our prototype has been gone through third party testing now it's approved it's ready to go and the first airport at which that will launch is fort worth which breaks breaks around later this year in uh in q4 uh we'll show you pictures of that more functional uh cost less per square foot to put up it's it's a better hanger and uh for for cheaper so that's that's obviously what we're striving to do here on the leasing side so we we made the point about the those larger footprints that we're trying to see at the at the tier one airports the occupancy optimization program as we've discussed especially in the newer campuses you'll see this at Opelaka phase two where we're we're working to achieve significantly greater than 100 occupancy on these campuses San Jose is the first airport that we really uh maximize that uh we already talked about the release rates operations will you continue to see uh operating margins improve if we do this right that program is in place and uh and and already and then perhaps most importantly of all is the the resident experience itself which yes you need the physical asset in order to deliver it but fundamentally what our customers actually experience is the service and consistently we keep going out with resident surveys we are being ranked by far as the number one home base solution in business aviation you can see that empirically that we we charge a lot more than any other solution and still have waiting lists at all of these stabilized campuses so we will continue working on that increasingly i think the key differentiator in the hbo business model next slide looking forward so look for more of the same on site acquisition we meaning tier one airports tier one geographies and more same field expansions to the extent that we can we can do those on the development side so So if you look what's happening over the next two quarters, we're going from a little over 600,000 square feet now under construction to a little over 1,200 square, sorry, sorry, one point, a little over 600,000 square feet now under construction to over 1.2 million square feet under construction by year end. so this is the scale up that we're talking about you know watch our schedules watch our budget versus actual now that's that's what we're going to be trying to to deliver on and at the same time as we grow and continue to refine the prototype look for that cost per square foot to continue going lower on the leasing side just to give people a sense of what we hope to achieve in revenues. So let's start with, I guess it's a smaller component, but 65,000 square feet that of lease that will come to term by the end of 2026 and will need to be released and we'll be looking for big step ups on those. 161,000 square feet that are currently in lease up, right that places like Dallas and uh and uh Denver and then we have this is the big number that 218,000 square feet that is currently under construction but will be slated for lease up by the end of 2026 so a big lift for the leasing team we have an expanded team We continue with our tried and true practice of bringing in military veterans, and our leasing team has expanded, I think, exclusively now with military veterans. And we talked about pre-leasing on the last call, which had good results in Opelaka Phase 2. We have Bradley, Connecticut coming up in Q3, Q4. The proof will be on the pudding. watch to see how how that campus opens in terms of occupancy and then lastly operations so we you know we speak every time about starting with defense right safety security and efficiency come before everything else we spoke a little bit on the last slide about innovation working with with the residents the last point that I want to mention and people have asked about this a little bit because the network has grown to a point where it's starting to make sense which is people using multiple sky harbor campuses so we just rolled out a program called sky key which gives sky harbor network access to some of our top residents uh that's uh you know call those are our guinea pigs where they get the full sky harbor service exactly they're accustomed to with all of the privacy and the security that that entails wherever they go within the sky harbor network So that's a new revenue driver in the business. I don't think we've captured much revenue yet. We just rolled it out, but look for that to start contributing to our revenues going forward and contributing, I think, to the value too. With that, I think we are ready for questions.

Yes, operator, please go ahead with the cue from our research cover analyst. And, again, reminder for everybody else to submit questions through Investors at Sky Harbor Group, and we'll answer those promptly in the coming hours and days.

At this time, I would like to remind everyone, in order to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Michael Diana with Maxim Group. Please go ahead. Michael, Diana, your line is open.

Actually, I didn't signal for a question.

Your next question comes from the line of Tom Catherwood with ETIG. You may go ahead.

Great. Thank you. Good afternoon, everybody. Lots and lots to talk about here. Tal, maybe starting with you. So I appreciated all the detail that you gave on leasing at the operating properties, and you quickly touched on the pre-leasing. but it seems like you made some significant progress there in 2Q, especially with the second phase in San Jose, which I think is fully wrapped up now before you even started construction. Can you talk a little bit more about pre-leasing progress, you know, both there, maybe at Dulles as well? And then as you're rolling out that program, are you utilizing the kind of introductory rate strategy that you've done at ADS and DVT and APA, or are you using a different approach.

Thanks for the question. Thanks for the coverage, Tom. So look, I think what's maybe conspicuous about pre-leasing at San Jose, which is different from Bradley and Dulles, it's much more like Miami phase two, is that when you have a phase one in operation in a market, you know, I think maybe just now becoming a national brand in business aviation what we've been to date is you know a collection of local brands in in every geography if you own an airplane in miami you're trying to get into sky harbor right there's a waiting list at sky harbor miami in uh other locations we're just not as known again we think that's beginning to change now there is a little you know more of a national recognition of of where we're coming but it is definitely easier there's so much pent-up demands in the phase two markets uh that pre-leasing goes a lot easier. San Jose 2, I mean, I should say for all three of those airports, there is no introductory rate. If you think about it, you know, I keep going back to Miami phase one, you know, where we opened up 12 new hangars, whatever that was, 160,000 square feet of hangar simultaneously, more hangar than never been put on a market at once, as far as we you know, ever, I don't think we quite appreciated what that glut would do with a sophisticated customer base who understands, you know, there's 12 hangers and 12 vacancies, there's a lot of leverage in that negotiation on the part of the resident. The main concern of a chief pilot or flight department negotiating a lease on an existing campus like Miami at that time, was overpaying. It does not want to be, you know, the person who volunteered to pay more than their neighbors are paying. When you pre-lease, we're seeing that the main concern is really FOMO. And as we get closer to fully lease, and as you see the rates climbing up, right, the first leases are signed, they're not introductory rates, but they're lower rates than the last leases are signed that becomes the primary concern so when you have a year before you open up or in the case of san jose even more than a year uh before you open up there are a lot of people who want to lock in that space uh and know it's going to be gotten by the way we have you know i'm sorry to say some angry uh uh people who did not get space in san jose phase two and if you gave us a phase three there we would uh we would grab it yeah appreciate those answers maybe sticking with

With that kind of last comment, what you had said about site selection and this focus on top airports and top markets, you've talked in the past about how airports and municipalities are limited in their ability to push ground rents. But are you seeing airports looking for other avenues to extract higher economics? Maybe it's more required capex spending or infrastructure spending or fuel purchases. And because you have a sense of what it takes to do these now, does that give you an advantage over others that might be competing when it comes to site procurement?

I mean, it's a good question. I don't think there's any one-size-fits-all answer. What I will say, kind of a rule of thumb that can be applied pretty broadly is, you know, So, I mean, by the way, there are certain airports where the total capex is what's important. There are certain airports where, you know, there are other items that are important. What seems to be fairly common, though, is that our interests are aligned with the airports and our interests are aligned with base residents in that geography, right? So, when you show up in Atlanta, there is a hangar deficit, and the FBO model doesn't really address that deficit because remember the fbo's make their money outdoors from fueling you're not a lot of fuel indoors inside a hangar for your regulatory fire code reasons so their revenue is produced outdoors they want as much outdoor space as possible right get the uh you know transient traffic in get them fueled and get them out as quickly as possible that is the business model so for the municipality or county that wants to maximize anger space they're not really getting everything they want out of the FBOs. We come in and show them from the beginning. We make our money from rent. Our money is made indoors, not outdoors. Our interests are aligned with you. We want to maximize our hangar footprint. And as you, I think, know, our campus layouts have very little ramp and a lot of hangar. They look very different from an FBO's campus layout. That is a winning proposition for a lot of airports. You know, take another is that repositioning, particularly in heavily trafficked markets, New York being the primary among them, but also Southern California, Northern California, increasingly South Florida, Dallas area, there is simply no room. You cannot get hangerspace at Teterboro. So most of the New York, for example, Manhattan aircraft owners who operate out of Teterboro, their departures and arrivals with passengers are to Teterboro. The airplane doesn't live at Teterboro. It lives at bradley connecticut or trenton new jersey uh in those situations there's a lot of pressure to reduce repositioning flights right and and here's what i talk about kind of that triple alignment of interest from the aircraft owner's perspective those repositioning flights are expensive that's fuel that's you know pilot hours they're logistically cumbersome you know if you're flying far you know you're flying to you know eastern europe or asia uh from new york when your day began with a repositioning flight and a fueling and hold on the ground at teeterboro your pilots will run out of duty hours right so we have people who fly with with double cruises there's a very logistically cumbersome to do that repositioning from the airport's perspective and the the local you know local government's perspective that's environmental impact that's airplanes flying empty and no passengers that's noise impact right those those flights are straight and low and loud. They're typically conducted under VFR when the weather permits. You're just going straight. You want to get there as quickly as you can. It's wear and tear on the airport infrastructure. Think about it, four operations for every round trip rather than two operations for every round trip. And it's taxing on the air traffic control system. So come in and say, hey, look, when we come to your airport, we're actually going to reduce repositioning. That is a big deal, right? And again, from the FBO's perspective, and I'm not trying to knock the FBO's, great business model, and they're great partners to us as well, but you should understand they are a hotel. Fundamentally, that movement drives fuel sales. That is their incentive. We're incentivized very, very differently. So I hope that answers your question. That's an example of how interests can align between us and the airports.

That's perfect. Thank you for all that insight, Tal. That's it for me, and I appreciate all the answers.

Your next question comes from the line of Timothy D'Agostino with B-Riley Securities. You may go ahead.

Yeah, hi. Thanks for taking the questions today. Just on the release, I understand the commentary of you kind of expect that to tick down over time. It sounded like, you know, obviously it was 23% last quarter, 19% this quarter. But I guess how should we think about that revenue escalation, you know, maybe over the next two, three years, given new campuses will come online, those leases will be resigned. And then as well, you know, at ADS and APA, where you're dropping the lease lower to fill the hangar, obviously that next lease would have a pretty meaningful escalator, I would assume. So just trying to understand of how we should think about that going forward, because it seems like with new campuses coming online, like the churn there could push that maybe higher. But just trying to get your thoughts on that. Thank you.

Yeah, thank you. Thank you, Tim. So I think your instinct is probably right, right? On those three campuses where we're doing the introductory rate strategy, yeah, I think it's reasonable to expect a bigger bump up on that first release. You're right. And those introductory rates can be very low on some of those campuses. It's really about just not flying empty while we do kind of the release up. And then on those pre-lease campuses where we're actually getting, you know, above target rents before we even open the doors, probably less of a bump on the pre-lease. So, you know, we've avoided trying to make predictions on inflation rates on airports. You know, we, you know, as I think you know, I think they're going to be completely divorced from CPI. There's just no land to develop on airports, and the fleet just keeps growing. There's nowhere to put these aircraft. So we think inflation is baked in, but we're not giving out numbers. We figure the best we can do is just publish this release rate, remind everybody that all of our leases feature annual escalators of CPI with a floor of 4%, and then let people come to their own conclusions about what the inflation rate should be. because again if you're building a model for the company you're one of your most sensitive inputs is going to be your assumption on inflation rates uh going forward in hangar rents so again we're not we're not making any predictions on that but we want to provide you with as many tools as possible so you okay great thanks for the answer and if i could just ask a second one just on the

the half million of net cash provided by operating activities obviously this is first quarter of positive operating cash flow and company's history, was there anything in the quarter that stands out as maybe a one-time non-recurring item that would have pushed that positive? Should we think about that cash number being positive going forward or, you know, as new campuses open up, it could take back to negative? Thank you.

Yeah, good question. And again, thank you for your coverage. So, you know, this is a recurrent type of number. Of course, you know, in the next two quarters, we're going to continue benefiting for increased revenues, as I mentioned earlier, from the, you know, the leasing of, or the finished leasing of Paloka Phase 2, and then continue listing an APA and DBT. Now, in Q1 of 27, you're going to see the very strong effect of adding the opening of Bradley and the opening of ADS Dallas 2, and that will make that number jump a step function into the positive, and from then never look at a negative number, hopefully again. But so between now and then, it's probably going to be trending higher because, again, of the continued leasing of the existing facilities, but it will not be until Q1, Q2 of next year that it propels and never looks back on the back of the opening of Bradley and Edison, too.

Okay, great. Thanks for the commentary, and congrats again in the quarter. Thank you.

Your next question comes from the line of Ryan Myers with Lake Street Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my question. First one for me, with the unchanged guide and the roughly million-dollar EBITDA loss here in the quarter, can you just walk us through sort of the key drivers required to reach the $4 million to $6 million annualized run rate by the year-end on adjusted EBITDA?

Yes. Let me put some comments, and then also, Mike, if you want to jump in as well. So on revenues, obviously, we're trending nicely to meet or exceed, but let's see, right now, meet the guidance we provided. And obviously, we'll look at the guidance again in November at the time of our Q3. I wish time, by the way, let me take the opportunity to state that we will be starting to get guidance for 2027 in the next quarter webcast for Q3. Now, in the context of adjusted EBITDA, we're coming into this coming month with a lot of momentum of the leasing of Aloka phase two at a very, very attractive rate. And also remember that that is a phase that has a lot of operating leverage because we're basically operating with the same staff because it's an extension. It's a phase two. And that does wonders for gross profits. So you don't need too much to move from the current run rate into the run rate in our guidance to meet the targets that we outline.

I don't know, Michael, if you have anything to add. uh francisco you hit on the uh the two main things that uh i was going to touch on particularly the operating leverage um you know as these revenues start to come in um opex is not moving increasing in tandem and it's essentially very accretive to adjusted even and i think would be crucial got it no that's great to hear and then lastly for me you guys noted the development team continues to lower costs so where does current construction cost per square foot stand and you know how much further opportunity do you think remains through just you know vertical and vertical integration

and then just you know any prototype improvements that you guys have seen how do you want to take that and then we'll maybe i'll add to that i'm sorry can you repeat the question yeah just you know an update on current construction costs for square foot and just you know how much opportunity you think remains with the vertical integration and then just any of the prototype integration that you guys have done yeah you know ryan you're we're kind of overdue i think for resetting a target you know when we're up above 300 we set to 250 as a target we're at two about 242 right now we do think there's a lot more juice to squeeze uh but we haven't actually set a target yet you know what you'll see is that we're you know we're using i think we should provide some photographs when we actually break ground on the uh version three of our prototype in fort worth but you're going to see you know new and different construction materials some different construction techniques um the layout of the hangar is going to look very similar the outside actually looks a lot better i think it's aesthetically um a lot more pleasing um national procurement right so we're no longer purchasing you know things like uh fixtures and lighting and you know electrical components campus by campus we're now you know buying 10 airports ahead so those numbers haven't really manifested yet uh they're not not completely at least uh in that 242 so look for more to come you know on the other side we could have some macro headwinds on just you know construction inflation that we're going to have to battle, but I think I'm glad you raised the point. I think maybe on the next call we're going to have to set another target.

Yeah, let me add to that, if I may. So as you saw from the chart that Tal covered earlier, showing that now we're entering a couple of quarters where we're going to be in construction at about eight and moving probably to 10 different campuses at the same time the coming quarters are going to provide a lot of data um a lot of volume and it comes of scale to really a you know uh turn what is right now a projection into hard numbers for us to share with our investor base and with you guys and so on nothing pleases me more to hear that our manufacturing facility in texas is a a two um you know, two and almost two and a half type of shifts. And, you know, we don't go to three because, you know, people have to take Sunday off. But it is that type of economies of scale with volume that's going to be one of the key drivers of our keeping and maintaining construction costs overall low.

Got it. No, that's helpful. Thanks, guys.

Your next question comes from the line of Gaurav Mehta with Alliance Global Partners. Please go ahead.

Yeah, thank you. I wanted to ask you on your pre-leasing going forward. How should we think about how you would approach pre-leasing? Is it going to be a standard offering across the new construction or would you be selected where you implement pre-leasing?

Hi, Gaurav. Yeah, thank you. Yes, that's standard going forward. Opelaka phase two was the first campus we did with that. You'll see Bradley as next and then Dallas phase two as the one after that and then salt lake city we're working on all of those uh as as you know uh no we see no reason to change it i think you know we we might fiddle with the pre-leasing goals like right now we're saying 50 you know half to two-thirds leased uh by opening that's that's what we're targeting you know obviously you're leaving a little bit of money on the table when you do it like that because these are long-term leases this is you know very different from dallas phoenix and denver so you are locking yourself in uh and the rates do you know creep up as you as you advance with the leasing of a campus so we we might adjust the the you know total ambition of you know how much we want to get pre-leased over time again we might not but yes look for that to be standard in all the campuses all right thanks for those details second question on the ground leases how many new ground leases are you guys looking to add this year so and you know as As we discussed on the last call, we're not actually counting those in terms of number of ground leases anymore. It's square footage. How much square footage of hangar are we able to put in? And again, ultimately, after everyone's accustomed to that metric, we're going to move to what is the real metric, is what is the actual NOI that you can capture from an airport? Really, that's what you should be going after, because I think everyone would agree if we if we had five airports each with 100,000 square feet of hangar, but you could achieve that with a single airport with 500,000 square feet of hangar in a tier one location, that's obviously preferable, right? You're going to have lower optics, an easier lease up. It's got a lot of advantages to do it that way. We haven't actually put out a square foot target. We're kind of migrated on guidance to really the bottom line. What are we projecting in revenue? What are we projecting in EBITDA? But we announce these airports as they come. Sometimes the cities and counties announce them before we do. So I'm guessing everyone on the call is aware of some of those. But we haven't actually put out guidance on them.

And lastly, in your prepared remarks, you mentioned something around leasing being slow in Denver. I was wondering if that's in line with what you guys wrote, or has that been a surprise?

It's been a surprise. It's been a disappointment. We wanted to be moving faster in Denver, and it's just, again, some of them are fast, some of them are slow. Denver's a slow one.

That's all I had.

Your next question comes from the line of Dave Storms with Stonegate Capital Partners. Please go ahead.

Hello. This is Maximus. i'll be asking questions for dave storms today wanted to start off on str and opf economic occupancy has hasn't been running above reported occupancy is that mainly a function of the private versus semi-private hanger mix or is there something else about those campuses campuses that limits how much you can optimize occupancy thank you yeah you're exactly right maximus the sugarland is 100 private right we I don't know if you were following us at the time, but the whole notion of semi-private kind of occurred to us later on, actually toward the end of lease-up in Nashville.

So Sugar Land had been completely leased up long-term at that point. It is private. It can't go above 100%. We're capped there. Miami is similar in that the first round of leases were all private. We have a little bit of semi-private going on in Miami Phase I, but Miami Phase II does have semi-private. Again, we have people taking full SH-34 hangars in Miami Phase II, so there's one case of a fully private hangar. That's just a large tenant, but most of Miami Phase II is semi-private, so we should see significantly more in Miami.

Thank you. I appreciate that color. I wanted to move forward with pre-leasing. Historically, kind of just based off our math, it's taken roughly three quarters for a new campus to reach full lease up. With pre-leasing, can you see that accelerating maybe closer to two quarters or even shorter on average?

Yeah, it's possible. Again, the proof will be in the pudding again. So So, yeah, I'd say on the next earnings call, look to see where Opelaka Phase 2 stands. By the way, we're treating Opelaka really as one campus now because, you know, A, it is one campus, but also we've actually done some shifts, right? We took people into Phase 2 and then actually ended up moving them to Phase 1, moving Phase 1 people to Phase 2. We've done a little bit of shuffling in Miami, but look to see, you know, are we at 100% or higher by the next earnings call in Opelaka, and then the next data point will be Bradley.

Great. Thank you for answering my questions.

Your final question comes from the line of Joe Gomes with Noble Capital Markets. Please go ahead.

Good afternoon. Thanks for taking my questions. ends. As you're moving more and more into the tier one, are you seeing the competitive environment start to tighten up there? Given the dearth of airport land, how does that play into the old land grabs, so to speak, strategy?

Are you trying to be maybe a little more aggressive in trying to get land at various airports are you still trying to more you know focus on the ones that you currently have in hand uh yeah thanks for the question joe we we remain aggressive we remain creative and we remain patient because and and i think the last one for patience and persistence is probably the most important of all all three of those You know, if you're following, you'll see all of these wins have been the result of multi-year efforts, in some cases, five, six years working on an airport. We haven't figured out a way to really accelerate that. Maybe that already is accelerated. That's the bad news. The good news is that we started, you know, a process on dozens and dozens of airports five or six years ago. So, you know, some of those are starting to pop now. Again, there are things that we haven't exactly announced yet but are out there, and I think a lot of people on the call are aware of. These are all the result of multiple years of effort on those airports. So, no, if anything, we're accelerating on the set acquisition side. No plan to slow that down.

Okay, thanks. And then just maybe clarify something here on your presentation on the talking about the registered direct placement. You talked about that, and then kind of had a last point there that you acquired, or certain investors acquired 360,000 shares from Boston, Omaha. Maybe just give a little more color on that, who approached whom, what was all about that transaction about.

Yes, let me take that on, Maximus. And so some of you may be aware, at the time of the dispatch, there is a shareholder's agreement in place that any investor or any time there's a transaction that the company does or any investor, as part of the shareholder agreement, institutes a process. We all kind of like coordinate and give notices to all those legacy investors and so on and so forth. So on that spirit, although we were not required on that spirit, when we were approached a couple of weeks ago to do the primary issuance that we just announced and closed today, we went around and asked all our, quote, unquote, legacy investors, Center Capital, Due West, and Boss Omaha, if they had an interest in selling shares as part of this process. And the Western Central Capital said no. And then Bosomha said that if there was an opportunity, they would like to sell 300,000 shares. So, proud to his process and conversations with a couple of investors that were also in discussions with us, We were successful in not 300,000 but 360,000 being sold by Boston Omaha in a separate transaction to ours, to those investors, and those stock purchase agreements were executed also during day-to-day, and those transactions we understand. And, again, they're between Boston Omaha and certain investors, not us, but they were coordinated through us. But I think the highlights here to take away from that, again, I don't want to speak for Boston Omaha. People should reach out to them directly. By the way, we're going to be attending their annual shareholders conference next week in Omaha. We have not done so in four years now or three years now. And so we're looking forward to be there. But I think the two takeaways are, one, that all our shareholders at this juncture have reaffirmed their interest in continuing being long-term investors of Sky Harbor, and that the Boston Omaha appetite to sell right now at this moment was just 360,000 shares and so on and so forth. And those who have been following our stock, this is their first sale, like, in a year and a half, and obviously of a very significantly low amount of shares. They have reaffirmed their interest of being long-term investors of Sky Harbor.

Okay, great for that, Collar. Thank you for taking my questions.

There are no further questions at this time. I would like to turn it back over to Francisco Gonzalez, CFO, for closing remarks.

Thank you, Operator, and thank you, everybody, for participating. Before you go, let me just give an announcement that Tal Kanan, our CEO, is going to be scheduled to participate tomorrow, Thursday at 3.20 Eastern Time in the Clayman Countdown Show in Fox So those of you guys who, you know, follow some, Tal's first mass media appearance, again, that's Claimant Countdown around 3.20 Eastern Time in Fox Business Channel tomorrow, Thursday. Please tune in to see Tal Canaan, you know, be answering questions from Liz Claimant. And with that, we have concluded our conference here. And, again, please look for additional information in our website at www.skyharboard.group and reach out with additional questions directly to us at investors at skyharboard.group. So, again, thank you again for your participation. And with this, we have concluded our webcast, operator.

Ladies and gentlemen, this concludes today's call. You may now disconnect.