Sky Harbour Group Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unless otherwise noted, financial amounts below are in millions of dollars; the statements present amounts in thousands. Sky Harbour develops, leases and manages business-aircraft hangars. Its three operating campuses—Sugar Land, Nashville and Miami-Opa Locka—had 29 hangars, 375,241 rentable square feet and 67% weighted occupancy at quarter-end.
Financial performance
| Metric | Q2 2023 | Q2 2022 | First half 2023 | First half 2022 |
|---|---|---|---|---|
| Revenue | $1.728 | $0.409 | $2.835 | $0.805 |
| Operating loss | $(4.246) | $(5.127) | $(8.930) | $(10.703) |
| Consolidated net income (loss) | $(1.634) | $10.263 | $(10.394) | $(9.251) |
| Net income (loss) attributable to Sky Harbour shareholders | $0.778 | $12.665 | $(5.416) | $(3.098) |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(9.103) | $(24.304) |
- Q2 rental revenue increased 322% year over year; first-half revenue increased 252%, chiefly as leases commenced at the Nashville and Miami-Opa Locka campuses and additional leases took effect at existing sites.
- Q2 total expenses were $5.974 million. Operating expenses and depreciation rose with the opening of campuses; general and administrative expense declined to $3.732 million from $3.943 million. First-half G&A declined by $1.254 million to $7.282 million, primarily due to lower professional fees.
- Q2 net results included a $2.613 million noncash unrealized warrant gain, versus a $15.390 million gain a year earlier. For the first half, the company recorded a $1.597 million warrant loss, versus a $1.452 million gain in 2022. These fair-value changes materially affect reported earnings.
- Q2 basic EPS was $0.05 and diluted EPS was $(0.06); first-half basic and diluted EPS were both $(0.36). The difference between Q2 basic and diluted results reflects the warrant-related dilution calculation.
Financial position, debt and liquidity
- At June 30, cash was $2.556 million, restricted cash $16.633 million, investments $17.122 million and restricted investments $114.171 million. These totaled $150.483 million, much of which is restricted or invested rather than freely available cash.
- Total assets were $335.314 million and total liabilities $246.058 million. Equity was $89.256 million. Net constructed assets were $78.412 million; construction in progress was $33.270 million.
- Series 2021 bonds had $166.340 million principal outstanding ($162.316 million carrying value, net). The bonds bear fixed rates of 4.00%–4.25%; principal repayments begin in 2032, with stated maturities in 2036, 2041 and 2054. Loans payable and finance lease liabilities totaled $10.972 million, primarily associated with the Rapidbuilt acquisition. Operating lease liabilities were $54.880 million.
- Six-month investing cash use was $13.059 million and financing cash use was $0.045 million; cash and restricted cash declined by $22.207 million to $19.189 million. Operating cash use improved year over year, mainly due to working-capital timing and the prior-year OPF leasehold acquisition costs.
- Management stated that liquidity was sufficient to continue operations for more than one year after issuance of the financial statements. The company has recurring losses and negative operating cash flows and expects to continue investing and incur operating losses in the near term.
Changes, outlook and risks
- The May 2023 Rapidbuilt acquisition gave Sky a 51% interest in Overflow and its steel-building manufacturer, Rapidbuilt, for nominal cash consideration. Management expects vertical integration to shorten construction timelines and reduce costs; the preliminary purchase-price allocation remains subject to refinement. Sky guaranteed Rapidbuilt’s loan, which carried an 8.19% weighted-average rate in Q2 and matures in December 2025.
- The portfolio had 67% occupancy overall: Sugar Land 94%, Nashville 55% and Miami-Opa Locka 67%. Development plans listed nine projects with 842,059 square feet and estimated total construction costs of $213.6–$248.4 million. Dates and costs are estimates, not assurances.
- Management described a longer-term target of 20 campuses, with an estimated cumulative cost of approximately $1.2 billion, expected to be funded 65%–75% with private activity bonds and the balance with equity or equity-linked financing. Future projects and financing are discretionary and not assured; the filing gives no specific earnings or revenue guidance.
- Risks include tenant leasing and occupancy, construction-cost inflation and delays, rising rates and borrowing costs, and the ability to obtain additional debt or equity. The company said future ground-lease payments and construction spending are substantial; its contractual-obligations table totals $544.910 million, including estimated interest and lease commitments.
- Ground-lease development conditions include a $2.0 million minimum improvement and an October 2023 construction-start requirement for Sugar Land Phase II, or the relevant parcels’ lease may terminate unless waived or amended. Other projects also carry spending, permitting and completion deadlines.
- The company reported compliance with debt covenants at June 30, 2023; the bond debt-service coverage test of at least 1.25 begins with the quarter ending December 31, 2024. No material legal proceedings or material risk-factor changes were reported. Disclosure controls were deemed effective.
Important facts for investors to verify
- How quickly occupancy and rent collections improve at Nashville and Miami-Opa Locka, and whether lease-up supports operating-cost growth.
- What portion of reported liquidity is unrestricted and available for operations and construction, given the large restricted balances.
- Rapidbuilt’s financial performance, variable-rate loan exposure and guarantee obligations, as well as the final acquisition accounting.
- Whether project costs, completion dates and the Sugar Land Phase II lease conditions remain achievable.
- The availability, cost and potential dilution of financing for the stated campus expansion plan, and future compliance with bond covenants.