Sky Harbour Group Corp Q4 FY2024 earnings call

• Construction: Assets under construction and completed construction accelerated to over $250 million by year-end, driven by Phoenix, Dallas, and Denver.
• Revenues: Q4 revenues up 13% QoQ; full-year doubled from 2023.
• Operating Expenses: Increased due to hiring for new campuses and noncash ground lease accruals ($1.4 million in Q4).
• Adjusted EBITDA: Introduced as a metric to evaluate operating and financial performance, excluding noncash items like ground lease expense, share-based compensation, etc.
• Site Acquisitions: Camarillo, California (first brownfield acquisition), Trenton, New Jersey, and Boeing Field, Seattle; Camarillo cash flow to start in Q1 2025.
• Development: DVT (Phoenix) and ADS (Dallas) have commenced operations; APA (Denver) set for delivery next month; Miami Phase 2 and Dallas Phase 2 slated for end of 2025/beginning of 2026; focus on scaling construction program for speed and cost control.
• Leasing: Started leasing as soon as hangars are CO-ed; beginning to entertain pre-leases; actual revenues exceeding forecasted revenues, especially on second round of lease-ups.
• Operations: Focus on Sky Harbour residents; introduced security service as a value-enhancing service.

In the fourth quarter, consolidated assets under construction and completed construction reached over $250 million. Revenues increased 13% sequentially over Q3. Full-year consolidated revenues doubled from 2023. Operating expenses in Q4 increased due to hiring for new campuses and noncash ground lease accruals. Sky Harbour Capital subsidiary's revenues were flat QoQ but expected a step function increase in Q2-Q4 2025. Sky Harbour Capital has crossed into positive cash flow from operations at the project level. Consolidated revenues contribution isn't specified by product segment, but Sky Harbour Capital's results are separate.

• Consolidated cash flow breakeven expected in Q4 2025.
• Sky Harbour Capital expects step function increase in revenues in Q2-Q4 2025 as Denver, Phoenix, and Dallas campuses lease up.
• Plan to approach rating agencies to secure investment-grade ratings for existing bonds by summer.
• Expect future debt service coverage ratios for bonds to exceed those forecasted at bond issuance 3 years ago.
• Aim to capture best revenue-producing airports in the country in 2025.

• Tariffs impacting materials and labor costs for construction.
• Macro market uncertainties affecting funding and capital raising.
• Compliance testing as per bond indenture in 2024, but in compliance for 2024 and 2025.

Q: In a recent podcast, Tal mentioned 50 campuses in 3-5 years. Provide color on this and acceleration in ground lease signings?

A: If meeting guidance, halfway there by end of 2025. Pace of site acquisition wins growing exponentially, with seeds planted years ago beginning to sprout.

Q: Congrats on BFI lease. Expectation on price per square foot? 6 new locations this year? Timeline for additional revenue streams?

A: Additional revenue streams not urgent; focus on claiming marquee sites. 6 new locations for 2025 are greenfield; brownfield opportunities possible but less certain.

Q: Update on campus development progress in 2026?

A: No specific guidance yet, but expect at least apace with 2025, possibly more. Bottom range 6 airports.

Q: Average step-up in rents 28%. Are existing tenant leases below market? Can continue large step-ups?

A: First lease round has significant compromise; second round steps up to market rates; inflation expected to be a major factor for future leases.

Q: Funding gap for over 800,000 square feet development outside Obligated Group?

A: Deliberate capital raising plan; considering partnership with real estate funds or asset light models to bridge gap.

Q: Update on $150 million PAB raising process?

A: Attended muni bond conference, had 11 one-on-ones; feasibility/marketing study underway (ready by May); seeking investment-grade ratings; considering bank term financing as alternative.

Q: Does RapidBuilt have opportunity to expand to clients outside Sky Harbour?

A: Yes, RapidBuilt's prototype is marketable; currently supplying Sky Harbour, but potential for third-party clients later.

Q: Expectation on interest rate for upcoming PAB issuance?

A: Secondary market trading of current bonds around 5%; new issue likely in low 5s; seeking investment-grade ratings to impact rates.

Q: Update on 2025 DF coverage for PAB Obligated Group?

A: 2025 DSCR is 1.36, higher than indenture requirement; expected to be 4-5x in future years as campuses open.

Q: Cost changes in airfield construction; initiatives to reduce costs?

A: Macro costs rising; initiatives like in-house manufacturing, feedback loop with erectors, national procurement reducing costs; time savings from faster construction leading to earlier revenue.

Q: Impact of tariffs on materials/labor; impact of public sector uncertainty on site acquisitions?

A: Tariffs affected materials, but preorders mitigated; public sector uncertainty not significantly impacting site acquisitions as hurdles are local/state.

Q: CapEx financing plan into next 5 years; when might turn to equity issuance?

A: Modular business plan with visibility; plan to be 12-18 months ahead in funding; considering multiple financing alternatives, conscious of cost of capital and dilution.

Q: Customer sentiment re: reshoring and Trump tax cuts?

A: Residents optimistic; potential impact from tax plan's accelerated depreciation for business aviation aircraft.

Q: Recent M&A comps imply higher value for Sky Harbour; mention comps?

A: Avoid discussing valuation; noted M&A in FBO and marina sectors with hefty multiples, e.g., Blackstone acquiring Safe Harbour Marinas at 21x EBITDA.