Sky Harbour Group Corp. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. The company develops, leases and manages business-aircraft hangars in the United States. Financial statement amounts below are in millions unless stated otherwise.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior period |
|---|---|---|
| Rental revenue | $1.107 | $0.397 |
| Operating expenses | $1.792 | $1.234 |
| Depreciation | $0.450 | $0.145 |
| General and administrative expenses | $3.549 | $4.594 |
| Operating loss | $(4.684) | $(5.576) |
| Unrealized warrant loss | $4.210 | $13.938 |
| Net loss | $(8.761) | $(19.514) |
| Net loss attributable to Sky Harbour shareholders | $(6.196) | $(15.763) |
| Basic and diluted loss per share | $(0.41) | $(1.44) |
Revenue increased about 179% year over year, primarily as leases commenced at the OPF campus and additional leases took effect at SGR and BNA. The operating loss narrowed, while the company remained loss-making; no gross margin is separately presented. The warrant remeasurement is noncash and materially affected reported net loss.
Cash flow: Operating activities used $4.553 million, versus $10.164 million used in Q1 2022. Investing activities provided $36.313 million, mainly reflecting proceeds from Treasury investments; financing activities were nil, compared with $51.869 million provided in the prior-year quarter. Cash and restricted cash ended the quarter at $73.156 million, including only $2.853 million of unrestricted cash.
Liquidity and debt: At March 31, cash, restricted cash, investments and restricted investments totaled $166.155 million, but substantial balances are restricted under bond arrangements. Series 2021 bond principal was $166.340 million; carrying value net of issuance costs and premium was $162.263 million. The bonds are fixed-rate, with stated coupons of 4.00% and 4.25% and principal repayments beginning in 2032. Operating lease liabilities were $53.833 million. Management said liquidity was sufficient to continue operations for more than one year after issuance of the statements. The company reported compliance with debt covenants at quarter-end.
Material changes and business progress
- Completed OPF Phase I construction substantially in February 2023; tenant leases began commencing that month. BNA operations also contributed to higher revenue and operating costs.
- Operating properties comprised 29 hangars and 375,241 rentable square feet, with 60% weighted-average occupancy at March 31: SGR 94%, BNA 55% and OPF 50%.
- Constructed assets, net, rose to $78.519 million from $39.709 million at December 31, 2022, while cost of construction fell to $17.568 million from $48.242 million as projects moved into service.
- On March 22, the company reallocated bond proceeds to the ADS Phase I project, enabling approximately $26 million to fund that development and, management said, projected to improve bond debt-service coverage.
- Stock-based compensation included 545,522 employee RSUs granted in February, vesting over four years. The B. Riley purchase agreement permits, but does not require, sales of up to 10 million Class A shares over 36 months; no shares had been sold under it as of March 31.
Outlook, risks and unusual items
- Management expects operating losses and negative operating cash flows to continue in the near term while the company invests in development and leasing. No specific near-term revenue or earnings guidance is provided.
- The stated growth plan targets 20 airport campuses over several years. The company estimates a cumulative cost of approximately $1.2 billion, with 65%–75% expected from private activity bonds and the balance from equity or equity-linked financing; access to financing and favorable terms is not assured.
- Development schedules and estimated costs remain exposed to inflation, construction-material and labor availability, permitting, delays, and the ability to secure tenants at rents sufficient to cover costs. Nine listed projects in development had estimated costs totaling $217.4–$254.8 million.
- Ground-lease commitments include construction and spending deadlines. For example, SGR Phase II requires at least $2.0 million of improvements and construction commencement by October 2023, absent waiver or amendment; failure could terminate the relevant lease parcels.
- Three tenants generated approximately 45% of Q1 revenue, including one tenant at 20%, creating tenant concentration risk. The company also cautions that future rental demand and occupancy are uncertain.
- After quarter-end, on May 12, 2023, Sky acquired a 51% interest in Overflow/Rapidbuilt for nominal consideration. In connection with the acquisition, Sky guaranteed the related loan, which had approximately $10.0 million outstanding on that date, bore interest at SOFR plus 3.00%, and matured December 1, 2025.
- The company reported no material legal proceedings and no material changes to the risk factors disclosed in its prior Form 10-K. It identified no material change in internal control over financial reporting and said disclosure controls were effective.
Important facts for investors to verify
- Whether occupancy and lease commencements at OPF and BNA progress as planned, and whether tenant concentration declines.
- Actual project costs, permitting and completion dates versus the development estimates, and compliance with ground-lease requirements.
- How much reported liquidity is available for operations and construction after accounting for restricted bond funds and reserves.
- Future financing availability, bond covenant performance, and the potential dilution from equity-linked financing or the B. Riley purchase agreement.
- The financial effect and obligations arising from the Rapidbuilt acquisition, including the guaranteed loan and its covenants.
- The sensitivity of reported results to warrant fair-value changes, which contributed a $4.210 million noncash loss in Q1 2023.