SKYH 10-Q
Sky Harbour Group Corp (SKYH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission File Number:
Sky Harbour Group Corporation
(Exact name of registrant as specified in its Charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | |
| Westchester County Airport (Address of principal executive offices) | (Zip Code) |
| ( Registrant’s telephone number, including area code | |
| Securities registered pursuant to Section 12(b) of the Act: | ||||
| Title of Class | Trading Symbols | Name of Exchange on Which Registered | ||
| | | | ||
| Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share | | |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. (See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act).
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| | ☒ | Smaller reporting company | | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 6, 2024,
TABLE OF CONTENTS
| Page |
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| 2 | ||
| Item 1. |
2 | |
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
| Item 3. |
31 | |
| Item 4. |
31 | |
| 32 | ||
| Item 1. |
32 | |
| Item 1A. |
32 | |
| Item 2. |
32 | |
| Item 3. |
32 | |
| Item 4. |
32 | |
| Item 5. |
32 | |
| Item 6. |
33 | |
| 33 | ||
| FINANCIAL STATEMENTS |
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Assets | ||||||||
| Cash | $ | $ | ||||||
| Restricted cash | ||||||||
| Investments | ||||||||
| Restricted investments | ||||||||
| Prepaid expenses and other assets | ||||||||
| Cost of construction | ||||||||
| Constructed assets, net | ||||||||
| Right-of-use assets | ||||||||
| Long-lived assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and equity | ||||||||
| Accounts payable, accrued expenses and other liabilities | $ | $ | ||||||
| Operating lease liabilities | ||||||||
| Loans payable and finance lease liabilities | ||||||||
| Bonds payable, net of debt issuance costs and premiums | ||||||||
| Warrants liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 15) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock; $ par value; shares authorized as of March 31, 2024; issued and outstanding | ||||||||
| Class A common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Class B common stock, $ par value; shares authorized; and shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Sky Harbour Group Corporation stockholders’ equity | ||||||||
| Non-controlling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
| Three Months Ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Revenue: |
||||||||
| Rental revenue |
$ | $ | ||||||
| Total revenue |
||||||||
| Expenses: |
||||||||
| Operating |
||||||||
| Depreciation |
||||||||
| General and administrative |
||||||||
| Total expenses |
||||||||
| Operating loss |
( |
) | ( |
) | ||||
| Other (income) expense: |
||||||||
| Interest expense |
||||||||
| Unrealized loss on warrants |
||||||||
| Other income |
( |
) | ( |
) | ||||
| Total other (income) expense |
||||||||
| Net loss |
( |
) | ( |
) | ||||
| Net loss attributable to non-controlling interests |
( |
) | ( |
) | ||||
| Net loss attributable to Sky Harbour Group Corporation shareholders |
$ | ( |
) | $ | ( |
) | ||
| Loss per share |
||||||||
| Basic |
$ | ( |
) | $ | ( |
) | ||
| Diluted |
$ | ( |
) | $ | ( |
) | ||
| Weighted average shares |
||||||||
| Basic |
||||||||
| Diluted |
||||||||
See accompanying Notes to Unaudited Consolidated Financial Statements
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
(Unaudited)
| Three Months Ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income (loss), before related income taxes: |
||||||||
| Unrealized gain (loss) on available-for-sale securities |
||||||||
| Total comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
See accompanying Notes to Unaudited Consolidated Financial Statements
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(Unaudited)
| Class A |
Class B |
Additional |
Accumulated Other |
Total |
Non- |
|||||||||||||||||||||||||||||||||||
| Common Stock |
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
Controlling |
Total |
|||||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Income (Loss) |
Equity |
Interests |
Equity |
|||||||||||||||||||||||||||||||
| Balance at December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||||||||||
| Share-based compensation |
- | - | ||||||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units |
- | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||
| Shares withheld for payment of employee taxes |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Exercise of warrants |
||||||||||||||||||||||||||||||||||||||||
| Payment of equity issuance costs |
- | - | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Class A |
Class B |
Additional |
Accumulated Other |
Total |
Non- |
Total |
||||||||||||||||||||||||||||||||||
| Common Stock |
Common Stock |
Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
Controlling |
Equity |
|||||||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Income (Loss) |
Equity |
Interests |
(Deficit) |
|||||||||||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | |||||||||||||||||||||||||||||
| Share-based compensation |
- | - | ||||||||||||||||||||||||||||||||||||||
| Exchange of Class B Common Stock |
( |
) | ( |
) | ||||||||||||||||||||||||||||||||||||
| Other comprehensive income |
- | - | ||||||||||||||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See accompanying Notes to Unaudited Consolidated Financial Statements
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
| Three months ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Straight-line rent adjustments, net |
( |
) | ( |
) | ||||
| Equity-based compensation |
||||||||
| Non-cash operating lease expense |
||||||||
| Unrealized loss on warrants |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Prepaid expenses and other assets |
( |
) | ( |
) | ||||
| Right-of-use asset initial direct costs |
( |
) | ( |
) | ||||
| Accounts payable, accrued expenses and other liabilities |
( |
) | ( |
) | ||||
| Net cash used in operating activities |
( |
) | ( |
) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of long-lived assets |
( |
) | ( |
) | ||||
| Payments for cost of construction |
( |
) | ( |
) | ||||
| Investment in notes receivable, net |
( |
) | ||||||
| Purchases of available for sale investments |
( |
) | ||||||
| Proceeds from available for sale investments |
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| Proceeds from held-to-maturity investments |
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| Net cash provided by investing activities |
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| Cash flows from financing activities: |
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| Proceeds from exercise of warrants |
||||||||
| Principal payments for loans payable and finance leases |
( |
) | ||||||
| Payments for equity issuance costs |
( |
) | ||||||
| Payments of employee taxes related to vested equity awards |
( |
) | ||||||
| Net cash provided by financing activities |
||||||||
| Net increase in cash and restricted cash |
||||||||
| Cash and restricted cash, beginning of year |
||||||||
| Cash and restricted cash, end of period |
$ | $ | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements
SKY HARBOUR GROUP CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2024
(in thousands, except share data)
| 1. | Organization and Business Operations |
Sky Harbour Group Corporation (“SHG”) is a holding company organized under the laws of the State of Delaware and, through its main operating subsidiary, Sky Harbour LLC and its subsidiaries (collectively, “Sky”), is an aviation infrastructure development company that develops, leases and manages general aviation hangars for business aircraft across the United States. Sky Harbour Group Corporation and its consolidated subsidiaries are collectively referred to as the “Company.”
The Company is organized as an umbrella partnership-C corporation, or “Up-C”, structure in which substantially all of the operating assets of the Company are held by Sky and SHG’s only substantive assets are its equity interests in Sky (the “Sky Common Units”). As of March 31, 2024, SHG owned approximately
| 2. | Basis of Presentation and Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying unaudited consolidated financial statements and the related notes (the “Financial Statements”) have been prepared in conformity with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).These Financial Statements include the accounts of the Company and its consolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which includes additional disclosures and a summary of the Company's significant accounting policies. In the Company’s opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operation, financial position, and cash flows.
Certain historical amounts have been reclassified to conform to the current year’s presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining the fair value of financial instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities, and estimates and assumptions used in the determination of the fair value of assets acquired and liabilities assumed in the business combination. Actual results could differ materially from those estimates.
Risks and Uncertainties
The Company’s operations have been limited to-date. For most of its history, the Company has been engaged in securing access to land through ground leases and developing and constructing aviation hangars. The major risks faced by the Company is its future ability to obtain additional tenants for the facilities that it constructs, and to contract with such tenants for rental income in an amount that is sufficient to meet the Company’s financial obligations, including increasing construction costs due to inflation and increased borrowing costs to the extent that the Company incurs additional indebtedness.
Liquidity and Capital Resources
As a result of ongoing construction projects and business development activities, including the development of aircraft hangars and the leasing of available hangar space, the Company has incurred recurring losses and negative cash flows from operating activities since its inception. The Company expects to continue to invest in such activities and generate operating losses in the near future.
The Company obtained long-term financing through bond and equity offerings to fund its construction, lease, and operational commitments, and believes its liquidity is sufficient to allow continued operations for more than one year after the date these financial statements are issued.
Significant Accounting Policies
Basis of Consolidation
SHG is deemed to have a controlling interest of Sky through its appointment as the Managing Member of Sky, in which SHG has control over the affairs and decision-making of Sky. The interests in Sky not owned by the Company are presented as non-controlling interests. Sky’s ownership percentage in each of its consolidated subsidiaries is
Cost of Construction
Cost of construction on the consolidated balance sheets is carried at cost. The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use. Costs are capitalized once the construction of a specific capital project is probable. Construction labor and other direct costs of construction are capitalized. Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized. Activities associated with internally manufactured hangar buildings, including materials, direct manufacturing labor, and manufacturing overhead directly identifiable with such activities are allocated to our construction projects and capitalized. The Company allocates a portion of its internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas. Interest, net of the amortization of debt issuance costs and premiums, and net of interest income earned on bond proceeds, is also capitalized until the capital project is completed.
Once a capital project is complete, the Company begins to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms.
Leases
The Company accounts for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. The Company determines whether a contract contains a lease at the inception of the contract. ASC Topic 842 requires lessees to recognize lease liabilities and right-of-use (“ROU”) assets for all operating leases with terms of more than 12 months on the consolidated balance sheets. The Company has made an accounting policy election to not recognize leases with an initial term of 12 months or less on the Company’s consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. When management determines that it is reasonably certain that the Company will exercise its options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and lease liability balances.
The Company has lease agreements with lease and non-lease components; the Company has elected the accounting policy to not separate lease and non-lease components for all underlying asset classes. The Company has not elected to capitalize any interest cost that is implicit within its operating leases into cost of construction on the consolidated balance sheet, but instead, expenses its ground lease cost as a component of operating expenses in the consolidated statements of operations.
Warrants liability
The Company accounts for its Warrants (as defined in Note 10 — Warrants) in accordance with the guidance contained in ASC Topic 815, “Derivatives and Hedging” (“ASC 815”), under which warrants that do not meet the criteria for equity classification and must be recorded as derivative liabilities. Accordingly, the Company classifies the Warrants as liabilities carried at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until the warrants are exercised or expire, and any change in fair value is recognized in the consolidated statement of operations.
Revenue recognition
The Company leases the hangar facilities that it constructs to third parties. The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term. Some of the leases contain options to terminate the lease by either party with given notice. There are no options given to the lessee to purchase the underlying assets. Rental revenue is recognized in accordance with ASC Topic 842, Leases (see Note 8 — Leases) and includes fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease. Rental revenue and the corresponding rent and other receivables are recorded net of any concessions and uncollectible tenant receivables for all periods presented. The Company evaluates the collectability of tenant receivables for payments required under the lease agreements. If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including any additional rent or lease termination fees, as a current period adjustment to rental revenue.
Variable lease payments consist of tenant reimbursements for common area maintenance, utilities, and operating expenses of the property, and various other fees, including fees associated with the delivery of aircraft fuel, late fees, and lease termination fees. Variable lease payments are charged based on the terms and conditions included in the respective tenant leases and are recognized in the same period as the expenses are incurred. For the three months ended March 31, 2024, rental revenue includes $
As of March 31, 2024 and December 31, 2023, the deferred rent receivable included in prepaid expenses and other assets was $
For the three months ended March 31, 2024 the Company derived approximately
Income Taxes
SHG is classified as a corporation for Federal income tax purposes and is subject to U.S. Federal and state income taxes. SHG includes in income, for U.S. Federal income tax purposes, its allocable portion of income from the “pass-through” entities in which it holds an interest, including Sky. The “pass-through” entities, are not subject to U.S. Federal and certain state income taxes at the entity level, and instead, the tax liabilities with respect to taxable income are passed through to the members, including SHG. As a result, prior to the Yellowstone Transaction, Sky was not subject to U.S. Federal and certain state income taxes at the entity level.
The Company follows the asset and liability method of accounting for income taxes. This method gives consideration to the future tax consequences associated with the differences between the financial accounting and tax basis of the assets and liabilities as well as the ultimate realization of any deferred tax asset resulting from such differences, as well as from net operating losses and other tax-basis carryforwards. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. When a valuation allowance is increased or decreased, a corresponding tax expense or benefit is recorded.
The Company recorded income tax expense of $
Recently Issued Accounting Pronouncements
Segment Reporting (Topic 280)
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The disclosure requirements included in ASU No. 2023-07 are required for all public entities, including entities with a single reportable segment. ASU No. 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and early adoption is permitted. The guidance is required to be applied on a retrospective basis. The Company is currently evaluating the impact of the standard on our consolidated financial statement disclosures.
Income Taxes (Topic 740)
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update apply to all entities that are subject to Topic 740, Income Taxes. The standard requires disaggregated information about a reporting entity's effective tax rate reconciliation as well as information on income taxes paid. The amendments in this update are effective for annual periods beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of this updated standard on its disclosures to the consolidated financial statements.
| 3. | Rapidbuilt Acquisition |
On May 12, 2023 (the “Option Exercise Date”), Sky exercised its option to acquire a
Rapidbuilt is a manufacturer of pre-engineered steel buildings that previously entered into a supplier arrangement with Sky. Rapidbuilt and Sky’s strategic partnership has resulted in a standard set of proprietary prototype hangar designs, which are intended to deliver high-quality business aviation facilities, lower construction costs, minimize development risk, expedite permit issuance, and facilitate the implementation of refinements across Sky’s portfolio. The Company had pre-existing relationships with Rapidbuilt through a vendor agreement entered into in July 2022 to acquire construction materials related to the Company's development projects (the “Rapidbuilt Vendor Agreement”) and a revolving line of credit loan and security agreement (the “Rapidbuilt Loan Agreement”) to fund the working capital requirement of Rapidbuilt. These pre-existing relationships were effectively settled in the acquisition and the net receivable balance of $
The total cash purchase consideration was nominal. The Company accounted for the acquisition using the acquisition method of accounting, whereby the total purchase price was allocated to assets acquired and liabilities assumed based on respective estimated fair values. The estimated fair values of the acquired assets and assume liabilities are based on preliminary calculations and subject to further refinement and may require adjustments to arrive at the final purchase price accounting. The Company expects the final purchase price allocation to be completed in a period of time that will not exceed one year from the Option Exercise Date. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation.
The following tables summarize the preliminary allocation of the purchase price to the fair value of the assets acquired and liabilities assumed for the Rapidbuilt Acquisition:
| May 12, 2023 | ||||
| Cash | $ | |||
| Restricted Cash | ||||
| Long-lived assets | ||||
| Total assets | ||||
| Accounts payable, accrued expenses and other liabilities | ||||
| Loans payable and finance lease liabilities | ||||
| Total liabilities | ||||
| Total fair value of net assets acquired | ||||
| Effective settlement of net receivable from Rapidbuilt | ||||
| Total consideration transferred | $ | |||
Following the Rapidbuilt Acquisition, substantially all of Overflow and Rapidbuilt's activities relate to the manufacturing of pre-engineering hangar structures for Sky's hangar development projects. As such, the pro-forma effect of this acquisition on revenues and earnings was not material.
| 4. | Investments and Restricted Investments |
Investments of the Company's cash in various U.S. Treasury securities have been classified as available-for-sale and are carried at estimated fair value utilizing Level 1 inputs as determined based upon quoted market prices.
Pursuant to provisions within the Master Indenture of the Series 2021 Bonds, as defined in Note 9 — Bonds payable, loans payable, and interest, the Company invests the funds held in the restricted trust bank accounts in various U.S. Treasury securities. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets. Unrealized losses on certain of the Company's investments and restricted investments are primarily attributable to changes in interest rates. The Company does not believe the unrealized losses represent impairments because the unrealized losses are due to general market factors. The Company has not recognized an allowance for expected credit losses related to its investments or restricted investments as the Company has not identified any unrealized losses attributable to credit factors during the three months ended March 31, 2024. The held-to-maturity restricted investments are carried on the consolidated balance sheet at amortized cost. As of March 31, 2024, the Company has the ability and intent to hold these restricted investments until maturity, and as a result, the Company would not expect the value of these investments to decline significantly due to a sudden change in market interest rates. The fair value of the Company’s restricted investments is estimated utilizing Level 1 inputs including prices for U.S. Treasury securities with comparable maturities on active markets.
The following tables are summaries of the amortized cost, unrealized gains, unrealized losses, and fair value by investment type as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Investments, available for sale: | ||||||||||||||||
| U.S. Treasuries | $ | $ | $ | $ | ||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
| Restricted investments, held-to-maturity: | ||||||||||||||||
| U.S. Treasuries | ( | ) | ||||||||||||||
| Total restricted investments | $ | $ | $ | ( | ) | $ | ||||||||||
| December 31, 2023 | ||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | |||||||||||||
| Investments, available for sale: | ||||||||||||||||
| U.S. Treasuries | $ | $ | $ | $ | ||||||||||||
| Total investments | $ | $ | $ | $ | ||||||||||||
| Restricted investments, held-to-maturity: | ||||||||||||||||
| U.S. Treasuries | ( | ) | ||||||||||||||
| Total restricted investments | $ | $ | $ | ( | ) | $ | ||||||||||
The following table sets forth the maturity profile of the Company's investments and restricted investments as of March 31, 2024:
| Investments | Restricted Investments | |||||||
| Due within one year | $ | $ | ||||||
| Due one year through five years | ||||||||
| Total | $ | $ | ||||||
| 5. | Cost of Construction and Constructed Assets |
The Company’s portfolio as of March 31, 2024 includes the following completed and in-development projects:
| ● | Addison Airport (“ADS”), Addison, TX (Dallas area); |
| ● | Bradley International Airport (“BDL”), Windsor Locks, CT (Hartford area); |
| ● | Centennial Airport (“APA”), Englewood, CO (Denver area); |
| ● | Chicago Executive Airport (“PWK”), Wheeling, IL (Chicago area); |
| ● | Hudson Valley Regional Airport (“POU”), Wappingers Falls, NY (New York area); |
| ● | Miami-Opa Locka Executive Airport (“OPF”), Opa Locka, FL (Miami area); |
| ● | Nashville International Airport (“BNA”), Nashville, TN; |
| ● | Orlando Executive Airport (“ORL”), Orlando, FL; |
| ● | Phoenix Deer Valley Airport (“DVT”), Phoenix, AZ; |
| ● | San José Mineta International Airport (“SJC”), San Jose, CA; and |
| ● | Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area). |
Constructed assets, net, and cost of construction, consists of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Constructed assets, net of accumulated depreciation: | ||||||||
| Buildings, SGR, BNA, and OPF (Phase I) | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
| Cost of construction: | ||||||||
| OPF (Phase II), APA (Phase I), DVT (Phase I), and ADS (Phase I & II) | $ | $ | ||||||
Depreciation expense for the three months ended March 31, 2024 and 2023 totaled $
| 6. | Long-lived Assets |
Long-lived assets, net, consists of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Ground support equipment | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Buildings | ||||||||
| Land | ||||||||
| Other equipment and fixtures | ||||||||
| Purchase deposits and construction in progress | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation expense for the three months ended March 31, 2024 and 2023 totaled $
| 7. | Supplemental Balance Sheet and Cash Flow Information |
Accounts payable, accrued expenses and other liabilities
Accounts payable, accrued expenses and other liabilities, consists of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Costs of construction | $ | $ | ||||||
| Employee compensation and benefits | ||||||||
| Interest | ||||||||
| Professional fees | ||||||||
| Tenant security deposits | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Supplemental Cash Flow Information
The following table summarizes non-cash investing and financing activities:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Accrued costs of construction, including capitalized interest | $ | $ | ||||||
| Accrued costs of long-lived assets | ||||||||
| Proceeds receivable from exercise of Warrants | ||||||||
| Debt issuance costs and premium amortized to cost of construction | ||||||||
The following table summarizes non-cash activities associated with the Company’s operating leases:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Net increase in right-of-use assets and operating lease liabilities due to lease remeasurement | $ | $ | ||||||
The following table summarizes interest paid:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Interest paid | $ | $ | ||||||
The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets to the total shown within the consolidated statements of cash flows:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Cash, beginning of year | $ | $ | ||||||
| Restricted cash, beginning of year | ||||||||
| Cash and restricted cash, beginning of year | $ | $ | ||||||
| Cash, end of period | $ | $ | ||||||
| Restricted cash, end of period | ||||||||
| Cash and restricted cash, end of period | $ | $ | ||||||
| 8. | Leases |
Lessee
The table below summarizes operating lease expense for the three months ended March 31, 2024 and March 31, 2023 recorded in the captions within our consolidated statement of operations:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Operating expenses | $ | $ | ||||||
| General and administrative expenses | ||||||||
| Total operating lease expense | $ | $ | ||||||
The Company’s ground leases at airports are classified as operating leases under ASC Topic 842. Management has determined that it is reasonably certain that the Company will exercise its options to renew the leases, and therefore the renewal options are included in the lease term and the resulting ROU asset and operating lease liability balances. As the Company’s lease agreements do not provide a readily determinable implicit rate, nor is the rate available to the Company from its lessors, the Company uses its incremental borrowing rate to determine the present value of the lease payments. In addition to the Company’s ground leases, the company has operating leases for office space and ground support vehicles, and finance leases for vehicles supporting operations at Rapidbuilt.
The Company’s lease population does not include any residual value guarantees. The Company has operating leases that contain variable payments, most commonly in the form of common area maintenance and operating expense charges, which are based on actual costs incurred. These variable payments were excluded from the calculation of the ROU asset and operating lease liability balances since they are not fixed or in-substance fixed payments. These variable payments were not material in amount for the three month periods ended March 31, 2024 and 2023. Some of the leases contain covenants that require the Company to construct the hangar facilities on the leased grounds within a certain period and spend a set minimum dollar amount. For one of the leases, the shortfall (if any) must be paid to the lessor. See Note 15 — Commitments and Contingencies.
The Company’s ground leases have remaining terms ranging between
On March 23, 2024, the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “SJC Lease”) at SJC with the City of San Jose. The SJC Lease covers approximately 7 acres of property that contains an approximately
On March 27, 2024, the Company, through a wholly-owned subsidiary of the Company, entered into a ground lease agreement (the “ORL Lease”) at ORL with the Greater Orlando Aviation Authority (“GOAA”). The ORL Lease covers a parcel containing approximately
Supplemental consolidated cash flow information related to the Company’s leases was as follows:
| Three months ended | ||||||||
| March 31, | March 31, | |||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from finance leases | ||||||||
| Operating cash flows from operating leases as lessee | ||||||||
Supplemental consolidated balance sheet information related to the Company’s leases was as follows:
| Weighted Average Remaining Lease Term (in years) | March 31, 2024 | December 31, 2023 | ||||||
| Operating leases | ||||||||
| Finance leases | ||||||||
| Weighted Average Discount Rate | ||||||||
| Operating leases | % | % | ||||||
| Finance leases | % | % | ||||||
The Company’s future minimum lease payments required under leases as of March 31, 2024 were as follows:
| Year Ending December 31, | Operating Leases | Finance Leases | ||||||
| 2024 (remainder of year) | $ | $ | ||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| Thereafter | ||||||||
| Total lease payments | ||||||||
| Less imputed interest | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Lessor
The Company leases the hangar facilities that it constructs to third-party tenants. These leases have been classified as operating leases. The Company does not have any leases classified as sales-type or direct financing leases. Lease agreements with tenants are either on a month-to-month basis or have a defined term with an option to extend the term. The defined term leases vary in length from to years with options to renew for additional term(s) given to the lessee. There are no options given to the lessee to purchase the underlying assets.
The leases may contain variable fees, most commonly in the form of tenant reimbursements, which are recoveries of the common area maintenance and operating expenses of the property and are recognized as income in the same period as the expenses are incurred. The leases did not have any initial direct costs. The leases do not contain any restrictions or covenants to incur additional financial obligations by the lessee.
Tenant leases to which the Company is the lessor require the following non-cancelable future minimum lease payments from tenants as of March 31, 2024:
| Year Ending December 31, | Operating Leases | |||
| 2024 (remainder of year) | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less rent concessions to be applied at Company’s discretion | ( | ) | ||
| Total | $ | |||
| 9. | Bonds payable, loans payable, and interest |
Bonds payable
On May 20, 2021, Sky formed a new wholly-owned subsidiary, Sky Harbour Capital LLC (“SHC”), as a parent corporation to its wholly-owned subsidiaries that operate each of the aircraft hangar development sites under its ground leases. SHC and these subsidiaries form an Obligated Group (the “Obligated Group” or the “Borrowers”) under a series of bonds that were issued in September 2021 with a principal amount of $
The Series 2021 Bonds are payable pursuant to a loan agreement dated September 1, 2021 between the Public Finance Authority (of Wisconsin) and the Borrowers. The payments by the Borrowers under the loan agreement are secured by a Senior Master Indenture Promissory Note, Series 2021-1 issued by the Obligated Group under an indenture (the “Master Indenture”). The obligations of the Borrowers are collateralized by certain leasehold and subleasehold deeds of trust or mortgages on the Borrowers’ interests in the development sites and facilities being constructed at each airport where the Borrowers hold ground leases. In addition, the Borrowers have assigned, pledged and granted a first priority security interest in all funds held under the Master Indenture and all right, title and interest in the gross revenues of the Borrowers. Furthermore, Sky, Sky Harbour Holdings LLC and SHC have each pledged as collateral its respective ownership interest in any of the Borrowers.
The Series 2021 Bonds have principal amounts, interest rates, and maturity dates as follow: $
On March 22, 2023, SHC elected to modify the scope of the Series 2021 Bonds pursuant to the terms of the Master Indenture, in order to reallocate a portion of the proceeds of the Series 2021 Bonds to its project site located at ADS (the “ADS Project”) . In connection with the election to modify the scope of the Series 2021 PABs to include the ADS Project, (i) Addison Hangars LLC (“Sky Harbour Addison”) and OPF Hangars Landlord LLC (“OPF Hangars”) joined as members of the Obligated Group, (ii) Sky Harbour Holdings LLC contributed its membership interest in OPF Hangars to SHC, (iii) SHC pledged its equity interest in each of Sky Harbour Addison and OPF Hangars to the Master Trustee as security for the obligations under the Series 2021 Bonds, (iv) Sky Harbour Addison granted to the Master Trustee a mortgage on its leasehold interest in the real property comprising the ADS Project, (v) OPF Hangars granted the Master Trustee a mortgage on its leasehold interest in the real estate comprising the project located in Opa Locka, Florida, and (vi) Sky Harbour Services LLC, a wholly-owned subsidiary of the Company, has agreed to waive all management fees and development fees during the construction period of the projects associated with the Series 2021 Bonds.
As of March 31, 2024 and December 31, 2023, the fair value of the Company’s Series 2021-1 Bonds was approximately $
The following table summarizes the Company’s Bonds payable as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | |||||||
| Bonds payable: | ||||||||
| Series 2021 Bonds Principal | $ | $ | ||||||
| Premium on bonds | ||||||||
| Bond proceeds | ||||||||
| Debt issuance costs | ( | ) | ( | ) | ||||
| Accumulated amortization of debt issuance costs and accretion of bond premium | ||||||||
| Total Bonds payable, net | $ | $ | ||||||
Loans Payable and Finance Leases
The following table summarizes the Company's loans payable and finance lease liabilities as of March 31, 2024 and December 31, 2023:
| March 31, 2024 | December 31, 2023 | ||||||||||||||||
| Maturity Dates | Weighted-Average Interest Rates | Balance | Weighted-Average Interest Rates | Balance | |||||||||||||
| Vista Loan | December 2025 | % | $ | % | $ | ||||||||||||
| Equipment loans | August 2026 - September 2028 | % | % | ||||||||||||||
| Finance leases | September 2024 - July 2027 | % | % | ||||||||||||||
| Total Loans payable and finance leases | % | $ | % | $ | |||||||||||||
Interest
The following table sets forth the details of interest expense:
| Three months ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Interest | $ | $ | ||||||
| Accretion of bond premium and amortization of debt issuance costs | ||||||||
| Total interest incurred | ||||||||
| Less: capitalized interest | ( | ) | ( | ) | ||||
| Interest expense | $ | $ | ||||||
| 10. | Warrants |
SHG's legal predecessor, Yellowstone Acquisition Company (“YAC”), issued to third-party investors
In connection with the Securities Purchase Agreement (the “Private Placement Purchase Agreement”) entered into on November 1, 2023 with certain investors, the Company issued to third-party investors
The Warrants contain an exercise price of $
During the three months ended March 31, 2024,
The closing price of the Warrants was $
| 11. | Equity and Redeemable Equity |
Common Equity
As of March 31, 2024, there were
The holders of Class A Common Stock are entitled to receive dividends, as and if declared by the Company’s Board of Directors out of legally available funds. With respect to stock dividends, holders of Class A Common Stock must receive Class A Common Stock. The holders of Class B Common Stock do not have any right to receive dividends other than stock dividends consisting of shares of Class B Common Stock, as applicable, in each case paid proportionally with respect to each outstanding share of Class B Common Stock.
At-the-Market Facility
On March 27, 2024, the Company entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley Securities, Inc. (“B. Riley”) with respect to an “at the market” offering program (the “ATM Facility”), under which the Company may, from time to time, at its sole discretion, issue and sell through B. Riley, acting as sales agent, up to $
The Company is not obligated to sell any shares under the ATM Agreement. The offering of shares pursuant to the ATM Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through B. Riley, of all of the shares subject to the ATM Agreement and (ii) termination of the ATM Agreement in accordance with its terms.
In connection with entering into the ATM Agreement, on March 27, 2024, the Company and B. Riley terminated (the “B. Riley Termination”) the Common Stock Purchase Agreement (the “B. Riley Stock Purchase Agreement”) dated August 18, 2022. As a result of the B. Riley Termination, the Company recognized approximately $
Non-controlling interests
The LLC Interests’ ownership in Sky is presented as non-controlling interests within the Equity section of the consolidated balance sheet as of March 31, 2024 and represents the Sky Common Units held by holders other than SHG. The holders of LLC Interests may exchange Sky Common Units along with an equal number of Class B Common Shares, for Class A Common Shares on the Company. The LLC Interests do not have the option to redeem their Sky Common Units for cash or a variable number of Class A Common Shares, nor does SHG have the option to settle a redemption in such a manner. As of March 31, 2024, the LLC interests owned approximately
The former majority shareholder's ownership in Overflow is presented as a non-controlling interest within the Equity section of the consolidated balance sheet. As of March 31, 2024, the former majority shareholder owned approximately
| 12. | Equity Compensation |
Restricted Stock Units (“RSUs”)
In February 2024, the Company granted time-based RSUs to certain employees under the Company’s 2022 Incentive Award Plan.
During the three months ended March 31, 2024, the Company recognized stock compensation expense of approximately $
Non-qualified Stock Options (“NSOs”)
In February 2024, the Company granted to certain employees options to purchase
The Company recognized equity-based compensation expense relating to awarded equity units of Sky (the “Sky Incentive Units”) of $
| 13. |
Earnings (loss) per Share |
Basic earnings (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG by the weighted-average number of shares of Class A Common Stock outstanding during the period. Diluted net income (loss) per share of Class A Common Stock is computed by dividing net income (loss) attributable to SHG, adjusted for the assumed exchange of all potentially dilutive securities, by the weighted-average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive shares using the treasury stock or if-converted method as appropriate. Shares of the Company’s Class B Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class B Common Stock under the two-class method has not been presented.
| Three Months Ended |
||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Numerator: |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Less: Net loss attributable to non-controlling interests |
( |
) | ( |
) | ||||
| Basic and diluted net loss attributable to Sky Harbour Group Corporation shareholders |
( |
) | ( |
) | ||||
| Denominator: |
||||||||
| Based and diluted weighted average shares of Class A Common Stock outstanding | ||||||||
| Loss per share of Class A Common Stock – Basic and diluted |
$ | ( |
) | $ | ( |
) | ||
Potentially dilutive shares excluded from the weighted-average shares used to calculate the diluted net loss per common share due the Company's net loss position were as follows (in thousands):
| Three Months Ended |
||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Shares subject to unvested restricted stock units |
||||||||
| Shares subject to unvested stock options | ||||||||
| Shares issuable upon the exercise of Warrants |
||||||||
| Shares issuable upon the exchange of Class B Common Stock |
||||||||
| Shares issuable upon the exercise and exchange of Sky Incentive Units |
||||||||
| 14. |
Accumulated Other Comprehensive Income |
The following table summarizes the components of Accumulated other comprehensive income:
| Unrealized gain on Available-for-sale Securities |
Total |
|||||||
| Balance as of December 31, 2023 |
$ | $ | ||||||
| Other comprehensive income before reclassifications | ||||||||
| Amounts reclassified to other (income) expense |
( |
) | ( |
) | ||||
| Balance as of March 31, 2024 |
$ | $ | ||||||
| Unrealized gain on Available-for-sale Securities |
Total |
|||||||
| Balance as of December 31, 2022 |
$ | ( |
) | $ | ( |
) | ||
| Other comprehensive income before reclassifications | ||||||||
| Amounts reclassified to other (income) expense |
( |
) | ( |
) | ||||
| Balance as of March 31, 2023 |
$ | $ | ||||||
| 15. | Commitments and Contingencies |
The APA Lease requires the Company to improve the property in accordance with a development plan included in the lease and to complete such improvements within
The DVT Lease requires approximately $
The Company has committed to spend $
The PWK Lease contains a requirement that the Company must commence construction within six months of the issuance of permits and must complete construction within 18 months of construction commencement. If the Company is unable to adhere to the prescribed timeline and unable to receive an extension from PWK, the PWK Lease is subject to termination.
The SJC Lease contains customary milestones by which the Company must complete additional construction.
The ORL Lease requires that the Company construct $
The Company has contracts for construction of the APA Phase I, DVT Phase I, and ADS Phase I projects. The Company may terminate any of the contracts or suspend construction without cause. There are
In addition to the matters described in this note, the Company is involved is various legal proceedings and claims in the ordinary course of its business. Although the Company cannot predict with certainty the ultimate resolution of these matters, which involve judgements that are inherently subjective, the Company does not expect that the ultimate disposition of such other contingencies or matters will materially affect its financial condition, results of operations or cash flows.
| 16. | Related Party Transactions |
On September 20, 2021, the Company entered into a non-exclusive agreement with Echo Echo, LLC, a related party to the Founder and CEO, for the use of a Beechcraft Baron G58 aircraft. The effective date of the agreement was September 8, 2021 and the agreement automatically renews annually. The agreement can be terminated without penalty if either party provides 35 days written notice, or if the aircraft is sold or otherwise disposed of. The Company is charged per flight hour of use along with all direct operating costs. Additionally, the Company will also incur the pro rata share of maintenance, overhead and insurance costs of the aircraft. For the three months ended March 31, 2024, the Company recognized $
For the three months ended March 31, 2024, the Company recognized $
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the notes included elsewhere in this Quarterly Report on Form 10-Q (this “Form 10-Q”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities Exchange Commission (the “SEC”) on March 27, 2024 (the “Form 10-K”), which is accessible on the SEC’s website at www.sec.gov.
Cautionary Note Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “might,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
| • |
expectations regarding the Company’s strategies and future financial performance, including the Company’s future business plans or objectives, prospective performance and commercial opportunities and competitors, services, pricing, marketing plans, operating expenses, market trends, revenues, liquidity, cash flows and uses of cash, capital expenditures, and the Company’s ability to invest in growth initiatives; |
|
|
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| • |
the effects of general economic conditions, including inflation, rising interest rates, and availability of construction materials and labor for our development projects; |
|
|
|
| • |
our limited operating history makes it difficult to predict future revenues and operating results; |
|
|
|
| • |
our ability to implement our construction costs mitigation strategies; |
|
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| • |
changes in applicable laws or regulations; |
|
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| • |
the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors; and |
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| • |
our financial performance. |
The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) and other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the heading “Risk Factors” in the Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. These risks and others described in the Form 10-K may not be exhaustive.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this prospectus. In addition, even if our results or operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements contained in this prospectus, those results or developments may not be indicative of results or developments in subsequent periods.
Overview and Background
We are an aviation infrastructure development company building the first nationwide network of home basing hangar campuses for business aircraft. We develop, lease, and manage general aviation hangars across the United States, targeting airfields in markets with significant aircraft populations and high hangar demand. Our home basing hangar campuses feature exclusive private hangars and a full suite of dedicated services specifically optimized for home-based, versus transient, aircraft.
The physical footprint of the U.S. business aviation fleet grew by almost 28 million square feet in the ten years preceding the beginning of the COVID-19 pandemic, with hangar supply lagging dramatically, especially in key growth markets. As the fleet of private jets in the United States continues to grow, with recent new aircraft deliveries exceeding retirements, demand for hangar space is at a premium in part because new jets require more square footage of hangar space and the pace of new hangar construction has lagged behind the demand. The cumulative square footage of the business aircraft fleet in the United States increased 50% between 2010 and 2021. Moreover, over that same period, there was an 81% increase in the square footage of larger private jets – those with greater than a 24-foot tail height. A recent study conducted by a business aircraft manufacturer forecasted that business aircraft will only continue to grow in the next ten years, with up to 8,500 new business jet deliveries worth over $275 billion expected to be delivered between 2024 and 2033, further supported by data from the major business aviation manufacturers that suggest the current order backlog for new business aviation aircraft is over $49 billion.
These larger footprint aircraft do not fit in much of the existing hangar infrastructure and impose stacking challenges and constraints in the traditional shared or community hangars operated by FBOs. The addition of winglets (the vertical extensions on aircraft wingtips) on most modern business jets inhibits wing-over-wing storage. Aircraft hangars are in high demand and short supply, with some airports compiling waiting lists that can exceed several years.
We believe our scalable, real estate-centric business model is uniquely optimized to capture this market opportunity and address the increased imbalance between the supply and demand for private jet storage. We intend to capitalize on the existing hangar supply constraints at major U.S. airports by targeting high-end tenants in markets where there is a shortage of private and FBO hangar space, or where such hangars are or are becoming obsolete.
We expect to realize economies of scale in construction through a prototype hangar design replicated at our hangar campuses across the United States. This allows for centralized procurement, straightforward permitting processes, efficient development processes, and the best hangar in business aviation. Unlike a service company, our revenues are mostly derived from long-term rental agreements, offering stability and forward visibility of revenues and cash flows. This allows the Company to fund its development through the public bond market, providing capital efficiency and mitigating refinance risk.
We seek to develop our home basing hangar campuses on long-term ground leases (or sub-leases thereof) at airports with suitable infrastructure serving metropolitan centers across the United States. We lease each of our properties under long-term ground leases.
The table below presents certain information with respect to our portfolio as of March 31, 2024.
| ● |
Addison Airport (“ADS”), Addison, TX (Dallas area); |
| ● |
Bradley International Airport (“BDL”), Windsor Locks, CT (Hartford area); |
| ● |
Centennial Airport (“APA”), Englewood, CO (Denver area); |
| ● |
Chicago Executive Airport (“PWK”), Wheeling, IL (Chicago area); |
| ● |
Hudson Valley Regional Airport (“POU”), Wappingers Falls, NY (New York area); |
| ● |
Miami-Opa Locka Executive Airport (“OPF”), Opa Locka, FL (Miami area); |
| ● |
Nashville International Airport (“BNA”), Nashville, TN; |
| ● |
Orlando Executive Airport (“ORL”), Orlando, FL; |
| ● |
Phoenix Deer Valley Airport (“DVT”), Phoenix, AZ; |
| ● |
San José Mineta International Airport (“SJC”), San Jose, CA; and |
| ● |
Sugar Land Regional Airport (“SGR”), Sugar Land, TX (Houston area). |
PROPERTIES IN OPERATION
| Facility |
Completion Date |
Hangars |
Rentable Square Footage |
% of Total Rentable Square Footage |
Occupancy at March 31, 2024 |
|||||||||||||
| SGR |
December 2020 |
7 | 66,080 | 17.6 | % |
93.9 | % | |||||||||||
| BNA |
November 2022 |
10 | 149,069 | 39.7 | % |
95.5 | % | |||||||||||
| OPF Phase I | February 2023 | 12 | 160,092 | 42.7 | % | 91.7 | % | |||||||||||
| Total/Weighted Average |
29 | 375,241 | 100.0 | % |
93.6 | % |
||||||||||||
PROPERTIES IN DEVELOPMENT
| Projected | Projected | Estimated Total | ||||
| Construction | Completion | Construction Cost | Rentable | |||
| Facility |
Status |
Start (1) |
Date (1) |
($mm) (1) |
Hangars (1) |
Square Footage (1) |
| ADS Phase I | In Construction | Q4 2023 | Q1 2025 | 32.9 - 34.9 | 6 | 115,506 |
| ADS Phase II | Predevelopment | Q1 2025 | Q1 2026 | 31.8 - 35.8 | 4 | 106,627 |
| APA Phase I |
In Construction |
Q4 2022 |
Q4 2024 |
44.8 - 50.8 |
9 |
130,550 |
| APA Phase II |
Predevelopment |
Q2 2025 |
Q3 2026 |
34.3 - 38.3 |
3 |
107,135 |
| BDL Phase I | Predevelopment | Q2 2025 | Q3 2026 | 33.2 - 37.2 | 3 | 109,317 |
| DVT Phase I |
In Construction |
Q4 2022 |
Q1 2025 |
48.3 - 53.6 |
8 |
134,270 |
| DVT Phase II |
Predevelopment |
Q3 2026 |
Q4 2027 |
34.6 - 38.6 |
6 |
123,646 |
| OPF Phase II |
In Development |
Q1 2025 |
Q2 2026 |
35.8 - 39.8 |
3 |
109,394 |
| ORL Phase I (2) | Predevelopment | TBD | TBD | TBD | TBD | TBD |
| POU Phase I | Predevelopment | Q2 2025 | Q3 2026 | 33.2 - 37.2 | 3 | 109,317 |
| PWK Phase I | Predevelopment | Q2 2025 | Q3 2026 | 52.9 - 56.9 | 4 | 145,025 |
| SJC Renovation | In Development | Q2 2024 | Q3 2024 | 4.5 - 5.8 | 1 | 9,260 |
| SJC Phase II (2) | Predevelopment | TBD | TBD | TBD | TBD | TBD |
| Total |
$386.3 - 428.9 |
50 |
1,200,047 |
| (1) |
Our projections associated with the commencement and completion of construction, estimated total construction cost, hangars, and rentable square footage of our properties in development are inherently subjective and require judgement to estimate. We believe that our estimates of construction costs and timelines are subject to variability based on various factors including, but not limited to, changes in anticipated site plans, hangar mix, hangar specifications, executed guaranteed maximum price construction contracts, and general market conditions. |
| (2) |
Our ground leases at SJC and ORL were executed in March 2024, and we have not yet formed preliminary estimates regarding the projected construction timeline, total construction costs, or hangar mix associated with our ORL Phase I and SJC Phase II development projects. |
Recent Developments
On March 23, 2024, we entered into the SJC Lease at SJC with the City of San Jose. The SJC Lease covers approximately 7 acres of property that contains an approximately 38,000 square foot hangar, approximately 19,000 square feet of office space, and approximately 108,000 square feet of apron and ramp space. The property at SJC includes additional land on which we intend to develop approximately 28,000 square feet of additional hangar space. The initial term of the SJC Lease will be 20 years from May 1, 2024, and contains a mutual option to extend the SJC Lease an additional 5 years following the expiration of the initial term.
On March 27, 2024, we entered into the ORL Lease at ORL with GOAA. The ORL Lease covers a parcel containing approximately 20 acres of land at ORL. The initial term of the ORL Lease will be 30 years from expiration of the construction period, with lease payments commencing contemporaneously with the term. The ORL Lease contains options exercisable by us to extend the ORL Lease an additional 20 years based on our total expenditures in subsequent phases at ORL.
Factors That May Influence Future Results of Operations
Revenues
Our revenues are derived from rents we earn pursuant to the lease agreements we enter into with our tenants. Our ability to expand through new ground leases and tenant leases at airports is integral to our long-term business strategy and requires that we identify and consummate suitable new ground leases or investment opportunities in real estate properties for our portfolio that meet our investment criteria and are compatible with our growth strategy. Our ability to enter into new ground leases and tenant leases on favorable terms, or at all, may be adversely affected by a number of factors. We believe that the business environment of the industry segments in which our tenants operate is generally positive for tenants. However, our existing and potential tenants are subject to economic, regulatory and market conditions that may affect their level of operations and demand for hangar space, which could impact our results of operations. For example, during the year ended December 31, 2023, a tenant renting two hangars at OPF made the determination that it was necessary to change its business plans in the greater Miami market, which ultimately resulted in the negotiated settlement of the tenant’s lease with us and their exit from our OPF hangar campus. Accordingly, we actively monitor certain key factors, including changes in those factors (fuel prices, new aircraft deliveries, hangar rental rates) that we believe may provide early indications of conditions that may affect the level of demand for new leases and our lease portfolio. See “—Risks Related to our Business and Operations” within the Form 10-K for more information about the risks related to our tenants and our lease payments.
Ground Lease Expense
One of our largest expenses is the lease payments under our ground leases. For the three months ended March 31, 2024 and 2023, our operating lease expense for ground leases was $1.2 million and $0.9 million, respectively. As we enter into new ground leases at new airport sites, our payments to airport landlords will continue to increase into the future. If airport landlords increase the per acre cost of the ground lease of our target campuses, the operating margins at potential target developments may be impacted negatively.
Interest Expense
Economic conditions and actions by policymaking bodies are contributing to rising interest rates, which, along with increases in our borrowing levels, could increase our future borrowing costs. We expect to issue additional debt to finance future site developments and higher interest rates would impact our overall economic performance. In addition, we are subject to credit spreads demanded by fixed income investors. As a non-rated issuer, increases in general of credit spreads in the market, or for us, may result in a higher cost of borrowing in the future. We intend to access the bond market on an opportunistic basis. In addition, we may hedge against rising benchmark interest rates by entering into hedging strategies with high quality counterparties.
General and Administrative Expenses
The general and administrative expenses reflected in our statement of operations are reflective of the professional, legal and consulting fees, payroll costs, and other general and administrative expenses, including those necessary to support our business as a public company such as expenses associated with corporate governance, SEC reporting, and other compliance matters. While we expect that our general and administrative expenses will rise in some measure as our portfolio of campuses grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies, economies of scale, insourcing of job functions, and cost control measures.
Construction Material Costs and Labor
When constructing our home basing hangar campuses, we use various materials, assemblies, and labor components. We contract for our materials and labor with various general contractors under guaranteed maximum price (GMP) contracts upon receipt of building permits. This allows us to mitigate certain inflationary pressures associated with increases in certain building materials and labor costs between the time construction begins at a hangar campus and the time it is completed. Typically, the materials and most of the components used to construct our hangar campuses are readily available in the United States. We continue to monitor the supply markets and ensure robust competition to achieve the best prices available. Typically, the price changes that most significantly influence our operations are price increases in steel, concrete, and labor. We believe that recent inflationary pressures and market conditions will lead to continued increases in construction costs and market rental rates for hangars within our development projects. However, there can be no assurance that we will be able to increase the lease rates for the hangars within our hangar campuses to absorb these increased costs and/or delays, if at all.
In May 2023, we acquired a controlling interest in Rapidbuilt, a metal building and hangar door manufacturer, that we expect will ultimately result in an increase in quality and a reduction in the overall cost of the metal building and hangar door components at future development projects. We expect that over time this vertical integration will enable us to deliver metal buildings to most of our development sites in shorter times as compared to the anticipated lead times associated with conventional metal building fabricators. We believe internal building fabrication will provide us opportunities to aggressively target continued schedule compression at most of our development projects in the future. In December 2023, we engaged several structural engineering firms to perform an independent peer review of the hangar buildings designed for our DVT Phase I and APA Phase I development projects. The independent peer reviews determined a significant design defect existed within our prototype hangar building designs that requires retrofitting to both meet and exceed our standards and the respective local building codes. The anticipated retrofitting efforts are also expected to be applied to ADS Phase I, and we project that the aggregate additional cost of such retrofits could total between $26 to $28 million and require an additional three to five months of construction duration for each project impacted. Given the planned design enhancements at our APA Phase I, DVT Phase I, and ADS Phase I development projects, we anticipate that our total construction costs for these projects to each be greater than our original estimates, and outside of the scope of the guaranteed maximum price construction contracts. In March 2024, we funded the increase in estimated costs by contributing $27 million of our corporate cash holdings to SHC, thereby restricting the use of such cash to the project scope of the Series 2021 Bonds.
Our projections associated with the commencement and completion of construction, estimated total construction cost, hangars, and rentable square footage of our properties in development are inherently subjective and require judgement to estimate. We believe that our estimates of construction costs and timelines are subject to variability based on various factors including, but not limited to, changes in anticipated site plans, hangar mix, hangar specifications, executed guaranteed maximum price construction contracts, and general market conditions. In May 2024, we updated many of our preliminary estimates based on our intention to begin incorporating a larger hangar prototype into our home basing hangar campuses, which is intended to provide an increase in rentable square footage of hangar, office, and lounge space upon completion. This larger hangar prototype requires an increase in construction materials and components, and we expect its incorporation into multiple future development projects will ultimately result in cost savings through the realization of economies of scale. Our updated estimates of total construction costs do not include projections of potential cost reductions due to such efficiencies. We intend to continue to aggressively mitigate inflationary pressures, reduce construction costs to the greatest extent possible, and pursue compressed development schedules. We currently structure our guaranteed maximum price construction contracts with shared savings clauses to incentivize the general contractors to reduce construction costs. No assurance can be given that our cost mitigation strategies will be successful, the costs of our ongoing and future projects will not exceed budgets or the guaranteed maximum price for such projects, or that the completion will not be delayed beyond the projected completion dates.
Current Capital Requirements and Future Expenditures for Expansion
We previously funded SHC with over $200 million to fund the two phases at our initial five ground leased airport locations. We maintain the ability to include up to $50 million in new projects outside the original five locations to be funded with a portion of the existing proceeds held by the trustee as long as certain approvals and supplemental consultant reports are provided showing that such new project would result in better coverage of debt service than previously contemplated projects. We exercised this ability utilizing approximately $26 million of the $50 million available and received the requisite approvals and reports in March 2023 with respect to our ADS Phase I development project.
We previously raised equity capital, along with potential future debt and further equity issuances, including the Private Placement Purchase Agreement entered into on November 1, 2023, see Liquidity and Capital Resources — Private Placement and Securities Purchase Agreement below, to begin to fund additional airport campuses and reach up to 20 airport campuses over the next several years. We also have the ability to access the capital markets through our ATM Facility and through our effective shelf registration statement on Form S-3. On average, each future campus is anticipated to be composed of at least 100,000 rentable square feet and is expected to cost approximately $55 million per campus, with 60% or more to be funded with additional private activity bonds or other indebtedness. All future hangar campus projects are discretionary and require us to identify the appropriate airports with the target hangar demand economics, secure required ground leases and permits, and complete future construction at such sites.
The cumulative 20 airport site business plan is estimated to cost approximately $1.2 billion, with approximately 65% to 75% anticipated from long-term private activity bonds and the balance with equity or equity linked financing. Our ability to raise additional equity and/or debt financing will be subject to a number of risks, including our ability to obtain financing upon reasonable terms, if at all, costs of construction, delays in constructing new facilities, operating results, and other risk factors. In the event that we are unable to obtain additional financing, we may be required to raise additional equity capital, creating additional dilution to existing stockholders. There can be no assurance that we would be successful in raising such additional equity capital on favorable terms, if at all. Even if we can obtain such additional equity financing if needed, there can be no assurance that we would be successful in raising such additional financing on favorable terms, if at all.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Such estimates include assumptions used within impairment analyses, estimated useful lives of depreciable assets and amortizable costs, estimates of inputs utilized in determining the fair value of financial instruments such as warrants, estimates and assumptions related to right-of-use assets and operating lease liabilities, and estimates and assumptions used in the determination of the fair value of assets acquired and liabilities assumed in the business combination. Actual results could differ materially from those estimates.
Cost of Construction
Cost of construction on the consolidated balance sheets is carried at cost. The cost of acquiring an asset includes the costs necessary to bring a capital project to the condition necessary for its intended use. Costs are capitalized once the construction of a specific capital project is probable. Construction labor and other direct costs of construction are capitalized. Professional fees for engineering, procurement, consulting, and other soft costs that are directly identifiable with the project and are considered an incremental direct cost are capitalized. We allocate a portion of our internal salaries to both capitalized cost of construction and to general and administrative expense based on the percentage of time certain employees worked in the related areas. Interest costs on the loans and bonds used to fund the capital projects are also capitalized until the capital project is completed. Once a capital project is complete, the cost of the capital project is reclassified to Constructed Assets on the accompanying balance sheet and we begin to depreciate the constructed asset on a straight-line basis over the lesser of the life of the asset or the remaining term of the related ground lease, including expected renewal terms.
Leases
We account for leases under Accounting Standards Codification (“ASC”) Topic 842, Leases. We determine whether a contract contains a lease at the inception of the contract. ASC Topic 842 requires lessees to recognize operating lease liabilities and right-of-use (“ROU”) assets for all leases with terms of more than 12 months on the consolidated balance sheets. We have made an accounting policy election that will keep leases with an initial term of 12 months or less off our consolidated balance sheets and will result in recognizing those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. When management determines that it is reasonably certain that we will exercise our options to renew the leases, the renewal terms are included in the lease term and the resulting ROU asset and operating lease liability balances. We have elected to not capitalize any interest cost that is implicit within our operating leases into cost of construction on the consolidated balance sheet, but instead, we expense our ground lease cost in the consolidated statements of operations.
We have lease agreements with lease and non-lease components; we have elected the accounting policy to not separate lease and non-lease components for all underlying asset classes.
Revenue Recognition
We lease hangar facilities that we construct to third parties. The lease agreements are either on a month-to-month basis or have a defined term and may have options to extend the term. Some of the leases contain options to terminate the lease by either party with given notice. There are no options given to the lessee to purchase the underlying assets. Rental revenue is recognized in accordance with ASC Topic 842, Leases, and includes (i) fixed payments of cash rents, which represents revenue each tenant pays in accordance with the terms of its respective lease and is recognized on a straight-line basis over the term of the lease and (ii) variable payments of tenant reimbursements, which are recoveries of all or a portion of the common area maintenance and operating expenses of the property and are recognized in the same period as the expenses are incurred.
The Company evaluates the collectability of tenant receivables for payments required under the lease agreements. If the Company determines that collectability is not probable, the Company recognizes any difference between revenue amounts recognized to date under ASC 842 and payments that have been collected from the lessee, including any additional rent or lease termination fees, as a current period adjustment to rental revenue.
Recent Accounting Pronouncements
See Note 2 — Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements for a full description of recent accounting pronouncements including the expected dates of adoption and effects on results of operations and financial condition.
Results of Operations
Three Months Ended March 31, 2024 Compared to the Three Months Ended March 31, 2023
The following table sets forth a summary of our consolidated results of operations for the periods indicated below and the changes between the periods (in thousands).
| Three months ended |
||||||||||||
| March 31, 2024 |
March 31, 2023 |
Change |
||||||||||
| Revenue: |
||||||||||||
| Rental revenue |
$ | 2,404 | $ | 1,107 | $ | 1,297 | ||||||
| Total revenue |
2,404 | 1,107 | 1,297 | |||||||||
| Expenses: |
||||||||||||
| Operating |
2,083 | 1,792 | 291 | |||||||||
| Depreciation |
629 | 450 | 179 | |||||||||
| General and administrative |
4,916 | 3,549 | 1,367 | |||||||||
| Total expenses |
7,628 | 5,791 | 1,837 | |||||||||
| Operating loss |
(5,224 | ) | (4,684 | ) | (540 | ) | ||||||
| Other (income) expense: |
||||||||||||
| Interest expense |
194 | - | 194 | |||||||||
| Unrealized gain on warrants |
16,188 | 4,210 | 11,978 | |||||||||
| Other income |
(407 | ) | (133 | ) | (274 | ) | ||||||
| Total other (income) expense |
15,975 | 4,077 | 11,898 | |||||||||
| Net loss |
$ | (21,199 | ) | $ | (8,761 | ) | $ | (12,438 | ) | |||
Revenues
Revenues for the three months ended March 31, 2024 were approximately $2.4 million, compared to approximately $1.1 million for the three months ended March 31, 2023. The $1.3 million, or 117%, increase was primarily the result of the cumulative impact of certain additional tenant leases in place at our BNA and OPF hangar campuses as compared to the three months ended March 31, 2023. The increase in occupancy at our OPF and BNA hangar campuses for the three months ended March 31, 2024 as compared to March 31, 2023 resulted in increased fixed rental revenues of approximately $1.1 million. Revenue associated with our delivery of aircraft fuel increased approximately $0.2 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023.
Operating Expenses
Operating expenses increased approximately $0.3 million, or 16%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase in operated expense is primarily reflective of increased ground lease expense, which increased approximately $0.3 million for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase in ground lease expense was driven by new ground leases signed at PWK, BDL, and POU during the three months ended December 31, 2023, and at SJC and ORL during the three months ended March 31, 2024. Salaries, wages, and benefits associated with our campus personnel increased by approximately $0.1 million, primarily driven by a headcount increase associated with the anticipated commencement of operations at our SJC hangar campus. Other operating expenses decreased by approximately $0.1 million, primarily driven by decreased utility expenses associated with operations at our OPF and BNA hangar campuses due to higher occupancy levels.
Depreciation Expense
Depreciation increased approximately $0.2 million, or 40%, for the three months ended March 31, 2024, as compared to the three months ended March 31, 2023. The increase reflects a full quarter of depreciation associated with our OPF hangar campus, which opened during the three months ended March 31, 2023. The increase was also partially driven by the placement of additional ground support equipment into service throughout 2023 and 2024 and a quarter of depreciation related to Rapidbuilt, which was acquired during the three months ended June 30, 2023.
General and Administrative Expenses
For the three months ended March 31, 2024, and 2023, general and administrative expenses were approximately $4.9 million and $3.5 million, respectively. The approximately $1.4 million, or 38%, increase was primarily due to an approximately $1.3 million increase in salaries, wages, and other benefits, driven by an increase in corporate headcount and expense recognized associated with our equity compensation programs. Headcount and compensation expenses increased approximately $0.7 million, non-cash equity compensation expense increased approximately $0.6 million, and professional fees increased approximately $0.1 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This increase in professional fees was partially attributable to the recognition of approximately $0.1 million of expense associated with the B. Riley Termination.
Other (Income) Expense
Other expense increased from approximately $4.1 million to approximately $16.0 million for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. This increase was primarily due to an approximately $12.0 million difference in the mark-to-market adjustment of the outstanding warrants at March 31, 2024 as compared to March 31, 2023.
Liquidity and Capital Resources
Overview
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund the construction of new assets, fund working capital and other general business needs. Our primary sources of cash include the potential issuance of equity and debt securities and rental payments from tenants. Our long-term liquidity requirements include lease payments under our ground leases with airport authorities, repaying principal and interest on outstanding borrowings, funding the construction costs of our hangar campus development projects (see “— Construction Material Costs and Labor”), funding for operations, and paying accrued expenses.
We believe that we have access to multiple sources of capital to fund our long-term liquidity requirements, including the incurrence of additional private activity bonds and other debt and the issuance of additional equity securities. We also have the ability to utilize our $100 ATM Facility or otherwise utilize our registration statement on Form S-3 to access the capital markets. However, as we have recently become a publicly-traded company, we cannot assure you that we will have access to these sources of capital or that, even if such sources of capital are available, that these sources of capital will be available on favorable terms. Our ability to incur additional debt will depend on multiple factors, including our degree of leverage, the value of our unencumbered assets and borrowing restrictions that are or may be imposed by future lenders. Our ability to access the equity and debt capital markets will depend on multiple factors as well, including general market conditions for real estate companies, our degree of leverage, the trading price of our common stock and debt and market perceptions about our Company.
Our cash deposits may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and the majority are maintained with a major financial institution with reputable credit. Our restricted cash is held in trust at a major financial institution pursuant to the Series 2021 Bonds indenture. We monitor the relative credit standing of financial institutions with whom we transact and limit the amount of credit exposure with any one entity. Our portfolio of investments and restricted investments is composed entirely of U.S. Treasury securities as of March 31, 2024.
The following table summarizes our cash and cash equivalents, restricted cash, investments, and restricted investments as of March 31, 2024 and December 31, 2023 (in thousands):
| March 31, 2024 | December 31, 2023 |
|||||||
| Cash and cash equivalents |
$ | 2,556 | $ | 60,257 | ||||
| Restricted cash |
99,453 | 12,009 | ||||||
| Investments |
36,990 | 11,866 | ||||||
| Restricted investments | 20,213 | 88,213 | ||||||
| Total cash, restricted cash, investments, and restricted investments | $ | 159,212 | $ | 172,345 | ||||
Private Placement and Securities Purchase Agreement
On November 1, 2023, we entered into a Securities Purchase Agreement (the “Private Placement Purchase Agreement”) with certain investors (collectively, the “Investors”), pursuant to which we (i) sold and issued to the Investors on November 2, 2023 an aggregate of 6,586,154 shares (the “Initial PIPE Shares”) of our Class A Common Stock and accompanying warrants to purchase up to 1,141,600 shares of Class A Common Stock (the “Initial PIPE Warrants”), for an aggregate purchase price of $42.8 million (the “Initial Financing”), and (ii) sold and issued to the Investors on November 29, 2023 an aggregate of 2,307,692 shares of our Class A Common Stock (the “Additional PIPE Shares” and, together with the Initial PIPE Shares, the “PIPE Shares”) and accompanying warrants to purchase an aggregate of 400,000 shares of Class A Common Stock (the “Additional PIPE Warrants” and, together with the Initial PIPE Warrants, the “PIPE Warrants”) for an aggregate purchase price of $15.0 million. Together with the Initial Financing, the aggregate PIPE financing through the Private Placement Purchase Agreement totaled approximately $57.8 million.
At-the-Market Facility
On March 27, 2024, we entered into an At Market Issuance Sales Agreement (the “ATM Agreement”) with B. Riley Securities, Inc. (“B. Riley”) with respect to an “at the market” offering program (the “ATM Facility”), under which we may, from time to time, at our sole discretion, issue and sell through B. Riley, acting as sales agent, up to $100 million of shares of Class A Common Stock. Pursuant to the ATM Agreement, we may sell the shares through B. Riley by any method permitted that is deemed an “at the market” offering as defined in Rule 415 under the Securities Act. B. Riley will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the shares from time to time, based upon instructions from us, including any price or size limits or other customary parameters or conditions we may impose. We will pay B. Riley a commission of 3.0% of the gross sales price per share sold under the ATM Agreement.
We are not obligated to sell any shares under the ATM Agreement. The offering of shares pursuant to the ATM Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through B. Riley, of all of the shares subject to the ATM Agreement and (ii) termination of the ATM Agreement in accordance with its terms. We have made no sales under the ATM Facility to date and will only do so when our stock price is at prices our board of directors deems appropriate.
Private Activity Bonds
On September 14, 2021, SHC completed an issuance through the Public Finance Authority (Wisconsin) of $166.3 million of Senior Special Facility Revenue Bonds (Aviation Facilities Project), Series 2021 (the “PABs”). The PABs are comprised of three maturities: $21.1 million bearing interest at 4.00%, due July 1, 2036; $30.4 million bearing interest at 4.00%, due July 1, 2041; and $114.8 million bearing interest at 4.25%, due July 1, 2054. The Series 2021 Bond that has a maturity date of July 1, 2036 was issued at a premium, and Sky received bond proceeds that were $0.2 million above its face value. The net proceeds from the issuance of the PABs proceeds are being used to (a) finance or refinance the construction of various aviation facilities consisting of general aviation aircraft hangars and storage facilities located and to be located on the SGR site, the OPF site, the BNA site, the APA site, and the DVT site; (b) fund debt service and other operating expenses such as ground lease expense during the initial construction period; (c) fund deposits to the Debt Service Reserve Fund; and (d) pay certain costs of issuance related to the PABs.
Debt Covenants
The PABs contain financial and non-financial covenants, including a debt service coverage ratio, a restricted payments test and limitations on the sale, lease, or distribution of assets. To the extent that SHC does not comply with these covenants, an event of default or cross-default may occur under one or more agreements, and we or our subsidiaries may be restricted in our ability to pay dividends, issue new debt or access our leased facilities. The PABs are collateralized on a joint and several basis with the property and revenues of all SHC subsidiaries and their assets financed or to be financed from the proceeds of the PABs.
Covenants in the PABs require SHC to maintain a debt service coverage ratio (as defined in the relevant documents) of at least 1.25 for each applicable test period, commencing with the quarter ending December 31, 2024. The PABs are subject to a Continuing Disclosure Agreement whereby SHC is obligated to provide electronic copies of (i) monthly construction reports, (ii) quarterly reports containing quarterly financial information of SHC and (iii) annual reports containing audited consolidated financial statements of SHC to the Municipal Securities Rulemaking Board. As of March 31, 2024, we were in compliance with all debt covenants.
Lease Commitments
The table below sets forth certain information with respect to our future minimum lease payments required under leases as of March 31, 2024 (in thousands):
| Year Ending December 31, | Operating Leases |
Finance Leases | ||||||
| 2024 (remainder of year) |
$ | 3,705 | $ | 21 | ||||
| 2025 | 5,342 | 24 | ||||||
| 2026 | 6,545 | 17 | ||||||
| 2027 | 7,075 | 2 | ||||||
| 2028 | 6,997 | - | ||||||
| Thereafter | 339,478 | - | ||||||
| Total lease payments | 369,142 | 64 | ||||||
| Less imputed interest |
(252,784 | ) | (4 | ) | ||||
| Total |
$ | 116,358 | $ | 60 | ||||
Contractual Obligations
The following table sets forth our contractual obligations as of March 31, 2024 (in thousands):
| 2024 |
||||||||||||||||||||
| (remainder |
||||||||||||||||||||
| of year) |
2025-2026 | 2027-2028 | Thereafter |
Total |
||||||||||||||||
| Principal payments on bonds payable |
$ | - | $ | - | $ | - | $ | 166,340 | $ | 166,340 | ||||||||||
| Interest payments on bonds payable |
3,470 | 13,881 | 13,881 | 114,968 | 146,200 | |||||||||||||||
| Contractual payments on other long-term indebtedness |
1,836 | 7,981 | 95 | - | 9,912 | |||||||||||||||
| Lease commitments |
3,726 | 11,928 | 14,074 | 339,478 | 369,206 | |||||||||||||||
| Total |
$ | 9,032 | $ | 33,790 | $ | 28,050 | $ | 620,786 | $ | 691,658 | ||||||||||
Funds to meet interest payments for the next three years on the Series 2021 PABs are held in reserve as restricted cash and restricted investments.
Off-Balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements.
Cash Flows
The following table summarizes our sources and uses of cash for the three months ended March 31, 2024 and 2023 (in thousands):
| Three months ended |
||||||||
| March 31, 2024 |
March 31, 2023 |
|||||||
| Cash and restricted cash at beginning of period |
$ | 72,266 | $ | 41,396 | ||||
| Net cash used in operating activities |
(4,430 | ) | (4,553 | ) | ||||
| Net cash provided by investing activities |
33,874 | 36,313 | ||||||
| Net cash provided by financing activities |
299 | - | ||||||
| Cash and restricted cash at end of period |
$ | 102,009 | $ | 73,156 | ||||
Operating Activities
Net cash used in operating activities was approximately $4.4 million for the three months ended March 31, 2024, as compared to cash used in operating activities of approximately $4.6 million for the same period in 2023. The $0.1 million decrease in cash used in operating activities was primarily attributable to an approximately $0.6 million decrease in net loss, net of non-cash adjustments. The decrease in net loss, net of non-cash adjustments was primarily driven by an increase in rental revenue. The decrease was offset by an approximately $0.5 million unfavorable change in the Company's working capital position, which was primarily driven by the timing of vendor payments and tenant receipts.
Investing Activities
Our primary investing activities have consisted of payments related to the cost of construction at our various hangar campus development projects and investment in U.S. Treasury Securities. As our business expands, we expect to continue to invest in our current and anticipated future portfolio of hangar campus development projects.
Net cash provided by investing activities was approximately $33.9 million for the three months ended March 31, 2024, as compared to cash provided by investing activities of approximately $36.3 million for the same period in 2023. The decrease of approximately $2.4 million of cash provided by investing activities was driven primarily by an increase of approximately $95.8 million of available for sale U.S. Treasury purchases, offset by increases of approximately $64.3 million and $27.9 million in proceeds received from the Company's available for sale and held-to-maturity investments, respectively. The decrease was further driven by an approximately $0.1 million increase in capital expenditures.
Financing Activities
Our primary financing activities have consisted of capital raised to fund the growth of our business and proceeds from debt obligations incurred to finance our hangar campus development projects. We expect to raise additional equity capital and issue additional indebtedness as our business grows.
Net cash provided by financing activities was approximately $0.3 million for the three months ended March 31, 2024, as compared to net cash provided by financing activities of $0 for the same period in 2023. The approximately $0.3 million increase in net cash provided by financing activities was primarily driven by $1.5 million of proceeds received from the exercise of Warrants during the three months ended March 31, 2024, offset by approximately $0.7 million and $0.4 million of payments associated with vested equity awards and loan principal payments, respectively.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.
| CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Form 10-Q, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
| LEGAL PROCEEDINGS |
The Company is not currently a party to any material legal proceedings.
| RISK FACTORS |
There have been no material changes in our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| MINE SAFETY DISCLOSURES |
Not applicable.
| OTHER INFORMATION |
During the three months ended March 31, 2024, director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K
| EXHIBITS |
| (a) |
See accompanying Exhibit Index included before the signature page of this report for a list of exhibits filed or furnished with this report. |
| Incorporated by Reference | ||||||||||
| Exhibit |
Description |
Schedule/ |
File No. |
Exhibit |
Filing Date |
|||||
| 3.1 |
Second Amended and Restated Certificate of Incorporation of Yellowstone Acquisition Company. |
8-K |
001-39648 |
3.1 |
January 31, 2022 |
|||||
| 3.2 |
8-K |
001-39648 |
3.2 |
January 31, 2022 |
||||||
| 10.1 (#) (+) | Lease and SASO Operating Agreement between the City of San Jose and SJC Hangars LLC. | |||||||||
| 10.2 (#) (+) | Lease Agreement between Orlando Executive Airport and SHOLA, LLC. | |||||||||
| 101.INS (#) |
Inline XBRL Instance Document. |
|
| 101.SCH (#) |
Inline XBRL Taxonomy Extension Schema Document. |
|
| 101.CAL (#) |
Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
|
| 101.DEF (#) |
Inline XBRL Taxonomy Extension Definition. |
|
| 101.LAB (#) |
Inline XBRL Taxonomy Extension Label Linkbase Document. |
|
| 101.PRE (#) |
Inline XBRL Taxonomy Presentation Linkbase Document. |
| 104 (#) |
Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document. |
| (#) |
Filed herewith. |
|
| (##) |
The certifications attached as Exhibits 32.1 and 32.2 that accompany this Report, are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Sky Harbour Group Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report irrespective of any general incorporation language contained in such filing. |
|
| (+) | Certain schedules and exhibits to this Exhibit have been omitted pursuant to Item 601(a)(5) or Item 601(b)(10)(iv), as applicable, of Regulation S-K. The Registrant agrees to furnish supplemental copies of all omitted exhibits and schedules to the Securities and Exchange Commission upon its request. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| SKY HARBOUR GROUP CORPORATION (Registrant) |
|||
| By: |
/s/ Tal Keinan |
||
| Tal Keinan Chief Executive Officer (Principal Executive Officer) |
|||
| May 14, 2024 | |||
| By: |
/s/ Francisco Gonzalez |
||
| Francisco Gonzalez Chief Financial Officer (Principal Financial Officer) |
|||
| May 14, 2024 | |||
| By: |
/s/ Michael W. Schmitt |
||
| Michael W. Schmitt Chief Accounting Officer (Principal Accounting Officer) |
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| May 14, 2024 | |||