Welcome, everybody. My name's Pat McKean with Noble Capital Markets. Today we have Tim Herr, who's the Senior Vice President of Finance and Treasurer for Sky Harbour. Before we get started, I just want to mention that at Noble, we recently initiated coverage on the company ticker SKYH, with an outperform rating and $23 price target based on a discounted free cash flow analysis. I think it's a really interesting and unique company. And so with that, I'll give it over to Tim to tell you more about it, and hopefully we'll have some time for some Q&A at the end. Over to you, Tim.
Thanks, Pat. Appreciate the introduction. As Pat mentioned, I'm the Treasurer and SVP of Finance at Sky Harbour. We're an aviation real estate company that does hangar construction at campuses at airports around the country, and we lease them to general aviation business jet owners. I started my career in military aviation, was a Navy pilot for 10 years, and then got recruited by Tal as he was getting Tal Keinan, our founder and CEO, as he was getting Sky Harbour started. We started as a company in 2018, and here we are seven years later, kind of just continuing our growth phase. I'll get into that in a minute. At a high level, the company has essentially three stages of the life cycle of our projects. The first is securing land at U.S. airfields around the country, typically in major metropolitan areas.
We can't own airport ground leases because airports are publicly owned by the local city or municipality that they're located in. We acquire the land in the form of long-term ground leases, usually with a term of 50 years. We design, construct, and finance the hangars that you see on the right-hand picture there. This is our campus at Addison Airport in the Dallas area. We construct the campuses at the land we've acquired at these airports, and we lease them and operate them. Our primary tenants are high-net-worth individuals who own business jets like the Global 7500 that you see in the picture there. That's, I'd say, the majority of our tenants. We also lease to corporate aviation fleets, charter operators, and other general aviation users. We also operate the campuses.
We provide aviation services like towing and, importantly, fueling, which is a source of revenue for us as well. We target pretty attractive property-level returns. It's kind of real estate people. We look at NOI yield or yield on cost. We target kind of low to mid-teen NOI yields. We drive the return on equity of those project-level returns higher through a type of debt structure, which I'll get into in a future slide. Essentially, we are allowed to issue tax-exempt municipal bonds as a greenfield developer at airports. Let me move on to, I'm just going to do a quick macro discussion of what the market opportunity looks like, the demand drivers for our business. Then I'll talk about kind of the historical supply of hangar space and why it's been insufficient.
If you look at the chart on the right, this chart is kind of the critical thesis of our business. Without fail, every year, the size of the business aviation fleet, which is, if you think of an aircraft as a wingspan times a length, that gives you a square footage of the aircraft. If you add all the aircraft in the business aviation fleet together, those are kind of that total square footage that you see increasing every year. It is driven by two factors. One is retirements have slowed, so aircraft are living longer. More importantly, new aircraft, like the ones you see in the pictures there, new aircraft on average are bigger, meaning their wingspan and length are bigger every year.
The size, and it's not just the number of business jets is increasing as well, but it's importantly the size or the average size of each aircraft is getting bigger every year. The demand for hangar space is growing because those aircraft need to be housed somewhere. The supply of hangars has not kept up. The two main reasons for that, one is the owners of the airport. Remember, it's the local city or municipality that they're located in. The owners generally don't want to risk the political and financial capital to build what's viewed as storage for rich people's aircraft. Because the owners, having constructed hangars, they typically have partnered with third-party private companies called FBOs or fixed-base operators to construct hangars for the airports.
FBOs historically have built hangars only because they have to to be able to operate on these airfields. FBOs sell fuel as their primary business. They do not build hangar space as their primary business. They typically build the minimum that they have to in order to get the right to sell fuel from their airport sponsors. That kind of public-private partnership through the FBOs, they have been the legacy kind of constructor of hangars throughout the country, but it has been insufficient to meet the demand that I talked about on the previous slide. That is where Sky Harbour comes in. We are not an FBO. The main distinction between us and FBO is we do not service transient aircraft.
We call ourselves a home basing, a home baser, which is when you own and operate an aircraft, we are where you live full-time, and then FBOs are where you go when you're on the road. We are stepping in to partner with airports to build the, pardon me, to build the critical hangar infrastructure that's been lacking historically. This is a quick company overview. I won't spend too much time on this slide. This slide kind of shows where we currently operate and how we get onto airports. Typically, airports come out with something called an airport master plan where they plan for future involvement of things like aircraft hangars, cargo facilities, commercial terminals, that sort of thing.
We partner with airports either through one-on-one conversations or in response to a request for proposal or an RFP to develop hangars in accordance with the master plans that the airports have laid out and construct our hangar campuses in order to attract more aircraft to that airport. The map on the right is where we're located. The green circles are where we're currently in operation. The yellow circles are three fields where we're finishing construction essentially this month. We're soon to be nine in operation. The blue circles are in various stages of pre-development and design as we look to ramp up construction on those later this year and into 2026. Right now, we have 18 ground leases in our portfolio. We're aiming to get to 23 by the end of this year.
Future growth after that, we're not content at stopping at 23. It's looking to add airports at a pretty regular clip in the coming years to continue growing the company. This chart just gives you a sense of what our unit economics look like. We often talk about things on a rentable per sq ft basis. Our unit economics breakdown as follows. We look to construct for an average of $300 per sq ft. That's our development costs. We look to rent for $45 per sq ft. That's a mixture of approximately $40 in contractual rent for the hangar itself and then $5 in fuel revenue. We have OpEx of approximately $7 per sq ft. That's a combination of ground rent to the airport as well as payroll for our operating crew and other ancillary expenses.
That gives us an NOI yield of $38 a sq ft. When you divide that by the $300 per sq ft, that's the 12-14% NOI yields that we're targeting on average across the portfolio. I mentioned the type of debt we use. It's a type of debt called private activity bonds, which is a type of federally tax-exempt municipal bond that's available to non-government entities like Sky Harbour. We're able to use that very attractive cost of financing to drive those low to mid-teen NOIs higher. The return on equity is very attractive. Just to give you a sense of the bonds that we issue, we issued our first round of these bonds a few years ago. Long-term debt. It's 33 years final, 25-year average life. We issued these at 4.18%.
A 4.18% yield, which is just a very, very competitive cost of capital for us. Now, interest rates have risen. We've indicated to the market that we're going to issue our next round of debt this year. We'd likely issue debt in the, call it, 5.5%-5.75% range this year. If you look at where our long bond, the existing long bond, is trading, it's right in the 5.5% range. That's kind of our one last note on the capital stack. We use 70% leverage, so debt is 70% of the capital stack. The remaining 30% is equity. We have raised equity in the past to pair with our debt issuances, and they do that going forward. This is just a highlight of our latest quarter operating results. You can kind of see the quarterly step function of our revenues.
Essentially, as each one of our campuses comes online, that revenue number jumps. We'll see a big jump this year when those three campuses that I mentioned earlier come online and get leased up through the end of this year. This slide just shows how we think about the company. It's really adding each additional airfield and the revenue potential for each of those acquisitions. Getting the ground leases in our business is the most critical part of the company because it's really getting the beachfront property at the airports we care about. We as a country are not building new airports where we need them in major metropolitan areas. Each ground lease that we get represents a specific amount of revenue that we'll capture following our design and construction phases.
With the ground lease signing, it essentially represents this future revenue that we're going to be able to capture following the construction period. I mentioned we do have fuel as a revenue driver for us. We do have some potential upside in partnering with other third parties to provide other ancillary aviation services such as insurance and aircraft management. We haven't really executed on this piece yet, except for the fuel part. That is an important part. It is additional upside as we kind of look to grow the business beyond just our fueling services. We're well capitalized, currently $97.5 million in cash. A lot of that is designated to the current construction we're undergoing, as well as earmarked for the additional debt that we're going to issue this year.
Finally, just an additional note on that additional debt, looking to raise $150 million, possibly up to $175 million in debt. That's going to be, that's because we issued approximately $75 million in equity at the end of last year. And so that equity is what will allow us to issue the debt to fund the blue circles that you saw on the previous slide, which are our future airfields under development. This has kind of been the recent capital activity of the company that we're going to use to fund that debt closing this year. Just in summary, pretty straightforward business, bricks and mortar business. If anyone listening wants to take a tour in any of our operating campuses, happy to arrange that. I can now wrap it up and turn it over to Pat if there are any questions.
Thanks, Tim.
Yeah, we do have some questions. First of all, with the airport land acquisition being very central to the model and I think an advantage for you, can you talk about how you scale your municipal engagement to maintain your lead on potential competition as far as signing long-term land leases in the future? Because that's mostly state and locally municipal-owned airports. What does that engagement look like? How do you keep your competitive edge there?
Yeah, the adage in the industry is, when you've seen one airport, you've seen one airport. Each one is different. When we reach out to airports, it's kind of figuring out the best way to contact them. Sometimes it's through the airport manager who may be unelected and is kind of a civil servant. It may be an airport authority, which is a group or a board that controls the airport. It may be political. It may be through the local mayor or city council who kind of has the power for an airport. Each one is a little different, and you kind of have to figure out the best way to approach them. That also gets to the point that because it is so political, we never quite know when any one airport is going to materialize for us.
We really have to take a shotgun approach where we are in conversation with dozens and dozens of airports at any one time because you need to keep the pipeline of future growth depends on how many conversations you're having at one time because you may be talking to one airport for years. The timing is always a little uncertain. We always say our quickest airport signing or ground lease signing from initial airport outreach to ground lease signing is six months. That was at Orlando. The longest is yet to be announced. Many airports we've been in conversation with for years. We think eventually we'll get there with ground leases. It can sometimes be a process because you're working with public entities that may not work as fast as we do.
Great. Turning to construction, something that the company has been doing for a while is bringing more and more of that in-house to boost margins and have greater controls just over costs and delivery timelines and so forth. Could you talk about some of, could you quantify, I guess, the expected cost savings and margin recapturing by bringing general contracting in-house? Will that show at project-level economics?
Yeah. So we've already vertically integrated into kind of a critical piece of our business, which is the hangar manufacturing itself. We acquired a company that does hangar manufacturing a year or two ago. That's allowed us to shave a pretty significant amount of money off of the actual metal building manufacturing itself. You're probably looking at 5% of the actual hard costs of the hangars themselves that we essentially save as a fee to ourselves for that vertical integration. A couple of other efforts underway currently is the development of a prototype, which we've completed and can now essentially roll out across the various campuses that we're beginning construction. If you think of them as a, we think of them as like our Lego sets. Each one looks the same, and you bring it up.
We manufacture them in-house, ship them to wherever they need to be across the country, and then have kind of experienced directors who have worked with us before to put them up quickly and repetitively to save on time and gain further efficiency in the actual construction on the site. Lastly, as you mentioned, we're looking to bring in-house certain general contracting efforts that will, again, allow us to save, call it 5% on general contracting fees that will now accrue to us internally. We're nationwide. We probably won't be able to GC everything in every region of the country. Some general contracting is still very local. As we internalize that general contracting function and get much better at doing it ourselves, we'll accrue that savings internally to the company.
Excellent. We have a few more questions from the audience. Could you discuss the current condition of the lease-ups at the three airports that are now built?
Yeah. Deer Valley in Phoenix actually just got our TCO last week. Addison and Centennial, which are the other two, approximately two hangars, call it a third of each of those campuses, has CO. The others have not yet CO. We're not actually complete with all of them yet. Leasing has begun in earnest. We have a few leases in place at each of those currently. We're expecting to have a lease-up period through the end of this year as those campuses open and we complete our efforts to lease them up. For our lease-up strategy, there's always a bit of a pressure between wanting to lease it up fast and wanting to lease it up at high rents. We could lease our hangar space up immediately if we wanted to, but generally not at the rents we would want.
Our strategy to date has been to kind of roll out the TCOs sequentially to keep a bit of a scarcity factor as we go ahead and lease up so that we can target those higher rents that we're looking for for our shareholders. Again, it's balancing the speed with which we lease up with the higher rents that we're targeting. I think we have a good plan in place through the end of this year as we look to get them to 100% leased.
Excellent. Could you also talk a little bit more about the competition? You mentioned the FBOs. What would be a serious threat, competitive threat? Would it be FBOs sort of shifting their model to align more with what you're already doing? Would it be new entrants? Could you just talk a little bit more about what the serious competitive threats could be for you?
Yeah. First off, the FBOs, they've looked at what we're doing. To date, they've chosen not to kind of enter, again, what we call the home-basing sector of the industry. FBOs are a great business, and they're driven by fuel revenue. I don't think they necessarily have any incentive to change that. They generally like being CapEx-light. Our business is certainly not that. Even though the returns are there, I think they've made the decision to focus on their business, which, again, we think they should, which is the selling of fuel.
We may see an FBO choose to do kind of what we're doing maybe on a one airport basis, but do not necessarily think that they're going to jump right in and kind of try to compete with us on a national level like the scale we're already seeing for our business. That leaves possible external threats, which we think may happen. It would probably be an external real estate development company that's looking to expand and get into the aviation niche like we have. The biggest barrier to enter that is kind of the airport acquisition challenge that I already spoke of. It's not like you can go out and, if you're capitalized well, acquire land at airports because you can't buy fee-simple land at airports and have runway access.
It's a real constraint on entering because you have to build over time the relationships that we have with all of these different airports to actually get those ground leases. On the development side, it just looks a lot different in the land acquisition of getting the ground lease versus traditional real estate development where you can go out and buy the land fee simple. Again, we haven't seen it to date. It doesn't mean it's not going to happen eventually, but that is the barrier to entry for us in terms of the ground leases.
Great. I know we're running short on time, but if I could just get to one last question from the audience. One member is asking about Boston Omaha Corp and the selling, the trimming of their position. If you could talk a little bit about what's going on there, what may be the thought process.
Yeah. Boston Omaha has, if the audience isn't aware, we went public via SPAC. Boston Omaha was the sponsor of that SPAC. They've put in a significant pipe along with the SPAC, which is why we elected to raise capital with them in 2022. To date, they've been great long-term partners with us. They are just their shareholder. We can't control what they do with their position in our company. It appears that they have other investments that they want to make and have been trying to raise some cash for that. The way they've been doing that is selling pieces of Sky Harbour when they can. Yeah, it's a challenge we'll have to deal with. It's Boston Omaha making those decisions. We're really focused on kind of executing as a company.
We are going to try to drive shareholder return for all of our shareholders as we go forward.
Excellent. Tim, I really want to thank you for being with us today. Thank you to the audience for attending. It's been my pleasure.
Thanks a lot.