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Good afternoon, everyone. Our next presenter today is Tim Herr, the Treasurer and VP of Finance of Sky Harbour Group Corporation. Take it away.
Hi, good afternoon, everyone. I'll click through the disclaimer slides here. So at a high level, Sky Harbour is a real estate company that focuses on aviation infrastructure. So we secure land at airports throughout the country and build the type of hangars you see in that picture there. That's one of our first developments currently in operation at Nashville International in Tennessee. Just a brief introduction about myself: I come from military aviation. A lot of our executives do. I was a Navy pilot for 10 years, got out, went to business school, and then got recruited by Tal, our founder, as he was getting Sky Harbour off the ground in 2018. Tal was also a military aviator. He was an Israeli F-16 pilot. Got out and spent his career in asset management before starting Sky Harbour when he saw the need for hangar space around the country.
He owned kind of a smaller aircraft called a Baron. It's a twin-piston fixed-wing aircraft. He's Manhattan-based. Could not find hangar space anywhere around the country or anywhere in the Tri-State area to house it, and as he went around the country visiting for business and personal reasons, would ask at airports around the country, saw the same story, would ask airport management, and figured out that there was a lack of hangars around the country causing aircraft to be stored outside, and so he kind of saw that idea and turned it into Sky Harbour, and we'll get into reasons on why that deficit exists. Francisco, he couldn't be here today, but he's our CFO. He pioneered our innovative financing structure, which I'll also touch on in a future slide, so again, at a high level, we secure land at airports around the country.
Typically, can't own airport land because even large airports are municipally or locally owned. So it's public land. But we do enter into long-term ground leases, typically 40-50 years, at airports around the country. We design, construct, and develop the hangars that you saw in the previous picture. That was our Nashville International campus. This is our Houston campus at Sugar Land Regional Airport in the Houston area. So we construct those hangars. And then we lease them out to, okay, I lost the slide there. We lease them out to private aviation owners and operators. So Fortune 500 companies, high-net-worth individuals who own private jets, and Part 135 operators, which are your charter and fractional owner operators. What are our goals as a business? We look to generate 3-plus yields on equity.
We do that by targeting a yield on cost of our development in the low- to mid-teens. So I mentioned the land acquisition is through ground leases. So we have very low acquisition costs for the land. We can build the campuses relatively cheaply because they're what's called a pre-engineered metal building. So the steel buildings are pre-manufactured, and then we erect them at the site. And we rent them out, again, to attractive tenants at high rents while limiting our OpEx and look to get that 12%-15% stabilized yield on cost, which, when we partner with the debt—that I'll talk about in a future slide—drives our equity returns for our shareholders. We're currently at 14 airfields under ground lease. So that's four in operation, three in kind of the final stages of construction, and then eight more in various stages of pre-development.
We're looking to get to 50 airfields. To get to 14 to 50, we have a lot of growth in front of us. A little bit about the market. First, on the demand side. Really, since the great financial crisis, we've seen a large increase in not just the number of private aviation jets, but the size of the jets. And that's really what we're concerned about on the real estate side of things. It's the length times the wingspan of each aircraft and cumulatively how big is the U.S. business aviation fleet. In the last 12 or 13 years, we've seen an over 50% increase in the size of the business aviation fleet. What's driving that? One is older aircraft are being used longer, so retirements have slowed down.
And two, most importantly, new aircraft that the aircraft manufacturers like Gulfstream and Bombardier are rolling out, new aircraft are bigger and taller. So they have a wider wingspan, and they also have a higher tail height. And so that increase in the size of the aircraft drives the demand for hangar space because the bigger the aircraft, the less the existing hangar space will be able to accommodate each aircraft. The tail height is also important because a lot of the legacy hangar infrastructure in the United States was built for your smaller business jets designed 20, 30, 40 years ago. So things like Learjets that maybe had an 18-20-foot tail height that could fit in a 24-foot door height hangar could no longer, those 24-foot height hangars could no longer support the 26- and 27-foot-tall jets that are being rolled out by the aircraft manufacturers.
A lot of the existing hangar stock is insufficient to house the newer, more expensive business jets coming on the market today. On the demand side, hangar infrastructure investment has been significantly slower than the demand drivers that I just spoke about on the previous slide. There's a couple of structural reasons for that. One is, I already mentioned, airports across the country are typically owned by local and county municipalities. There's not a lot of political will to invest public money in hangars for essentially housing rich people's jets. So it's typically fallen on the private sector to invest in the infrastructure on airports for housing those business jets. And historically, that's fallen on what are called fixed-base operators, or FBOs. FBOs are what we consider to be the gas station of an airport.
They're the ones who provide and sell fuel to transient and based aircraft on the airfield, and they typically, historically, had to build a certain amount of hangar space in exchange for the fuel concession that the airport authority would grant them to sell fuel. FBOs typically underinvested in hangar space because that's not their primary business. Again, their primary business is selling fuel. It's better to have ramp space over hangar space so that they can drive more aircraft, more efficiently fuel them to drive the majority of their revenues, which is fuel sales, so FBOs, while the traditional builder of hangars across the United States, they've typically underinvested in the amount of hangar space that's been required to meet the rising demand. Lastly, it's virtually impossible to build any new airport where you need it.
You can build an airport where you don't need it in the middle of nowhere, but it's almost impossible to build a new airport where you do need it. The newest major metropolitan airport is the Denver International Airport, which came online in the 1990s. That kind of gives you a sense of how frequently airports are built in major metropolitan areas. Okay, company overview. Site acquisition. This is our most proprietary source of competitive advantage. First, take a look. This is the target map on the right-hand side. Those different colored dots are where we currently have ground leases. As I mentioned earlier, we're currently in operation in the green dots. That's San Jose, Houston, Nashville, and Miami. We're finishing construction at three airports in Q1 of 2025, so just a few months from now. That's in Phoenix, Denver, and Dallas.
And then we have another seven ground leases around the country ranging everywhere from Salt Lake City to a couple in the New York City area that are currently in various stages of pre-development as we look to start construction on those in the upcoming year. So those are our existing airfields under ground lease. And kind of the left-hand side, it describes how we actually get onto airports. So some of the simplest are going either directly to the airport or directly to a third party who's what we call master lease an airport. And we can do a B2B transaction on getting a ground lease at an airport we're interested in. We also respond to RFPs or requests for proposals that airports issue. And we like to try to tailor those to give Sky Harbour an advantage on basically regarding the fact that we're not an FBO.
A lot of airports don't like bringing on an FBO unless they have strategic plans to do so. So we're kind of well-positioned to bring infrastructure to the airport while not increasing the FBO footprint of the airport. Anything else about the slide? I think that's it. So kind of the main takeaway is these are where we're currently in operation. We're guiding to an additional eight airports by the end of 2025. So that'll bring us to 22 airports under ground lease. And then our ultimate goal is 50-plus airports as we grow in the coming years. This is kind of the scaling of our business. And I'll talk a little bit about our financing because it's an important competitive advantage we have. So right now, we're kind of in the left-hand column. I know it says 12 of those is a month or two old.
We've announced a couple of airports since then, but this gives you a sense of the total capital we'll need to fund those 12 airports, so very capital-intensive business, so we frequently go through equity raises right now in the form of PIPEs, so we actually just closed one this past Friday that will raise a total of about $65 million-$70 million when it's all said and done in December, and then we pair that equity at about 70% leverage with a type of federally tax-exempt municipal bond called Private Activity Bonds, and these are a type of municipal bond available to private companies like Sky Harbour that we can use to fund infrastructure that the IRS, again, allows to be federally tax-exempt at certain places across the country, one of them being ports and, importantly for us, airports.
So we're able to take advantage of the IRS code to issue these types of municipal bonds for private companies at very attractive rates. So we did our first program a few years ago. We issued $166 million of 33-year fixed-rate debt. So that's very long-term debt, fixed rate. It's a 10-year IO and then amortizing after that. I mean, it almost kind of looks like a mortgage. And we issued that as an unrated entity at 4.25%. And it's essentially permanent capital. It's 33 years long, and it's assumable, meaning even if there's a change of control at Sky Harbour, the debt stays with the company until it gets paid off 33 years from now. So very powerful financing structure for us. Again, we issued our first program a few years ago with the equity we just raised really in the last week or so.
We're going to pair that with an additional, call it $130 million-$250 million in tax-exempt debt, probably either Q1 or Q2 of next year. And that will give us the capital to fund the blue dots in the map on this slide here. So our initial program of the $166 million with existing equity was the green and yellow dots. So those are the operating ones and ones under construction. And then the debt we'll issue next year will be for the ground leases currently in pre-development as we speak. And then it'll be programmatic. So we look to get to 50 airfields. So as we look to airfields 15-22 and call it the next 18 months, again, we'll repeat that cycle as we're a capital-intensive business and need to deploy that capital into our real estate campuses across the country.
Then eventually, as we start generating cash flow, all internal cash flows, we could consider either dividending them out, but most likely we'd create a bit of a flywheel where the generating cash flows from the existing airports funds the future airports, Airport 30, 40, and 50 and beyond as we continue to grow. This is just a summary of our latest quarterly results. We'll be reporting here in the next few weeks, and we'll have an update here. Since constructed assets continue to go up, revenues continue to go up, and we kind of have a step function with each campus that comes online. As we lease those up, you'll see an increase in revenue with each completion of a campus. This is how we like to kind of target or consider ourselves.
So when we sign the ground lease, that's really when the economics of the—that's the hardest part, if you will. That's when the economics are locked in. Yes, we still need to construct and lease, but it's the actual obtaining of the ground lease that's the most difficult part. So we look at it as almost revenue potential with each additional ground lease we sign. What's the revenue—sorry, the computer keeps going off. What's the revenue potential with each additional ground lease? So you can kind of see Salt Lake City was the last one we announced in August, just a month or two ago. And then I mentioned airports 15 through 22. That'll be through 2025. That's that additional step function of revenue potential with each new ground lease signed as we continue our development. Additional revenue streams. Real quickly, our primary driver of revenue is rent.
We rent the hangars to our clients, and that's our primary revenue driver. We also do sell fuel to our tenants. It's about, call it 10%-15% of our revenue right now. We do have that as a little bit of a kind of a bump in how much revenue we're able to capture from our clients. The others listed, those are ancillary aircraft services that we have the option to get into if the opportunity presents itself. Right now, we kind of structure it as kind of preferred third parties that we offer to our clients, things like catering or aircraft detailing, where we're able to capture a little bit of the revenue if the third party uses our client base for themselves.
This just goes back to we have a very strong balance sheet, about $150 million in assets. Again, most of that right now is earmarked for the green and the blue airports that you saw on the previous slide, and then we're raising our next round for the—or sorry, the green and yellow ones, and then raising the next round for the blue ones that are in development. I talked about our PIPE. We just closed on this on Friday. Again, pairing the PIPE with the existing cash on our balance sheet and the incremental debt we're going to issue early next year, it'll give us about $240 million of additional capital to fund the sites in blue that are in pre-development, so that is Sky Harbour. I think we have about three or four minutes left if anyone wants to answer questions.
Considering your structure, is there any reason you're not a REIT? What are the disadvantages or advantages to being one or not being one?
Yeah, it's on the horizon. So right now, one, we spend too much capital, and two, the internally generated cash flows are going to plow back into that CapEx. So the restructure isn't. It's really not right for us right now. But look, as soon as kind of the airport acquisition process slows down and the CapEx slows down, it would make a lot of sense for us to transition that way. And we're structured to do so. So not currently, but it's definitely on the horizon. Yep.
I have two questions. One, can you provide some insight as to your occupancy rate right now? And also, how many of your tenants are for businesses like NetJets or uncertain as opposed to just a few businesses?
Yep. So the question was about occupancy and then if we have any Part 135 charter operators as tenants, so occupancy, so just going back to the four campuses we're in operation right now, again, that's San Jose, Houston, Nashville, and Miami. Those are all at 100% occupancy, so we're fully occupied in those campuses. We like to say we can go to slightly above 100% occupancy because while most of our clients are kind of one aircraft, one hangar, we do have a few what we call semi-private hangars where we match up kind of some smaller aircraft to kind of live in the same hangar together, so we can actually, if you imagine a plane that has empty corners, if you will, you can actually, quote, rent - you can stack them or rent the same place twice.
So we do have kind of some corners where we may be able to fit in a little bit more to get over that 100% occupancy, but the ones in operation are all fully filled right now. So kind of the next stage is getting those yellow ones up and running. And then in terms of charter operators, NetJets is not a client. And we generally don't have that many Part 135 operators as tenants, just for the fact that they're very operationally heavy. And they almost look like a commercial airline where they want their aircraft flying all the time, right? So hangaring is a little less important to them. Whereas their aircraft, 90% of their aircraft's life may be spent in the air, which is what they want, generating revenue. Other tenants of ours, it may be the inverse of that.
90% of their time may be spent on the ground. And that's when hangaring is more important. Again, for the charter, sorry, not charter. For the corporate operator, for the high-net-worth individual, it may be more important if the airport, because the airplane's not flying as much to have the hangar in. So we do have a couple 135 clients, but it's the minority of our tenant base. Yep.
How long are your leases typically with your clients? And do you get what the average escalation is every year?
Yeah. So the question was about tenant lease term and escalations. First, escalations. Recently, we've been doing CPI with a 3% or 4% floor just because people are becoming more accepting of CPI with the inflation we've seen the last couple of years. I'd say on average, it averages about 3% or 4%, though. But we do have that CPI provision in many of them now. And then the average lease term, on a weighted average, is about three and a half years. Kind of our sweet spot is three to five-year leases. We do have a few more in the 10-year range, a few in the 10-year range for the right tenant. We have a few in the one to two-year range. That's typically to bring someone in who is a client we want to land.
Maybe they only want to do a shorter-term lease to test out the product, and then we'll re-lease them for a longer term once they like it. But again, the vast majority in the three-to-five-year range.
Was there a contingency plan in case the capital markets aren't always open, PIPEs aren't really available? Can you take sort of that platform for one or two years to 10 or 20 after 15?
Yep. Absolutely. So right now, we're kind of in a running mode to get this beachfront property while we can. But you're right. If the capital's not there, there's a couple of options. One is slow down the pace of airport acquisitions. We generally don't like that because, again, it's beachfront property. We're kind of in a rat race to get as much as we can. But two is you can really slow this. You can slow development down pretty substantially if you want. We don't want to, but if we really have a capital need and can't raise capital, there's pretty generous performance provisions, talking years in your ground lease. So again, not that we're slowing down that type of development now, but if you needed to, you could stretch it out to kind of slow down the pace of any existing ground leases you had. Yep.
Are there any competitive type companies or competitive companies?
Yeah. So the question was about competitors. There's no competitors right now who are doing what we're doing. So kind of our closest competitor is the FBOs. I mentioned those, the fixed-base operators who kind of do the legacy hangar stock in the United States. But no one's doing what we're doing on a national scale. So the FBOs are still concerned with their fuel business. Now, they provide hangar space where they need to, and they'll continue to do that. We have seen kind of one-off hangar campuses that look like ours, but it'll be at a single airport and just for that one airport. No one's kind of doing it at scale like we are. We think potential competitors may be another real estate company that tried to get into the space. But again, aviation has its own, it has its complexities.
So it's definitely a competitive moat just because getting the airport on or getting the land on airports is so difficult. Yep.
What's the average tenor in the ground leases? And does the structure of the permits just revert to the airport authority after? And then what's maintenance CapEx as a percentage of the overall cost in the fleet basis?
Yeah. So the question was about ground lease term and then maintenance CapEx. So our average ground lease is 48 years. So most of our ground leases are 50 years, kind of some are 40, so the 40 to 50-year range. We do have a few that are longer. Oh, I'm being cut off. But yeah, 48 years. And then maintenance CapEx, they're new buildings, so low initially, but call it maybe 1% of development costs, very low, so. Yep.
Thank you so much.