Clear Skies Ahead For SkyHarbour Group (Issue #54)

Background/Introduction

I have already written a deep dive on Boston Omaha in which I mentioned the company sponsored a SPAC, Yellowstone Acquisition Company. Yellowstone has acquired a company called Skyharbour Group which went public in February of 2022 trading under the ticker symbol SKYH.

Company Overview

Started by an ex-Israeli Fighter Pilot turned investment banker SkyHarbour Group is a different kind of specialty REIT. SkyHarbour rents aircraft hangars to executive and private jet owners. These private jets are often owned by large companies as opposed to personal jets. The company was built to fill a gap in the market which has been created by many new jets being manufactured and bought and only a small number of jets and other planes being retired. This will inevitably create a discrepancy between the number of planes and storage for them. The company is also meant to provide higher-quality service and care to the jets compared to competitors.

The Opa-Locka (Miami) campus opened just this year bringing the total location count to 6 campuses. These include Denver, Houston, Miami, Nashville, Phoenix, and Dallas. Many of these are key airports or hubs. For example, most jets that fly into Los Angeles (LAX) are stored and remain in Phoenix until they need to be used. Here are the current hangar counts at each of the campuses:

• Denver will have 18 Hangars and Phase I is currently under construction since late last year and Phase II is set to start in August of this year.

• Houston will have 11 Hangars and completed Phase I in December 2020. Phase II will start construction in October of this year.

• Miami will have 12 Hangars and Phase I was just completed with Phase II starting this September.

• Nashville has 10 Hangars after completing both Phase I & II are completed on it as of November 2022.

• Phoenix will have 16 Hangars and Phase II for this location is set to start construction in November of this year.

• Dallas will have 6 Hangars and is set to start Phase I in June of this year.

Source: SkyHarbour Group Annual Report

At full capacity, the hangars can rent for my best estimate of ~$50 per sqft per month giving the company total revenue once after all phases of ~$600m. There is a long way to go before this, but including all their amenities and the typical rental rates for airplane hangars, it seems very possible.

Source: SkyHarbour Group Investor Relations

Looking Forward

“Sky Harbour entered a new phase over the past year, conducting simultaneous flight operations on multiple fields (Houston, Nashville, and Miami) for the first time. We commenced construction in two key jurisdictions (Denver and Phoenix) and executed a new ground lease in Dallas, one of the nation’s most attractive business aviation markets. The Sky Harbour organization has grown significantly, notably the Site Acquisition Team, responsible for driving the coming year’s ambitious growth plans. Our Development Team has managed an inflationary construction environment through flexibility and innovation. The Sky Harbour Finance Team has guided the firm through challenging economic conditions, successfully avoiding the liquidity and counterparty risks of the past quarter. Taking three airfields through the full development cycle, site acquisition through flight operations, has given Sky Harbour the opportunity to validate its business model, refine its methods and processes, and position its team for accelerated growth in the years ahead.”

• Tal Keinan, Chairman and CEO SkyHarbour Group on the past year

SkyHarbour has had goals for each of its funding rounds. For example, the company issued bonds in 2021 that were meant to get them to 5 campuses. Then the IPO through Yellowstone Acquisition Company is meant to bring the campus count over 20. The total addressable market  (TAM) for the company is projected to be 50 campuses/locations. While these do not seem like monstrous numbers each campus drives significant revenue that shouldn’t be underestimated.

As each location becomes developed and put into use the company makes more plans to expand each campus. This is one growth engine in the short term for the company, but in the long term, growth will come from completely new developments at additional airports as well as higher rates due to prime locations of hangars as density increases. This is all down the line a ways as the company is still getting to scale.

Valuation

When I initially invested in Skyharbour through the Yellowstone Acquisition Company it was a promise of future results. It was almost as much of a promise on the operators as the SPAC itself. Now as there an increasing number of campuses are opening and some are even expanding the company is looking better.

Source: SkyHarbour Group Investor Relations

Speaking of promises here are the projected revenues for the company. The year most investors are waiting for is 2025 because that’s supposed to be the first day of profitability and the first year of significant revenues. Also, all sights are expected to have completed at least Phase I of development during 2024. These projections have been continually increased so it will be important to watch them going forward and of course, follow the actual returns.

Ways To Invest

I haven’t talked very much about the different ways you can invest in opportunities or the vehicles I use. Before we begin as we know this is not financial advice, especially about investment vehicles. Always do your own research. With that said there are two main ways that I invest in SkyHarbour—first, the standard of simply owning shares in the company. Second, while this is no longer offered I purchased warrants in the company which doesn’t activate until the stock hits ~$11.60. For a long-term reasonable estimate of the stock hitting ~$20 per share this vehicle would yield a sizable return.

Investment Thesis

I invested in SkyHarbour back when it was still in SPAC form. The warrants seemed like a no-brainer at $0.55 for the rights to a whole share starting at $11.50. SkyHarbour is not a mega long-term investment. That said in terms of my investing style a 5-year investment is not very long-term. As SkyHarbour gets to scale and proves what they have promised is where I see the catalyst for growth.

Disclaimer: Soren Peterson and/or Pillars And Profits Newsletter are not responsible for any investment results. Soren Peterson and/Pillars And Profits Newsletter may have holdings in companies discussed in this newsletter. Always do your own research