Okay. Hello, everybody, and welcome to Sidoti's Small Cap Conference. My name is Brendan McCarthy. I'm an Analyst here at Sidoti, and I'm pleased to welcome Sky Harbour Group with us today. Leading the discussions from the firm will be CEO Tal Keinan, CFO Francisco Gonzalez, and Treasurer Tim Herr. As a quick reminder, the Q&A tab right at the bottom of your screen, feel free to type in questions throughout the presentation, and Sky Harbour will actually answer those questions through that Q&A tab. So with that said, I'm pleased to hand it over to Francisco.
Thank you, Brendan, and thank you everybody for joining again. Sidoti Conference, we participated a couple of weeks ago at the Micro Cap, and we're happy to be back at the Small Cap Conference sponsored by Sidoti. In terms of the presentation, we don't have too much time, but thank you for those guys who are participating one-on-ones. We're also happy for you guys to reach out to us at investors@skyharbour.group for follow-up Q&A, and for time with us if you're interested. In the next couple of slides, we have some disclaimers that the lawyers asked us to include.
You know, we're gonna be talking about forward-looking statements and, please, you know, this presentation should be looked in the conjunction with our, you know, disclosures and disclaimers in our 10-K and 10-Qs, and so on. So with that said, let's keep on going. I'm gonna pass it on to Tal Keinan, our Founder and CEO, to go through these materials. And again, I'll be answering questions as we go along, so feel free to put them in the chat. Tal?
Thanks, Francisco. Thank you, Brendan. So guys, this is our offering, our physical offering. What you're looking at is the Nashville International Airport campus. I think people confuse us often with an FBO because our physical appearance is somewhat similar, but as we'll describe in the next few slides, we're an entirely different business. We're fundamentally a real estate platform. What we'll show you is some very robust unit economics, not typical of real estate. Some fairly deep competitive moats around the business. We'll make the argument that we feel relatively resilient in the face of the economic cycle. There's real scalability in this business. Right now, we're in four operating campuses. We have an additional 10 ground leases that are in various phases of development.
Our ambition is to exceed 50 airports, so there's real significant scalability, and then upside optionality beyond the real estate, and these are revenues that we've already begun to capture. By way of background... Actually, I'm not gonna spend much time on this because we're limited on time. I think the audience has the slides, so, you know, feel free to please go back and look at our backgrounds. But, what you'll find here is a kind of a nice blend of aviation industry veterans, finance and real estate, and then construction. So our business conceptually is very simple. We secure land at key airports across the United States. We develop campuses of private hangars. What you're looking at in the picture is our Houston campus.
Lease them out long-term to high-credit tenants. What you're seeing is one of the tenants in Houston is a Fortune 100 corporation and manage them, right? So we provide all of what's called line services to the aircraft, plus additional services that if we have time, I'll get into at the end. Our goals, which I alluded to originally, so we're looking to maintain or exceed mid-teens yield on cost, that's unlevered. And with leverage, and we will if we have time again, we'll talk about our bond financing, which is special, perhaps not unique, but special, and really only available by virtue of us being airport operators, of greater than 30% return on equity.
As I said, our aim is to exceed 50 airfields, and while for the time being, we're the only provider in our space, I imagine that won't be the case forever. So our ambition is not really to monopolize the space, but to be the leading player in the space, both in size and quality of offering. We spoke about the team a little bit on the last slide, so let's move to the next. Okay, so the fundamental market opportunity behind our business has a quantitative and a qualitative aspect. The quantitative aspect is very straightforward. If you look at the chart on the right, this is the growth in the square footage of the U.S. business aviation fleet in the decade that preceded COVID-19. And I don't know that anyone else measures this.
There are databases that you can buy that track the number of aircraft in the fleet, but what's really interesting to us is number of aircraft times length times wingspan, the square footage of the fleet, because we're a real estate player, and that is the best proxy for demand, and what you see is that we added. The U.S. business aviation fleet added almost 30 million sq ft of airplane. That's new entrants minus retirements from the fleet in that decade. By the way, that's gone up quite sharply. We haven't compiled the data, but it's, you know, it's quite apparent to anybody who's in the industry, that's gone up sharply since COVID-19, as a lot of new entrants have crossed the chasm from commercial aviation into business aviation.
So everything, the trend that you see here has only accelerated in the past three or four years. The other point that we should make here is more than half, 16.5 million sq ft of that 30 million, is attached to airplanes that have a tail height that's greater than 24 feet. The reason that matters is that a big proportion of the installed base of hangars were built 30, 40 years ago, when that 24 feet was the highest tail height there was in aviation, and hangar doors, which you can see in the pictures here, accommodated were high enough to accommodate those types of aircraft.
Today, more than half of the growth in the fleet is associated with aircraft that have a higher tail height, and they cannot physically fit in much of the installed base of hangars. That's where the supply-demand mismatch is the most acute, and that is the most robust segment of the market for Sky Harbour. Next slide, please, and if there are questions later, we can talk about why, why, why that fleet is growing so, so quickly, and why, why we believe it will continue. I will say that it doesn't really matter to us so much if it does continue or not, right? If you're in the FBO business, your revenue is from fuel.
That is a cyclical, revenue item in that, you know, if you have a pandemic, or a recession, or some other big macro headwind that's making it, you know, difficult or expensive to fly, the first lever that you can pull as a business jet operator is stop flying or fly less, consume less fuel. Once an aircraft exists, it has to live somewhere. So we don't believe that demand for hangars is nearly as cyclical as demand for fuel in this space. So it's a different revenue profile, we believe, than what you see in the FBO industry. One of the differences that I was alluding to at the beginning. We don't really have an inventory of the square footage of hangars in the country.
What we can say is growth in hangar square footage, you know, we already had a deficit, you know, 10 years ago when we began compiling that data, is that the growth in hangar square footage is off by an order of magnitude, okay? So, on the order of 3 million sq ft of growth in hangar supply versus almost 30 million sq ft in business aircraft square footage growth. Perhaps more importantly, is that growth is asymmetric, right? There are airports that are growing at the expense of others for reasons that we don't have time to get into in this presentation. And there are geographies, and that's within a metro center.
There are geographies, you know, for example, Nashville, Tennessee, or Miami, Florida, that are experiencing a really robust growth in based business aircraft. So that supply-demand mismatch is not symmetrical. Next slide, please. I will say one more comment here is that you can't build a new airport in the United States. You know, you could build an airport where there's no need for it, but where there's a need, there's no land for an airport, right? Airports are, you know, very large land hogs. There's nowhere anywhere near Manhattan that could accommodate a new airport today, so they just don't get built. So we look at them really as beachfront property.
Hey, hey, Tal, if I could add. And by the way, next slide, please. One thing I wanted to add in terms of ground leases to Tal's point is, even if we don't take the last piece of land at an airport, is the last piece of land that the airport has from their perspective, either we convince them or they never planned in their master plan to dedicate to a hangar campuses for general aviation. So once we got that piece of land, and we convinced them to change their master plan to put us there, I think their appetite to take another group and so on, because remember, they have commercial operations, they have cargo, they have other priorities at an airport, and they're looking out for the next hundred years.
Which is why it's so critical for us to get that ground lease at the airports that we care about.
Okay. So I would say probably the most proprietary skill set that we've developed and continue to refine in this business is site acquisition. There's nobody who does what we do, which is go out on a national basis, seek greenfield development opportunities, raw land at airports at our own initiative, right? That's and that is a very specific skill set that, you know, again, there was a time where we hired people from the FBO industry to work in site acquisition roles at our company, and we found that that's, that doesn't really work. And that the skill set that the big FBO companies have is really an M&A skill set, right? Signature and Atlantic, the duopoly in FBO land grow through M&A.
We don't want to buy. I mean, the multiples on hangars, and it's part of what makes our business attractive, are so high that it doesn't pay for us to acquire existing assets. We like greenfield. That's how we want to do it, but that does require a very specific set of skills, and I would say that's probably 30% art, 70%. Or 30% science, 70% art, in you know, approaching the city of Phoenix, Arizona, and saying, "Here's the land that we've identified on this specific airport. This is what we're proposing to do here. We'd like to enter, if possible, a bilateral negotiation for that land.
If we have to, we'll go through a public process," so I'm not gonna go through all of the ways we do it, but if you have time to look later, those six boxes are more or less categories for strategies that we have for acquiring land on airports, and we attribute the specific wins in the portfolio to each of those strategies. What you can see on the right that I think is worth noting is we like to take occupancy risk. We've been rewarded, you know, very handsomely so far for taking occupancy risk on these airports, so we secure a ground lease and do a full development before we begin leasing these campuses.
The metric that we use, the primary metric that we use to validate a market, so that if there are any surprises, they're upside surprises, to the rents that we'll be receiving on those markets, is called Sky Harbour Equivalent Rent or SHER, which is a proxy for what it currently costs to base an aircraft at an FBO on the airport in question. The main components of which are rent and fuel margin. The assumption that is implied by that metric is that we will get the leftovers of the FBOs. Meaning, if you are willing to pay $50 a foot to base an aircraft at an FBO, you should be willing to pay $50 a foot to base at Sky Harbour.
Now, what we've found empirically is the actual revenues that we're achieving are 70%-80% higher than the shares that we underwrote for these airports. So the surprise has been to the upside. So we actually considered a very conservative metric for validating an airport. We are not speculative at all. You know, there are plenty of airports in the country that we look at, and we feel with high conviction, these airports will be 15% yield on cost or better in five years. We don't touch those airports today because there's so much low-hanging fruit of airports that are already firing at the levels that we need them to be firing. That's where we focus our efforts.
To read the chart on the right, just, you know, the colored dots are our ground leases, the embedded bubbles on the chart, that sort of heat map. The way you read that is, the darker the bubble, the higher the Sky Harbour Equivalent Rent, the bigger the bubble, the more base jets there are in a geography. So although we don't provide any sort of guidance on where our targets are, that's, you know, that's proprietary to the company, you can get a pretty good sense just by looking at the map, what's attractive to Sky Harbour around the country. Next slide, please. Let me hand it back to Francisco to go over how we scale from those unit economics to scale economics.
Thank you, Tal. Couple things. On average, for those of you guys preparing, you know, looking at our modeling and our capital growth requirements, it's good to think about every campus as having a 200,000 sq ft of rentable space of hangar and office. And we're probably gonna do that in two phases, with the first phase being roughly 60% of such sq ft. So putting in around 120,000 per phase. And a rule of thumb, again, on average, is that total project cost will be between $280 and $300 per sq ft.
That gives you then the calculation that when you look at our airfields, and these columns are on a cumulative basis, what is the cumulative capital that we'll need to be able to do those two phases at, in this case, 12, 20, or 50 airports? And then we're looking to leverage that capital need with the use of private activity bonds, you know, tax-exempt fixed-rate debt. And it's programmatic. As we grow our debt program, it's joint and several with all the properties, and so on, so forth, and pari passu with the debt, which is why the leverage should be going higher over time as the program becomes more robust and more seasoned. As we've said before, we're looking to achieve investment-grade ratings, you know, next summer.
Then that leads us to basically equity needs. As you can see in this table, as we grow, we need to continue raising equity. Our plan is to do this, you know, when equity is available and ahead of the game. As you saw in our Q2 filings and press release, we announced that we're in discussions with five different banks for a $150 million facility, and we are now in the process of raising, as you saw in the recent disclosures, the equity that will be paired with that debt. And this equity will be arriving to us in two tranches: one on October, one in December, of about $62 million, which will be sufficient to raise this debt. And that leads then to our unit economics.
As you look at our, we target airports where we can expect to achieve between 13%-15%, NOI yield on cost, NOI yield on cost, or, and then we are gonna... When we achieve that NOI, and we pay the interest on the associated debt, you're left with the pre-tax cash flows to equity, that are exhibited here in this page, and providing then a return on equities in the thirties. So that's a critical, kinda like in summary fashion, our unit economics. As we grow, yes, the, you know, probably beyond the first 20, 25 airports, we're gonna be probably getting to airports that have maybe lower rents. But we believe we're gonna more than make that up with-...
relatively lower construction cost and lower interest cost, allowing us to continue achieving a returns on equity higher than 30. Back to you, Tal.
Thanks, Francisco. Next slide. Okay, actually, that's Francisco.
Yeah, yeah, yeah.
Why don't you get running with this?
This slide is, you know, for those of you who have been following, I saw from our, you know, 50 people attending this conference right now, you know, some of you have noticed from before, so you've seen this before. For you, the people who are new to Sky Harbour at this conference or this presentation, you know, this is the history to date, the past three years of our quarterly results. You know, the critical thing to note here is that this is on a consolidated basis, we're gonna be achieving a cash flow positive on a Adjusted EBITDA or an operating basis by this time next year.
On the back of the opening of campuses in Denver, Phoenix, and Dallas in January, February, March of next year, and when those get leased up through the summer, that will more than cover, with our existing four operating campuses, the SG&A. We're working hard to keep that SG&A as tight as possible, so we achieve the operating leverage of this platform, and that call will be seen also in the future. It's important to look at this company, not in the past, but what's coming ahead of us. As we've been signing all these ground leases, there's a lot of visibility in terms of those ground leases becoming constructed assets, and those assets becoming a part of the portfolio that will produce the leverage return to our equity holders that we look for.
So that's in summary fashion, kinda like, our results and our expectations. Next slide.
Yeah. Thanks, Francisco. With Francisco's last comment is a very good segue into this slide, which to me, for what it's worth, is how I would value this company if I were looking at it for the first time. Which is I would start with, what is the revenue capture? Which is the amount of campuses that we have, times the square footage of hangar that we can build on each campus, right? And we're counting all the way up to August 2024, that's Salt Lake City, the last one that was announced, which takes you to about $130 million of revenue capture, right? That is the hangar square footage that's available to us in the site plan, times the Sky Harbour Equivalent Rent. And remember that Sky Harbour Equivalent Rent has been exceeded on all of these campuses.
So we believe that that's a conservative metric to start with. I would then discount for things like development risk, right? It's not a sure shot. Lease-up risk. Did we miscalculate the Sky Harbour equivalent rent? Were we too ambitious? So these are things. And then for time, you know, how long does it actually take to develop these campuses and get them cash flowing? So those are the three coefficients I would attach to this. So you discount that $130 million to some smaller number, and then attach whatever multiple you feel is worth attaching to that as well.
Again, I would encourage people who are looking at it to use an LBO model, because what Francisco described about our bond financing is materially different from the way you should look at this company if it were financed in a more, you know, through a more traditional means. That's how we see it. But to me, this is really what it's about, and, you know, again, I would humbly suggest that discount should become lower over time if we're successful at delivering campuses as we have been so far. It should get lower over time, right? We don't have that many data points now, so I would certainly understand somebody attaching a steeper discount to, you know, today.
But, you know, watch next year as Denver, Dallas, Phoenix come online, and soon after, Miami phase II comes online, that I would argue that that discount should go down, so I wanna briefly touch on this, briefly, because it doesn't appear in any of the models that we use. We viewed ourselves traditionally as a real estate company. Increasingly, it's becoming clear to us that real estate is perhaps the most defensible beachhead in aviation, and you can build a lot of other revenue-driving services on top of real estate, so when we look at this, we've begun adding fuel. We didn't have it in our first campus in Houston. That was a mistake that we rectified in all subsequent campuses.
So we have fuel revenue, which now augments our rental revenue, but we're beginning to deliver additional services. So I'll give a very brief example is that you know, many of the Sky Harbour residents or tenants are highly visible people, you know, either you know, running Fortune 500 companies or you know, otherwise notable individuals. And in the current security climate, one of the features that we've been offering people is in-hangar boarding and in-hangar deplaning, which is something that an FBO can't really do, right? FBOs operate community hangars, which are very busy. There's a lot of movements in those hangars. It's very unpredictable what the stack, so to speak, or the arrangement of aircraft in the hangar will be at any given time. So FBOs are really not in a position to do that. We are.
These are private hangars. We know exactly what's going on in the hangar. You know, it's empty. If the resident's not there, it's empty. So we've put together a procedure that allows for in-hangar boarding. We're implementing one soon that allows for through our app for a resident to order a security sweep of the, you know, entire airport area before arrival. And again, these are increasingly, you know, in-demand services. They're an example of really dozens of services that we believe we can offer.
I'll say on that, our method here is really to do that through partnerships and to just share in revenues, rather than try to actually deliver those services ourselves, because we believe, you know, we should be focusing on what we know how to do best. So we, you know, contract with security firms, with fuel providers, with whoever the partner will be. All of the risk, liability, you know, operational complexity is borne by a third party. That's something we may challenge down the road, but that's the format that we're beginning to deliver these services in. Next slide.
Oh, very quickly, I mean, this is just for the people who are seeing us for the first time. We have a lot of liquidity at $150 million of cash on treasuries, but all of this is earmarked except $25 million to existing construction projects in the first five campuses, and that also funded with the debt that is long-term that we issued three years ago. As you probably next slide, you probably saw from our recent announcement, that we have, you know, received several proposals from banks for another issuance of $150 million of debt.
For that, we need another, call it $70 million of equity, and thus the recent announcement of this PIPE transaction, where we look to raise $63 million, which we'll pair with about $20-$25 million of excess cash that we have. And with that equity capital, as you can see on the right-hand side, an incremental debt, that will allow us to fund, you know, around seven phase ones of the ones that I was discussing earlier, of 120,000 on average rentable sq ft, or another 800,000 sq ft to be added to our portfolio of operating campuses. And so we are in capital formation.
We'll continue basically looking at opportunities over time to be on the right time and ahead of the game to provide the capital to grow. This capital is very accretive, very accretive to our existing shareholders, because as Tal mentioned earlier with this cost, we turn this capital into NOI yields on the order of 15% and ROEs of in the thirties, which obviously becomes very accretive to existing shareholders as well. So next slide. Okay, with that, we have concluded our prepared remarks. Please reach out to us through investors at Sky Harbour Group for follow-up questions, or if you're looking for a one-on-one, we'll be glad to accommodate that in the coming days and weeks.
Thank you very much for your participation today in this conference. And Brendan, if you can keep it on, so I can answer the last couple of questions for a few minutes, that would be great. But thank you, everybody, for joining again.
Yep, absolutely. Thanks, Francisco. Thank you, Tal. We appreciate the overview. We'll, we'll conclude the conference there.
Thank you. Thanks, everyone.