Sky Harbour Group Corp. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; financial statements are unaudited. Unless otherwise noted, amounts are in millions of dollars. Sky Harbour develops, leases and manages business-aircraft hangars. It operates through an Up-C structure: the public company owned approximately 26.2% of Sky at quarter-end, with the remaining 73.8% held by non-controlling owners.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Rental revenue | $2.502 | $0.431 | $5.337 | $1.236 |
| Operating loss | $(3.399) | $(4.544) | $(12.330) | $(15.247) |
| Net loss, consolidated | $(1.999) | $(3.092) | $(12.394) | $(12.343) |
| Net loss attributable to Sky Harbour Group Corp. shareholders | $(0.189) | $(0.613) | $(5.606) | $(3.711) |
| Loss per share, basic and diluted | $(0.01) | $(0.04) | $(0.37) | $(0.27) |
- Margins and expenses: No gross margin is presented. Q3 total expenses were $5.901 million; operating expenses rose to $1.675 million and depreciation to $0.670 million, while general and administrative expense was nearly unchanged at $3.556 million. Nine-month total expenses were $17.667 million.
- Cash flow: Nine-month operating cash use was $6.263 million, versus $25.282 million in 2022. Investing activities provided $2.137 million, mainly reflecting net Treasury investment maturities and purchases; construction payments were $40.043 million. Financing activities used $0.510 million. Cash and restricted cash ended at $36.760 million.
- Liquidity and debt: At September 30, cash was $2.471 million, restricted cash $34.289 million, investments $16.832 million and restricted investments $80.183 million. Much of this liquidity is restricted or invested and is not equivalent to freely available cash. Bonds payable, net, were $162.368 million; loans and finance lease liabilities were $10.561 million. Operating lease liabilities were $55.027 million. Management said liquidity was sufficient to continue operations for more than one year after issuance of the statements.
- Interest: Nine-month interest expense was $0.316 million after capitalizing $5.364 million of interest to construction; interest paid was $7.256 million. The Rapidbuilt loan carried a weighted-average rate of 8.44% for the nine-month period and matures in December 2025.
Changes and operating context
- Revenue increased 481% in Q3 and 332% for the first nine months, mainly as leases commenced at BNA and OPF and existing campuses added tenants. The company reported 29 operating hangars and 375,241 rentable square feet, at 72.1% weighted-average occupancy at quarter-end. Occupancy was 93.9% at SGR, 63.7% at BNA and 70.8% at OPF Phase I.
- Q3 revenue included approximately $0.4 million of net non-recurring adjustments; the filing also identifies a negotiated lease termination involving two OPF hangars. Variable lease payments were $0.920 million for Q3 and $1.224 million year to date, including the termination-related payment.
- Operating losses narrowed year over year, but nine-month consolidated net loss was broadly unchanged. For the public-company shareholders, the nine-month loss increased, partly reflecting the absence of the prior-year $2.904 million unrealized warrant gain. Consolidated results include losses attributable to non-controlling interests.
- Construction spending and depreciation increased as facilities entered service and development advanced. Management cited higher insurance, property taxes, utilities, labor and construction costs, and said its Rapidbuilt acquisition is intended to help reduce building costs and construction time.
Outlook, risks and unusual items
- The filing provides no formal earnings or revenue guidance. Management expects continued operating losses in the near term while investing in construction and business development. It presented estimated construction costs of $203.3–$236.4 million for listed development projects, subject to schedules, permits, costs and financing.
- Plans call for future campus expansion, with additional financing expected to include private activity bonds and equity. Management estimates a 20-campus plan could cost approximately $1.2 billion; access to capital on acceptable terms is not assured. Inflation, higher interest rates, construction delays, tenant demand and the ability to lease completed space are key risks.
- The Series 2021 bonds have $166.340 million principal outstanding, with fixed rates of 4.00%–4.25% and maturities in 2036, 2041 and 2054. A debt-service coverage covenant of at least 1.25 begins with the quarter ending December 31, 2024; the company reported covenant compliance at September 30, 2023.
- Subsequent financing: The company reported that its November 2, 2023 initial private placement closing raised $42.8 million in exchange for 6,586,154 Class A shares and warrants. A further financing of up to $15.0 million was optional and subject to the lead investor’s discretion. The issuance is dilutive; the filing also describes restrictions and participation rights associated with the agreement.
- Other subsequent events: The company signed a 50-year ground lease at Chicago Executive Airport (PWK), with a potential second parcel subject to airport discretion. In October 2023, it allowed the SGR Phase II ground lease to terminate without penalty or previously capitalized project costs.
- Controls: Disclosure controls were not effective at quarter-end because of a material weakness concerning review and classification of manual cash-flow adjustments. The company was implementing remediation. It had previously filed a Form 10-Q/A for the first and second quarters relating to cash-flow classification. No material legal proceedings were reported.
- Two tenants individually represented more than 10% of revenue; together they contributed approximately 46% of Q3 revenue and 38% year-to-date revenue. Concentration, lease turnover and campus occupancy therefore remain relevant risks.
Important facts for investors to verify
- How much of the $133.775 million in cash, restricted cash and investments is available for construction and general corporate needs, and how the November financing proceeds are being used.
- Whether the optional additional financing closed, and the resulting share and warrant dilution.
- Lease-up progress and tenant retention at BNA and OPF, including the replacement of the OPF tenant that exited and the effect of termination-related revenue.
- Actual project costs, completion dates and funding for APA, DVT, ADS and OPF Phase II versus management’s estimates.
- Progress in remediating the material weakness and whether the company maintains accurate, timely SEC reporting and bond-covenant compliance.