CFO Francisco Gonzalez, Treasurer Tim Herr, and Analyst Lily Nguyen. Before I hand it over, a quick reminder that the Q&A tab is located at the bottom of your screen. Feel free to type in any questions throughout the presentation, and we can get to Q&A towards the end. But with that said, I will hand it over to Francisco.
Thank you. Thank you, Brendan, and thank you everybody for joining. This is very exciting for us. You know, we've been a public company for 2.5 years, and this is actually our first Virtual Investor Outreach yesterday and today. It's actually been very exciting having one-on-ones with the people who have signed up and obviously this group session. We encourage people to contact us afterwards for additional questions or one-on-ones as needed.
As you will see in the presentation, you know, in our webcast yesterday, for those who attended our webcast, you know, we are gonna talk about forward-looking statements in this presentation, and we refer you to the disclaimers in this presentation and our Form 10-K and so on, in terms of business risk and so on, as part of the remarks today. With that said, let me turn it to our CEO, Founder, and Chairman of the Board, Tal Keinan.
Thanks, Francisco. Good to be with you all. Let's just jump right in, 'cause I know we have abbreviated time. So, Lily, if we could jump to slide number five. Thanks. So Sky Harbour thinks of itself as a specialty real estate platform. You'll see that, yes, there's maybe an emphasis on the specialty piece, is that there's a lot of aviation that goes into what we do, but fundamentally, we're a real estate company, and I think financially, that's probably the right way to look at this. We are the pioneers in our space. For the time being, the only player in what we call the Home Basing Solution space. And what that has delivered for us is very robust project returns, some very deep competitive moats.
We believe, for reasons that I'll discuss, that we're relatively resilient in the face of the economic cycle, a very scalable opportunity, and some significant upside optionality beyond the real estate. Let me introduce just the people on the call. So, again, my name is Tal Keinan. I founded the company. My background is in military aviation, where I spent 18 years. I got into the hedge fund industry after that, and had the opportunity to own an aircraft and came confronted firsthand the deficit of business aviation hangar capacity, which at first looked like a New York area phenomenon. But it very quickly became apparent to me that this deficit afflicts most major metro centers in the United States. We think we understand why that's happening, what the historical reasons are for that deficit.
We don't have time to get into them now, but you know, happy to on a separate occasion. What I can say, though, it's a very non-controversial statement. Anybody in business aviation will agree with that statement, there is a chronic deficit of business aviation hangar capacity, and it's growing more acute. Again, we came across that phenomenon firsthand. I'll get into that again in a few slides, but let me pause and let Francisco and Tim introduce themselves.
Thank you, Tal. I'm Francisco Gonzalez, CFO of Sky Harbour. I'm a banker by training, spent 20 years at Goldman, 6 years at RBC, and a stint at Fortress. My specialty has been transportation, airports, and private activity bonds, among other financings. I met Tal about 5 years ago when there was early stage at Sky Harbour, and then joined him as his CFO about 3 years ago, and it's been an exciting journey. We did a private activity bond transaction 3 years ago, where we locked in $166 million at a 33-year money with a very low fixed rate of 4.18%. We'll discuss that later in the presentation.
One of the pillars of our business model is our ability to borrow tax-exempt at a very low cost, and basically leverage very attractively for our equity holders, our assets. Tim?
Thanks, Francisco. Tim Herr. I've been with Sky Harbour since its beginning in 2018. Started my career as a Navy pilot, so got fixed wing and rotary time in the Navy and joined Sky Harbour after I left and finishing business school, and with the company ever since.
Thanks, Tim. Lily, let's jump to slide number nine. I'd like to give people a sec... Oh, excuse me. I'm sorry. We skipped number seven. Sorry. Let's start with number seven. First of all, all the pictures in the presentation are from Sky Harbour campuses around the country. This one is our Houston campus. I just want to give people a sense of what the actual physical offering looks like. Left side of the slide, conceptually, our business is very simple. We secure land at airports across the country, develop campuses of private hangars like these, lease them out to high-credit tenants on long-term leases, and manage them. That's the business. Our goals are, first of all, in terms of unit economics, to achieve mid-teens unlevered yield on cost.
We're achieving that already, and we're breaking into new territory. We're doing better with each airport, which translates into a return on equity up above 30%. In terms of scale, our ambition is to get to 50 airports. Again, I see no reason for us to stop at 50. There are hundreds of airports in the country that meet our criteria that fit our needs. But let's say our interim ambition is 50 airports. We're on airport number 14 today, and although I don't think we can expect to be the only player in our space forever, we do intend to be the premier player in our space. We think there's a significant first mover advantage.
Again, it's not rocket science, what we do, it is a simple business, but there is a very deep bag of tricks that we've, we, we feel we've accumulated that are necessary to - if you're going to do it well. Now let's jump to slide number nine, talk a little bit about the macro backdrop that makes this opportunity compelling to us. So fundamentally, the proxy for demand for our product, aviation hangars, is the square footage of the U.S. business aviation fleet. If you look at the chart on the right side of the page, I think we're the only people who compiled this information, 'cause I don't think it's really relevant to anybody else.
You can download databases that track the number of aircraft in the U.S. business aviation fleet, but what's interesting to us is the square footage of the fleet, which is number of aircraft, times length, times wingspan. That is the best proxy for demand. That's how much square footage needs to get housed in the fleet. What you can see in this chart is in the decade leading up to COVID-19, a little over a decade in the chart, the U.S. business aviation fleet added almost 30 million sq ft of airplane, and that's net, meaning new entrants minus retirements from the fleet. Almost 30 million sq ft of airplane. Importantly, more than half of that square footage, about 16.5 million sq ft, belongs to aircraft that have a tail height that's greater than 24 feet.
The reason that's important is that much of the installed base of hangar has a door threshold. If you can look at the picture on the right, you can see the height that's measured from the floor to the threshold of that large main hangar door. Much of the installed base of hangars has a door threshold height of 24 ft, because when these hangars were built several decades ago, that accommodated the tallest business jets in the fleet. It doesn't anymore. In fact, more than half of the square footage of business jets that are entering the fleet cannot physically fit into those hangars. So that is where the supply-demand mismatch is the most acute. That, I would say, is the heart of the envelope of the Sky Harbour opportunity. Next slide talks a little bit about supply.
Although we don't have a measurement, I don't think anybody has a measurement of the total hangar capacity in, in the country. If you speak to owners of hangars, and the largest owners of hangars in the countries are the FBO industry, I think everybody you speak to would agree that the growth in square footage of hangars has lagged the growth in square footage of aircraft over that period by at least an order of magnitude, okay? At least an order of magnitude. So the supply-demand mismatch that we're looking at, that is the macro driver behind our industry, is only getting more acute, and it's getting more acute at an aggressive rate. And, you know, if we have time, we'll share some numbers at the end that start to point at airport inflation.
I think, you know, if you're looking at our company, one of the key variables, most sensitive variables, to attached to the value of this company, is: What is your assumption on inflation in rents on airports? What we'll argue is that that number is a multiple of CPI. The reason for that is you cannot build a new airport. We are stuck with the supply that we have today, right? Where there's room for a new airport, there's no need, and where there's need for a new airport, there's no room, right? Airports are giant land hogs. It's very difficult. It's virtually impossible to find land for a new airport, for example, to serve the New York area.
So we are stuck more or less with the supply we have. That's what we believe is driving inflation over the coming years in airport land. So that's a little bit about the kind of macro tailwinds that we believe we'll be experiencing over the coming years. Let's look at the current state of the business. And you know, we like to think of the business... yeah, Lily, if you could jump to slide 12, please. We like to think of the business as having four operating pillars. The first is site acquisition, the second is development, the third is leasing, and the fourth is service and operations.
By far, the most proprietary, the most special part of our business is site acquisition, and the reason for that is, you know, we are today the largest developer of hangars in the United States, possibly in the world, I don't know, but certainly in the United States. We are the only people who acquire land, greenfield like this, on a serial basis. This is all we do. This is the business model, is acquire undeveloped land and develop new hangar campuses on that land. The kind of complementary part of our industry, the fixed base operator, or FBO industry, that industry grows. The big national players grow through M&A, right? So they acquire existing operating businesses rather than do this, which is acquire greenfield property, right? And this is our model.
We actually started this business with people from the FBO industry in the site acquisition role, and it took us a little while to understand that their skill set is really an M&A skill set, and we're looking for something different. What we have today is a growing team of exclusively military aviators coming out of MBA programs. We found, like Tim, that that is actually the best. The people who are not kind of imprinted with practices from another industry that don't really apply here, there's really nothing to unlearn. Smart, aggressive people who come with a very relevant network, in that airport management across the country is often populated by military veterans. Right? This is a pretty common retirement gig for military aviators.
So there's a network, there's a natural affinity that, again, these are not people who can grant us ground leases, but they can certainly be champions and advocates of the Sky Harbour model. So I would say this is by far the most proprietary skill set that we have in the company, and we've invested a lot and continue to invest a lot in refining that skill set. Again, it's not rocket science, but it does require a pretty deep bag of tricks, and we want to continually deepen that bag of tricks and methodologies, and also grow the headcount because we're not trying to grow in a linear fashion. We're trying to grow in a geometric fashion. And that's what has been happening.
So again, I won't get into the various routes we take to acquiring sites in this presentation just for time purposes. But as of last week, we are at airport number 14, and we plan to announce a series of new airports in the coming months. And I think if people read our Form 10-K filings and our press release, we also recently revised our guidance from having 20 airports under ground lease by the end of next year to 22 airports under ground lease. So this is a part of the business that we're always going to be interested in growing aggressively. The next pillar of the business is development.
Like I said, we're currently the largest developer of hangars, and we—Lily, if you could skip to slide 13, please. The benefit of scale and development, we think it really falls into two big buckets: prototyping and vertical integration. So Sky Harbour has a flagship prototype hangar. Again, this is something that has been evolving and has been refined over our various projects, and with a very intense feedback loop with our residents. We keep very intimate relationships with our residents. Very important for us to get, you know, live and granular feedback as to what's working and what's not working. Our flagship hangar is called the Sky Harbour 37.
It's 37,000 sq ft of hangar space with additional office and lounge space attached to it. Interestingly, because of the specific shape of that hangar, we can get over 60,000 sq ft of airplane into 37,000 sq ft of hangar space without without significant crowding, without taking any kind of safety risk in that. We think it is in our view, it is by far the best hangar in business aviation from a functional perspective. You know, we take into account how people actually operate aircraft and how they would like to operate aircraft, right?
There's all sorts of decisions that come into that with you know with regard to drainage, where utilities and electricity gets run in the hangar, how lighting works in the hangar, how doors and access work, what the actual dynamic flow is through the hangar. There are a lot of considerations that you want to bring in, and we think that by actually having a prototype approach, where we don't have to reinvent the wheel every time, we dedicate a lot of thought into one prototype and then stamp it out across the country. There's a lot of benefit to that. There's also benefits on permitting.
You know, if you have a fire department that's looking at a design that's been approved by 10 other fire departments, it's an easier decision to approve it, and we hope over time, a quicker decision. And for us, that's cost savings. If we can move the entitlements process along more quickly, that's useful for us. And the second component of maximizing economies of scale is vertical integration. So last year, we acquired our own pre-engineered metal building manufacturing capacity, and have just completed converting that facility into a pure play Sky Harbour manufacturing facility. It's customized just for our product, nothing else.
and our hope is, over time, to realize real cost savings and real quality assurance, benefits, rather than being reliant on external third-party pre-engineered building manufacturers. So if we can move on to the next, and I think I'll take a quick breather here and ask Francisco to talk a little bit about unit economics and scale economics.
Sure. Thank you. Thank you, Tal. And if we go to the next slide, then. Yeah, very quickly here, our economics are very straightforward. I'm gonna talk on average, in terms of going in our existing campuses and going forward. So we build our campuses at around $275-$300 per sq ft, total project cost. We have 3 or 4 full-time equivalent operators helping with fueling and towing planes. That represents about $3 per sq ft. And then we pay ground lease to the airports, roughly about, you know, our lowest is $0.30, our highest is, like, $1 and change.
But when you translate it into rentable square feet, it's about call it another $3 per rentable sq ft. So basically, and we rent on average at right now at $45 per sq ft. You subtract those $6 that I mentioned of OpEx, and you're left with, like, $39 of NOI. And then, so $39 of NOI over a denominator of $275-$300 of total project cost, you're. It yields roughly around 15% yield on cost. 15% yield on cost, you notice there that, you know, we, we're hoping to target a anywhere from 13.5% in the current campuses. Our next set of airports, we believe are better than our first five.
That's because we are selecting, you know, now with a methodology that's more refined, so we had to, on average, to cumulative to be in the 14% area. And then, yes, after 20 airports, maybe we are now gonna be accessing airports with a little bit less NOI yield. Now, we pair that return on assets, or that yield on cost with very attractive tax-exempt debt. You know, right now, we achieved already 70% leverage in our first bond deal. We did a bond deal three years ago of $166 million. It was a 33-year final, 25-year average life. Interest-only for the first 10 years, at a fixed rate of 4.18%, 4.18%. It's been a very attractive tax-exempt rate.
Ironically, we've been able to reinvest those proceeds while we wait to put them into construction facilities or constructive facilities at a higher Treasury, you know, short-term bill rates. So over time, we expect this bonding program, which we announced yesterday, that we're gonna expand to continue allowing us to achieve ever more leverage in our financings, and that will more than offset our expected decline on NOI yield as we grow, which will lead into continuing to have return on equity in the thirties in terms of unit economics. So that's kind of like in a nutshell.
Obviously, we have growth capital to come in the context of additional debt and opportunistically, opportunistically in the form of equity, either at the holding company or the project level, and that will fuel our growth going forward. Back to you, Tal.
Thanks. Francisco, do you wanna go over financial results as well?
Sure.
Before we continue?
Yeah, yeah. Next page. Oh, yes, thank you. Yeah, for those of you, you know, this is our what we covered in our webcast yesterday. You know, we continue to, you know, expand our $150 million of cash into the projects that we have in front of us. Our revenues go in step function. Every time we open a new campus, the revenues step up, and you can see that in Q2, last quarter, when we opened San Jose, and we immediately had it 58% leased, it led to a step-up in our revenues, and we expect some similar step-up next quarter when the rest of that campus gets leased.
And, in terms of operating expenses, it shows the increase in rent, in ground leases, given San Jose. But San Jose is a unique lease. It's a lease that already came with an existing hangar. That's more of an anomaly. Our core business is to do Greenfield development, so, you'll not tend to see that, the jump in operating expenses as we, progress. SG&A is something we pay a lot of attention on, is that basically our overhead in our corporate office. We expect to extract a lot of economies of scale as we grow and scale to, and still keep that SG&A in, the right place. Leads us to cash flow in operating activities. In the lower right-hand side, you'll see that we are...
We're getting closer and closer to break even on an operating cash flow basis. We have given a guidance to the market that we expect to be by next fall of 2025 to be cash flow break even, and then continue scaling up as we open new campuses. Next slide.
Thanks, Francisco.
Yep.
So, you know, here's how we look. Here's how I look at valuing this company. I start with, what is the total revenue capture, right? What do we actually have in hand right now in terms of ground leases? Take the square footage, the rentable square footage of hangar and lounge that we can build, and we have site plans for each of these, each of these airports. Multiply that times the Sky Harbour equivalent rent, which is our proxy for revenue on each of these campuses, and you come up with a revenue capture, which right now is a little bit shy of $130 million annually. That's after Salt Lake and after an expansion of an existing, existing ground lease that we have. Then discount that for two factors.
One is the time that it takes to develop this, and the second is development risk, where, of course, there is operating risk in putting these campuses up. You know, we can screw up on the construction. We can, you know, mis-estimate the per square foot revenues that are available on those campuses. So those are the two coefficients I would attach to this, but this would be my starting point. On that second coefficient, I would say that so far we have significantly exceeded, you know, by over 30% the Sky Harbour equivalent rent on these campuses, meaning our actual revenues are over 30% higher than our projected revenues on these campuses. So we-I feel it's a conservative starting point.
So this, this is where we are, and again, I, I think everyone will, you know, should look at this as they see fit, but this, this is how we look at it. The next slide, I won't dwell on now for obvious reasons, because we're not really focused on this yet, but we have found that real estate is perhaps the most defensible beachhead that there is in aviation. There are many additional revenue streams available to us. We've only tapped into two so far because they sort of fell into our lap. One was fuel, and the second is aircraft detailing. Right now, our focus is on putting more dots on the map.
I think you know, the moat around Sky Harbour at an individual airport is extremely deep, so the more airports we have, the better our position is. We can always circle back, and we will circle back to maximize the additional revenue stream, but right now, this is not the focus of the company. I think we're coming up on time. Francisco, you wanna address just liquidity and debt?
Of course. Thank you, Tal. We'll be answering some of the questions in written format. Yes, we have strong liquidity. We have about $150 million of cash on Treasury bills, and our debt is permanent debt. As I mentioned earlier, long-dated tax-exempt debt at a very attractive 4.18% interest cost. Next slide.
Yeah, so just highlights from the last quarter. Again, if you re-read our press release, you're up to date. We announced airport number 14, that's Salt Lake City. Expansion on existing fields, which I think is important to understand, that is as good, if not better, than an airport win, right? It's higher bang for the buck to expand an existing lease, as we did last year at Dallas Addison, than it is to gain a new lease. So there's significant effort placed on that as well. On the development side, we've got 10 projects in development, discuss the Sky Harbour 37 prototype.
On the leasing side, again, we were under NDA with most of our tenants, but what I can say, they are the most marquee, most sophisticated flight departments in the United States. The top flight departments in the United States. Sky Harbour, although we don't invest at all in marketing, we haven't so far at least, I think we're becoming known within our community as the premier choice for basing an aircraft. And that is increasingly justifying the premium that we charge because we are also the most expensive way to house an aircraft. And then on the operations side, again, just for lack of time, I won't get into that. Then the next slide is just a quick look at the year ahead from our perspective. Our emphasis remains and will remain site acquisition.
Again, that is the binary, kind of step function that we need in order to succeed. Everything else should be discounted from that. Our focus is now on the best fields in the country. Again, very briefly, to understand unit economics, the denominator of yield on cost is development cost and OpEx. Those vary within a pretty finite range. No matter where you're developing in the United States, there's a finite range of cost. So the interesting part of that, expression is not the denominator, it's the numerator. What is the revenue per square foot that you can get? Which is entirely a function of location. The airports that we've put up, the airports that we're showing mid-teens yield on cost on, are not Tier 1 airports. We intentionally avoided the best markets in the country at the beginning.
We kind of figured if we... Let's, let's make our early mistakes where the stakes are a little bit lower. Today, the focus is on tier one airports. If you can get, you know, 30, high 30s per sq ft or low 40s per sq ft in Nashville and Miami, you can get 60s and 70s per sq ft in San Jose, right? That, that's a tier one market. So I think, you know, everyone on the call can extrapolate themselves as to what the implications are for unit economics of focusing now on tier one airports in the country. That is, that is our emphasis going forward. Again, I think we're out of time, so I'm not gonna go through the bottom of the slide, but I think the slide is available to participants.
Very well. Tal and Francisco, thank you very much for the overview. We really appreciate it. I know there's a couple questions still in the queue. I'd like to say, feel free to reach out to Sky Harbour directly, or you can contact Sidoti, we can get in touch with the company. My email is bmccarthy@sidoti.com. But with that said, Tal and Francisco, thanks again. And Tim, thank you for your time today. We really appreciate it.
Thanks, Brendan.
Thank you, everyone.
Thanks, everyone.
Thanks, everybody. Take care.