in this call the concept of potentially selling a hanger here, a hanger there, but that will be something that we will entertain on a case-by-case basis as these discussions proceed. So we feel very comfortable where we are, in terms of the runway in front of us and liquidate the resources right now.

The next question comes from Robert Lynch. What's the expected quarterly pace for signing the remaining five ground leases by year end?

Thanks, Robert. I wish we could be precise on this. We debated whether we should even be giving annual guidance on ground lease signing. So while we are confident on an annual basis, it's very difficult to break it out month by month. Maybe as we continue to scale and we grow bigger, we'll get a little bit more precise in our visibility, but it's not like, as you can imagine, none of these really work on our schedule. And by the way, all five, six, seven of the next ground leases are processes that we started years ago and are just kind of coming to termination. We've bagged out terms, we've jumped through whatever local hoops we've needed to jump through to get to these but to kind of say hey we expect you know you know two in October one in November it's not unfortunately we're not not able to get that precise that is all the time we have for questions for questions I'd now like to turn the call back to Francisco Gonzalez for closing remarks thank you operator and I noticed that indeed there were more questions

That will remain unanswered. I encourage everyone who has questions that we couldn't get to to submit those through investors at skyharbor.group, and we'll be happy to answer those in the coming days. We want to thank you all again for joining this afternoon and for your interest in Sky Harbor. You can also check our website at www.skyharbor.group for additional information.