Sky Harbour Group Corp. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. The company completed its business combination on January 25, 2022; 2021 comparisons primarily reflect Sky Harbour’s pre-combination operations.
Business context
Sky Harbour develops, leases and manages private hangar campuses and related services for business aircraft, primarily on long-term airport ground leases. At year-end, it had 17 hangars across two operating campuses—Sugar Land and Nashville—with 215,149 rentable square feet and 62.2% weighted occupancy. Its development portfolio covered six airports and included 63 planned hangars totaling 882,963 square feet, with estimated construction costs of $220.5 million to $253.2 million.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1.845 million | $1.578 million |
| Total expenses | $20.703 million | $13.778 million |
| Consolidated net loss | $13.678 million | $13.610 million |
| Net loss attributable to Sky Harbour Group shareholders | $3.184 million | $13.610 million |
| Net cash used in operating activities | $27.491 million | $6.615 million |
- Revenue rose 17%, mainly from additional tenant leases at Sugar Land and Nashville. The filing reports a loss-making operation; it does not provide a clear margin measure.
- General and administrative expense increased $5.977 million to $14.714 million, reflecting higher staffing and incentive compensation, public-company costs, insurance and other administrative expenses, and site-development pursuit costs.
- The 2022 consolidated loss included a $5.082 million noncash gain from revaluing warrants. A $248,000 impairment was recorded on abandoned smart-hangar software development.
- Cash and cash equivalents were $2.174 million at year-end. The company also held $24.895 million in investments and $39.222 million in restricted cash, plus $114.648 million in restricted investments. Restricted funds are subject to bond-related limits and should not be treated as freely available liquidity.
- Net cash used in investing activities was $187.838 million, including Treasury purchases and construction spending. Financing activities provided $52.790 million.
- Series 2021 bonds had $166.340 million of principal outstanding, with stated rates of 4.00% to 4.25% and maturities in 2036, 2041 and 2054. The bonds are secured by project interests and revenues; 2022 interest incurred was capitalized during construction. The company reported compliance with debt covenants at year-end; the 1.25 debt-service coverage test begins with the quarter ending December 31, 2024.
- Operating lease liabilities were $53.531 million. Contractual obligations disclosed included $160.712 million of future bond interest and $207.767 million of undiscounted lease payments.
Material changes and developments
- Nashville Phase II was substantially completed in October 2022, with leases beginning in November. Nashville occupancy was 45.5% at year-end; Sugar Land occupancy was 100%.
- Opa-Locka Phase I was substantially completed in February 2023, after the reporting date. Construction was underway at Centennial Phase I and Deer Valley Phase I at year-end.
- In January 2023, the company amended its Addison ground lease to approximately double the land available for development. In March 2023, it received approvals to reallocate about $26 million of bond proceeds to Addison Phase I.
- Tenant concentration remained high: two tenants generated 78% of 2022 revenue, down from 89% in 2021. Their leases expire in December 2023 and November 2025, assuming no extensions.
Outlook, risks and contingencies
The company describes a long-term growth plan of up to 20 airport campuses, estimated to cost approximately $1.2 billion, with an anticipated 65% to 75% funded by private activity bonds and the balance through equity or equity-linked financing. This is a plan, not a commitment or formal earnings guidance. Management expects continued operating losses and negative operating cash flows in the near term, while stating that liquidity is sufficient for more than one year after issuance of the financial statements.
- Key execution risks include tenant leasing and retention, concentration in a small number of tenants, construction delays and cost inflation, and the ability to secure airport ground leases, permits and additional financing.
- Substantially all operations depend on long-term ground leases; lease termination or non-renewal could impair operations. Secured project debt creates default, cross-default and foreclosure risks.
- Rising interest rates, tighter capital markets, weaker private-aviation demand, competition, environmental obligations and severe weather could affect development costs, occupancy, cash flows and refinancing.
- The company may sell up to 10 million Class A shares under its 36-month agreement with B. Riley; no shares had been sold under it by year-end 2022. Outstanding warrants and exchangeable Sky units also create potential dilution.
- The company does not intend to pay cash dividends in the foreseeable future. Its Tax Receivable Agreement generally provides eligible holders 85% of specified tax savings; no liability was recorded at year-end 2022.
- No material legal proceedings were reported. Management stated that disclosure controls and internal control over financial reporting were effective at year-end. The auditor did not provide an internal-control attestation.
Important facts for investors to verify
- Current occupancy, tenant leasing and renewal status—particularly the two major tenant leases and the 2023 expiration.
- Actual construction spending, cost overruns, completion timing and lease commencements at Opa-Locka, Centennial, Deer Valley and Addison.
- Unrestricted cash available for operations versus cash and investments restricted under the bond indenture, and the sufficiency of funding for planned projects.
- Bond covenant headroom and projected debt-service coverage ahead of the first test period in late 2024.
- Any share sales under the B. Riley agreement, warrant exercises, Sky unit exchanges and resulting dilution or changes in public float.
- Progress toward the stated 20-campus plan and the assumptions supporting its financing mix and projected economics.