Thanks so much. Good morning to you all. Thank you for coming here first thing this morning. My name is Andreas Frank. I'm the Assistant Treasurer with Sky Harbour, working mostly on the finance team and IR work as well. If you're new to this story, this is going to be a good introduction, and if you're familiar with us, it'll be a good recap, and we're going to have some business updates at the end, as well as time for Q&A. Sky Harbour, in essence, is an aviation real estate platform. I'm going to introduce the rest of our team here. This is our Founder and CEO, Tal Keinan. A bit of his backstory.
Tal was born in the States, but joined the Israeli Air Force and served as an F-16 pilot for 18 years, as well as a combat air instructor. He came out of the military and started his own fund in Israel and did well for himself. In coming back to the States, Tal got a small plane, a Beechcraft Baron, so a two-engine prop. It was based in the New York area and was looking for a place to store it. The only hangar space that he could find was in Montauk, on the edge of Long Island, so a three-hour drive approximately from the city each way. It turns out that this was not just a problem in the New York metro area, but a nationwide problem that aviation hangar supply has not been constructed systematically, and we'll get into why that's the case.
The rest of the team: Francisco Gonzalez, our CFO, 25-year Goldman veteran working on the muni bond desk, came into Sky Harbour in 2021 and restructured our financing, which we'll also get into. Tim Herr, who's our Treasurer and Senior Vice President of Finance, was employee number one at the company, former naval aviator, and we actually have a lot of former military aviators at the company as well. My background, I've been with the company three years now, working primarily with the finance team. Moving along here, I just want to make a note that all the pictures you see in this presentation are of our constructed Sky Harbour campuses. This is actually the office and lobby within a private hangar at our campus in Addison, in Dallas, Texas.
The big picture on Sky Harbour, as I mentioned, we're an aviation real estate company, and our business model is relatively simple. We secure key land at airfields at major metro centers across the U.S. We develop a campus of private hangars, and a hangar campus is typically going to consist of around 200,000 sq ft of hangar. We are going to lease those hangars to private jet owners, and it's who you would imagine, high-net-worth individuals, Fortune 500 companies, some charter operators as well. We are actually going to operate and manage those campuses. It is an end-to-end development and service operation. For a variety of reasons, we are able to get stabilized yield on cost in the mid-teens, and when we pair that with our leverage, we're able to get close to 30% return on equity.
The goals for the company in the near to mid-term are 50 airfields. We are thinking we'll exceed that as our construction and development operation becomes more and more efficient. We still remain the largest home-basing solution and hangar developer in the U.S. The team, as I mentioned, and as you've seen from the profiles, we have real estate acumen, aviation experience, and on the capital market side, experience and sophistication there. Another picture of our Dallas campus, and that is a Global 7500, one of the most expensive and valuable business jets on the market currently. What are the macro drivers that are behind us? The business aviation fleet in the U.S. has grown dramatically in the last 15 years. If you look at that chart on the right, that top line is total business jet fleet square footage.
That bottom red part, which we're interested in, is jets with tail heights above 24 ft. Why is that important? Jets are getting bigger, more expensive, and more being produced. The legacy hangar supply that was built generations ago to accommodate that is being phased out of utility. Those jets with tail heights above 24 feet can't actually fit into the legacy hangar at a lot of airports. On top of that, hangar supply is immensely constrained. This is some anecdotal evidence that you can see in these pictures on the right here, but these are mostly from Teterboro Airport in New York. It is one of the best airports, private and business-shaped aviation airports in the country. You can see any jet that's not actually fitting into the hangar is completely crowded on that ramp space outside.
The legacy companies that have been operating in this space, they're called FBOs, fixed-base operators. Their business, and we'll get into more of the specifics and dynamics, is primarily fuel sale. When an FBO arrives at an airport or wants to construct there, they're often mandated by the airport to build a minimum of hangar. They are rarely going to exceed that minimum in what they construct. They want to optimize how much ramp they can have so they can take more transient traffic that they can provide fuel to those aircraft. Storing jets is not their business, and it works against their fueling operation. As you can imagine, the airport supply in the U.S., the U.S. has some of the biggest network of airports of any country. It's close to 3,000 airports in the U.S.
The amount or the number that are in major metropolitan areas or major wealth centers are limited. You can't build a new airport, say, in the New York area or the LA area. Where you'd want to build an airport, you can't. Where you can build an airport, you wouldn't want to. It just wouldn't make any economic sense, cost-prohibitive. Looking at Sky Harbour and what we do, as I mentioned, our pipeline is acquiring land at key airfields in the U.S., developing our own hangars, leasing those out, and then operating those campuses. The mouth of that funnel is some of the more and most proprietary work that Sky Harbour does as a company. I just want to highlight this map on the right here.
What you can see in these red dots, and the bulk of them are actually occluded by where we already have campuses, you can see those blue dots in the northeast. Those red dots are each individual airports. What we show there are, based on the size of the dot, it's the number of business or private aircraft that are based there. That kind of heat map or the heat scale is what are the prevailing rents at that airfield. We're interested in targeting.
Is that the cargo tenants and the rest?
Yes, absolutely. I'll get to the colors of the actual numbered dots. For the red dots, that's essentially where business aviation aircraft are based. That's where they're home based. That's where they're located. That's where the highest need for hangar space is actually at those airports. What you can't see here is actually in the northeast, in the New York area, that's completely red. Similarly, in LA, Bay Area, Miami, major metro centers with high concentrations of wealth where business aircraft are going to be based. You can also see there are airports across the U.S. at other cities that are going to be within that return profile that we're looking for. Looking at our current operational footprint, at Sky Harbour , we have 18 ground leases signed, nine of which are operational. You can see those yellow dots are Denver, Phoenix, and Dallas.
Those are actually in the initial lease-up stage. Nine more are in the development pipeline. On the site acquisition front, this is the most specialized work that Sky Harbour does. All these airports are publicly owned. It's either municipal governments, county governments, or state governments that actually own the airport. The process of getting land at these airports is quite a protracted process. Since the start of this company five, six years ago, we have contacted essentially every airport in the U.S. that we're interested in. These conversations, you arrive at the airport. You say, I'd like this developable piece of land that we've already found. What does the airport say? Oh, we're in the middle of a five-year master plan. Come back later. We come back again. We're very persistent.
Through a variety of methods, you can see on the left here the kind of different methodologies we use to actually get on site. We work with each airport individually to get that parcel of land. The shortest time it's taken is a matter of months. The longest time it's taken, we still don't know because the conversation that we started five, six years ago is still in the process of potentially bearing fruit. Yes?
What is the square footage or acreage that you're trying to acquire? You talked about the most marketable kind of square footage. Of the ones that you chose, what is the median to the right? Sorry, I'm sorry.
Sorry, that last part.
Right, you said the shortest one was six months apart?
On the site acquisition pipeline, we're targeting now, we've already kind of released guidance for 2025 that we're going to sign another five ground leases. We're targeting six to seven ground leases a year as a pace going forward. The site that we're actually looking at to build a Sky Harbour development, the acreage or total square footage of the land is going to be, depending on the actual location, each campus fully phased and fully built out is going to be around 200,000 square fet. That's 200,000 square ft of hangar.
How many square feet are you talking about?
We tend to measure things on a square foot basis. I'll get into that shortly. I'm just going to move along and we can sort of resume the Q&A towards the end. How we're actually differentiating ourselves from a FBO is that a Sky Harbour campus is a private campus. We don't deal with transient traffic, which is what FBOs are essentially designed for. They're dealing with any and all aircraft that are coming in and land there and fuel and base in the short term. Sky Harbour campuses, if you want to think of an FBO as a hotel, we're condos. We're condos for aircraft. Because of the privacy, because of the streamlined operations, because we're not dealing with transient traffic, we're offering a service to the private and business aviation community that they can't get anywhere else. They can't get it at the FBOs.
FBOs, as I said, are optimized for throughput and fuel sale. At Sky Harbour, we are in the business of clipping coupons on rent. How does this work in our unit economics? This is sort of an illustrative scaling of how Sky Harbour is going to look at our various stages of development. What you can see here, and I'll go into the unit economics for an individual airfield just to bear this out. We want to think of a typical Sky Harbour development on a square foot basis. Our cost of construction is going to be roughly $300 a square foot. That's through the ground lease process. It's a public process. We're going to acquire that. When we're actually shelves in the ground and constructing until we're actually completing and CO-ing a campus, it's going to be $300 a square foot.
On the revenue side, depending on the market, it's going to vary. A typical Sky Harbour market we can think of as around $39 in rental revenue and another $5- $6 in fuel sale because we actually do provide fuel to our tenants and we get a margin from that. On our operating costs, the ground lease rates that we pay for each of these campuses are essentially underpriced. We are paying roughly $3 a square foot for our ground rent to the airport. In addition to that, for the operating costs at a campus, we're going to pay in payroll and hangar maintenance and operation around $3- $4 a square foot. You take that, $45 subtract your operating costs and your ground rent, and you're looking at roughly high 30s in NOI. Over your cost basis, we're targeting NOI yields of around low to mid-teens.
When we scale that and pair it with our leverage, Sky Harbour is financed through tax-exempt municipal bonds. We, because we're building on public infrastructure and at airports, can issue bonds through a provision called PABs. They're called Private Activity Bonds. These are tax-free municipal bonds that have a carve-out for airports, marinas, highways, bridges, and tunnels. We're pricing our debt roughly 200 basis points below what would otherwise be market. Our first bond deal, which was a 30-year $166 million, we have an average coupon of 4.18%. When we pair that leverage with our unit economics and exercise that at scale, the results are very powerful.
As you can see in this chart right here or graph, what's interesting here is that while our yield on later-stage projects might be going down, after, say, the 20th, 30th, 40th airport, we will be past the sort of tier one targets that we're looking at and we'll be building at maybe slightly less profitable airports on a unit economic level. At that stage, the returns of our portfolio are going to be robust enough that we'll be able to lever higher and higher on that portfolio. While the yield might be going down, the actual impact of that leverage is going to be accretive to the equity at scale. Here's a snapshot from Q2 of our economics. You can see the step function moving as we're opening new campuses, and those are stabilizing. Those revenues are coming in.
That is how we think about the projections going forward, that it will be a step function with each campus coming online and stabilizing. That's when those revenues are coming in. If you're looking at our historical financials, you'll miss the picture because we're looking forward, and it is fundamentally about when we can sign more ground leases into the portfolio, when those can be constructed and developed, and then leased out and operated and stabilized. This is an illustrative graph that we think of internally as a proxy. What we're looking at here is the total developable square footage of the Sky Harbour portfolio times the market rents that we're already observing in our market mapping, in our proprietary kind of data collection. What you can see here is the revenue potential of this portfolio built out at scale.
In recent updates, and back to the financing side, in August we secured a $200 million drawdown facility with JPMorgan. This is sort of our next generation of financing at Sky Harbour. Different construct than our first bond deal. It's a five-year facility structured as a warehouse that we'll be able to add projects and fund them during the construction and stabilization process. We'll likely do a sort of long bond deal similar to our first one at the end of this. A few reasons for doing this model, just the current rate environment. On the long side, we think it'll be worth it to wait.
Interestingly, and we actually announced this last night, because of the current inverted yield curve on the rate side, we are taking what was a floating rate of 80% of SOFR plus 200 basis points, and we're actually going to swap that to fixed for the five-year. We're looking at 4.75% for a fixed rate swap there. I do want to open it up to Q&A right now. I see we have five minutes. If anyone has any questions, please. Yeah?
I have a question. Your question is 45 sq ft in the sample. What do you think are the competitors from Denver in this space?
economics of a FBO are going to look a little different. If you think of it in sort of total basin cost, they are going to get a majority of their revenue actually from, or not a majority, but roughly from fuel sale. If you think of it as 80% fuel, 20% rent, or other ancillary basin costs, Sky Harbour is going to be the flip side of that. We'll be 80%- 85% rent, maybe 15% fuel. The FBOs in the fuel sale business, it's more cyclical, right? In an economic downturn, the first thing an operator is going to do is probably stop flying so much. They're still going to have to base their aircraft somewhere. If they're not pumping as much fuel, that may hurt the FBO. It's not going to hit our economics as much. Yes?
Is someone like NetJets a customer?
So yeah.
Do they have their own vendors?
Charter operators and the sort of mini airlines, we have those types of customers as well. We do actually like them because they're based with us, but they do pump a fair amount of fuel, which we are still getting a margin from. It does create a good return.
Do they also park their things?
Yes, they park their planes. Where they can get hangar is highly specific to the location, right? Yeah.
I would assume NetJets does their own hangars. What about Net?
Again.
Is that a customer?
It would depend on that location. I don't want to get too deep into our tenant roll, but.
Do you think they have a customer concentration?
I would say it's probably around 60% high net worth individuals because we're also really a product for the biggest and most expensive aircraft. 60% high net worth, probably 30% charter operator corporation as well, and then 10% we actually have some government tenants as well. Yes?
Can you tell us what happens when the lease comes up? Like when you have an official lease, what's the process like? How do you make sure everything keeps the lease?
Yeah, on the ground lease side, we are signing long-term ground leases with airports. The portfolio average for us is around 50 years. Our longest goes out to, I believe, around 75. On the tenant side, we are staggering our tenant lease terms from one to three to five. We have some out to 10 years. We don't actually like the long-term tenant leases because we're believers in there's going to be a lot of inflation on the value of this land. We don't want to lock up that value too early. Especially in the initial lease-up stage, what we've seen from first generations to second generation leases is a significant bump above that escalator. At least in the initial stage of lease-up, that's a strategy we're targeting. Yeah.
I know that.
Yeah?
I think the lease films that you have for the airports, do you have it in all thousands or whatever reason?
Not at too many. If anything, we're trying to extend all of them. It's beachfront property. Yeah, we usually, it'll be 50-year leases or 40-year leases, and then we'll have options to extend on top of that. We'll almost always exercise them. That's a question for probably 40 years from now. Yeah.
I assume that the goal is to actually go after high value drivers to buy their airplanes. You said that there's a continuing growth. What's the year-over-year growth in that particular market? How big is that market?
For the business aviation fleet? Yeah, just going back to this.
The next chart.
Yeah, what we've seen in the last 15 years is a huge boom on the overall size and an even proportionately bigger one in the super-heavy jet segment with the largest tail heights, which are also our target clients as well because they're the ones most in need of a private hangar solution.
That's a lot. What's the percentage growth in a year?
Year over year, I mean, I'll try to interpolate it from this graph, but roughly, I'd say 7%, 8%.
7%?
Not a hard number. Don't quote me. Yeah, yeah.
Every 10 years developing like that, kind of what we're looking at?
Yeah, yeah.
How many planes can you park in your hangar at the same time?
What we've found is we started out with around 16,000 sq ft hangars. We have since 16,000 sq ft hangars. We've changed our prototype hangar now to be 37,000 sq ft. What we've found is that the actual, that is the shape that's best optimized to stack or get as many planes in that hangar. We can accommodate around five super-heavy aircraft or heavy business jets in that configuration. A quick note on stacking as well is that while an airplane's square footage may be measured in nose to tail and wingtip to wingtip, how we're actually able to accommodate that square footage in a hangar is that's all empty space between the wingtip and the tail, right? That's where another nose of an aircraft is fitting in. That's effectively doubling the rent on that space as well. Sorry, I'm told we have to stop. Thank you so much.
If you have any questions, please reach out to myself. We also have available meeting slots still today. If you're interested in a kind of further follow-up, please schedule some time. Thank you so much.