SKYH

Sky Harbour Group Corp. 10-Q Summary (Q2 2024)

Business Context and Reporting Period

Sky Harbour Group Corp. (SKYH) is an aviation infrastructure development company operating under an Up-C structure. The company develops, leases, and manages general aviation hangar campuses across the United States. This report covers the quarterly period ended June 30, 2024. As of this date, the company owned approximately 37.2% of the operating subsidiary (Sky), with the remaining 62.8% held by non-controlling interests (LLC Interests).

Key Financial Metrics

Note: Q2 Net Income was driven by an $8.2 million unrealized gain on warrants. YTD Net Loss includes a $7.97 million unrealized loss on warrants.

Material Changes vs. Prior Period

• Revenue Growth: Revenue increased 109% in Q2 and 112% YTD compared to 2023. This was primarily due to the commencement of operations at the San Jose (SJC) campus and increased occupancy at Nashville (BNA) and Miami-Opa Locka (OPF) campuses.
• Expense Increases: Operating expenses rose 95% in Q2, driven by a $1.3 million increase in ground lease expenses from new leases (SJC, PWK, BDL, POU, ORL, IAD). G&A expenses increased 23% due to higher headcount and equity compensation.
• Warrant Volatility: The company recorded an $8.2 million unrealized gain on warrants in Q2 2024, compared to a $2.6 million gain in Q2 2023. Conversely, YTD 2024 reflects a $7.97 million unrealized loss on warrants, compared to a $1.6 million loss in YTD 2023.
• Construction Costs: Cost of construction increased to $92.0 million (from $64.2 million at year-end 2023). Management noted a significant design defect in prototype hangars requiring retrofits, projecting an additional $26–$28 million in costs for impacted projects (APA, DVT, ADS).

Outlook, Risks, and Management Commentary

• Construction Delays and Costs: Due to the identified design defects requiring retrofitting, the company anticipates construction duration increases of 3–5 months for affected projects and costs exceeding original Guaranteed Maximum Price (GMP) contracts.
• Liquidity: The company maintains $122.3 million in cash and restricted cash. It has a $100 million At-The-Market (ATM) facility and access to private activity bonds. Management believes liquidity is sufficient for operations for more than one year.
• Expansion: The company entered into new ground leases for Washington Dulles (IAD) in May 2024 and Salt Lake City (SLC) in August 2024 (subsequent event). The SLC lease requires $40 million in minimum capital improvements.
• Risks: Key risks include the ability to secure tenants for new facilities, rising construction costs due to inflation, and the impact of interest rate increases on future borrowing costs. The company is currently in compliance with all debt covenants.

Investor Verification Checklist

• Warrant Liability Impact: Verify the volatility of the $19.6 million warrant liability and its disproportionate effect on Net Income/Loss versus Operating Cash Flow.
• Construction Cost Overruns: Confirm the financial impact of the $26–$28 million retrofit costs and whether these are fully funded or will require additional capital raises.
• Ground Lease Obligations: Review the $423.4 million in future minimum operating lease payments and the company's ability to generate sufficient rental revenue to cover these long-term commitments.
• Non-Controlling Interests: Note that 62.8% of the operating subsidiary is owned by non-controlling interests; verify how this structure impacts per-share economics for Class A shareholders.
• Debt Covenants: Monitor compliance with the 1.25 debt service coverage ratio required by the Series 2021 Bonds, which becomes effective for the quarter ending December 31, 2024.